In a worrying sign for CEE, Austria's central bank is again fretting over the region's effect on Vienna-based banks, warning that their profit has taken a large hit through write downs on their foreign subsidiaries.
Austria's banks earned a consolidated net profit of just €710m in 2011, Oesterreichische Nationalbank said according to Dow Jones, an 84.5% decrease year on year. Stagnating operating profits also contributed to the decrease, the central bank said. Net trading income decreased by 16.1% in 2011 to €1.92bn, while administration costs increased 2.4% to €16.59bn. The operating result fell 23.1% on the year to €3.11bn, the central bank said.
The country's banks are heavily involved in CEE, and dominate much of the market in some countries. Hence the anger that followed instructions from Austria's central bank late last year to the likes of Raiffeisen and Erste to set limits on cross-border funding to CEE units. The move - motivated by threats to Austria's 'AAA' sovereign rating - clearly threatened to drag on already slowing lending in the region, thereby adding a further dampener to economic growth.
Although one Raiffeisen board member told bne in January that the limits were not being enforced, the region could do without further pressure on foreign owