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2019 | OriginalPaper | Chapter

3. Co-operative Banking in Austria

Author : Federica Poli

Published in: Co-operative Banking Networks in Europe

Publisher: Springer International Publishing

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Abstract

Co-operative banking developed rapidly in Austria during the second half of the nineteenth century, following the ideas and principles of Schulze-Delitzsch and Raiffeisen. Today, the prevailing “alternative nature” of Austria’s highly competitive banking sector is demonstrated by the market dominance of two co-operative networks, Raiffeisen banks and to a lesser extent Volksbanks, which together provide almost 82% of the country’s total banks. Overall, in the period 2008–2017 the co-operative model shows significant differences in terms of higher capital and liquidity and lower investment space allocated to securities. It turns out to be slightly less involved in lending to customers when compared with the peer non-co-operative groups. However, if we turn to the credit risk exposure of the co-operative sector and the profitability results obtained from it, we find that the combination of risks and returns for the various bank models is rather similar over time. Additionally, co-operative banks (CBs) maintain a degree of operational inefficiency that is significantly higher than that of their peers among the joint-stock and savings banks.

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previous chapter Co-operative Banking Networks: Rationalities and Models

next chapter Co-operative Banking in Finland

According to the definition provided by the ECB, MFIs form the money-issuing sector of the Eurozone. These include the Eurosystem, resident credit institutions, and all other resident financial institutions whose business is to receive deposits and/or substitutes for deposits from entities other than MFIs and, on their own account (at least in economic terms), to grant credit, and/or invest in securities. The latter group consists predominantly of money market funds.

Excluding the data of the European System of Central Banks (ESCB).

These two indicators were 3.6% and 70.2%, respectively, in 2008 (ECB 2017).

Banking asset declines were recorded in Greece (−13.9%), Ireland (−8.9%), Cyprus (−8%), Latvia (−7.9%), and Portugal (−5.3%) (ECB 2017).

ECB’s data reported in the Report on Financial Structures (ECB 2017).

In October 2008, the recapitalization of systemically important financial institutions up to € 15 billion was allowed by the Financial Market Stabilization Act (FinStaG). Capital injections reached € 5.9 billion in December 2012 (IMF 2014), while bank funding guarantees were introduced up to € 75 billion (IMF CitationRef CitationID="CR16">2013</CitationRef>).

A nationalization of Austrian banks took place during 2008–2009. Kommunalkredit Austria AG, Austria’s eighth largest bank held by Österreichische Volksbanken AG and the Belgian-French Dexia Crédit Local, with a total balance sheet of € 34.5 billion, was the first company to be acquired under the Financial Market Stabilization Act. It was followed by the Hypo Group Alpe Adria, the country’s sixth largest bank by assets with about € 40 billion (held by BayernLB, a state-controlled German bank) and by the partial nationalization of Österreichische Volksbanken which will be detailed in the following pages.

Own calculations on data disclosed by Raiffeisenlandesbank Niederösterreich-Wien (2018) for the RBG’s assets and consolidated banking assets of Austria as reported in the National Bank of Austria’s statistics at the end of 2017.

Own calculations on consolidated banking assets reported in the Annual Report of the Association of Austrian Volksbanks at the end of 2017 and consolidated banking assets of Austria as reported in the National Bank of Austria’s statistics at the end of 2017.

Law April 9, 1873, n. 70/1873, on purchase and economic co-operatives.

See the history of the network reported on the website of Raiffeisen Bank International (RBI) https://www.rbinternational.com/.

As part of the resulting restructuring process undertaken by the sector, Volksbank International AG was sold to Russian Sberbank in February 2012.

The stake in Kommunalkredit AG was sold to the Austrian Federal Government in November 2008 for a symbolic € 1. As several CESEE countries slid into deep recession in 2008 (e.g. Romania, Hungary, and Latvia), banks exposed to CESEE suffered collapsing asset values and the destruction of shareholder value. OVAG was largely hit by the CEE crisis.

This historical reconstruction is made by Coppola (2015), https://www.thenews.coop/95508/sector/lesson-behind-austrian-co-op-banking-disaster/.

The Raiffeisen Landesbanks and direct and indirect subsidiary companies of the Raiffeisen Landesbanks are parties acting in concert within the meaning of section 1 sub-para. 6 of the Austrian Takeover Act (Übernahmegesetz) on the basis of a syndicate agreement in relation to RBI. The syndicate agreement includes inter alia a block voting agreement for all matters subject to a resolution of the RBI shareholders’ meeting, agreement with respect to rights of nomination to the Supervisory Board of RBI, and agreement of preemption rights between the parties to the syndicate agreement. Furthermore, it is agreed that for a period of three years following the date on which the merger of RZB and RBI takes effect, sales of RBI shares held by the Raiffeisen Landesbanks (with a few exceptions) are subject to contractual restrictions in the event that as a result the aggregate (direct and/or indirect) shareholding of the Raiffeisen Landesbanks in RBI falls below 50% of the share capital plus one share (thereafter the shareholding threshold reduces to 40% of the share capital of RBI). See RBI’s shareholder structure as reported in company’s website.

The Act is available at https://www.fma.gv.at/en/national/supervisory-laws/.

Profits allocated to these instruments shall be a predefined multiple of the dividend on a share of profit attributable to a co-operative share with a voting right.

Taken from Investor Presentation of Raiffeisen Bank International (RBI 2018).

As reported in RBI’s Annual Report for the year-end 2017.

It includes customer deposits, bonds, and promissory note loans.

For further details, see the Annual Report of the Association of Volksbanks for the year-end 2015.

Figure reported in the company presentation of Raiffeisenlandesbank Niederösterreich-Wien AG in June 2018.

Our calculations on figures reported in the Annual Report of Raiffeisen Bank International for the year-end 2017.

Data include independent savings banks which are members of the Haftungsverbund (cross-guarantee system) of Austrian savings banks. The Erste Bank Group is a listed joint-stock corporation. More than about 53% of its shares are held by institutional investors and the remainder by a foundation, by private investors, by other Austrian savings banks, and by savings bank employees (see Annual Report for the year-end 2017). Thus it is more exposed to the pressure of the stock market than the other institutions in the savings bank system. The principle of “one head, one vote” is applied (see Annual Report).

It is worth mentioning that Austria retains the largest share of the aggregate CESEE-related claims of EU-15 banks, with about 22% at the end of September 2017 (Österreichische Nationalbank 2018).

Prior to Basel 3 coming into force, the minimum value of the Tier 1 ratio was 4%.

The average customer loan values shown in this section differ from that indicated in Table 3.4. This is particularly evident in the last analysis period, 2014–2017. For both the apex and the network, values of less than 60% are recorded, compared to values above 65% according to data published by EACB (Table 3.4). We believe this may be attributable, for the most part, to the limited sample coverage offered by the BankScope and Orbis Bank Focus databases. In fact, out of the just over 400 Raiffeisen banks existing at the end of 2017, the available databases cover only around 25%.

On 1 October 2008, temporary unlimited coverage was set for individuals (until 31 December 2009); for non-individuals no changes except raising coverage for SMEs to € 50,000. The law of 20 October 2008 set the level for individuals at € 100,000 (from 1 January 2010). The law of 16 June 2009 raised the level for non-individuals to € 100,000 (from 1 January 2011) and discontinued co-insurance (from 1 July 2009). See European Commission (EC) (2010).

Once again, our data diverge from what is reported in Table 3.4 but to a lesser extent.

The funding gap is calculated as the ratio between the ratio of net customer loans to total assets (%) reported in Table 3.6 and the ratio of deposits from customers to total assets (%) reported in Table 3.7.

Ibidem.

The ratio was 11.9% in 2015 and 11.4% in 2014.

For further details, see the Annual Report of RBI for the year-end 2017.

This test is also known as Wilcoxon ranksum test or Mann-Whitney U test.

The sample of independent Volksbanks comprises Volkskreditbank AG-VKB Bank, DolomitenBank Osttirol-Westkärnten, Volksbank Marchfeld, and two Volksbanks subject to aggregation (Volksbank Gailtal and Volksbank Gmuend).

Data were extracted from BankScope and Orbis Bank Focus solely for the year-ends 2016–2017. The sample of individual Raiffeisen banks consists of 134 CBs until 2015 and 99 CBs in 2016–2017. The sample of Volksbanks is made up of 29 Volksbanks until 2014, 16 in 2015, 8 in 2016, and 7 in 2017.

Own calculations on data on customer deposits to total assets (%) refer to the segment of Volksbank Wien responsible for the performance of its activities as the central institution indicates that the percentage of deposits ranges from almost 15% in 2014 to about 10% in 2017.

Association of Volksbanks. (2015). Annual Report.

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Title: Co-operative Banking in Austria
Author: Federica Poli
Publisher: Springer International Publishing
Book: Co-operative Banking Networks in Europe
Print ISBN: 978-3-030-21698-6

Electronic ISBN: 978-3-030-21699-3

Copyright Year: 2019
DOI: https://doi.org/10.1007/978-3-030-21699-3_3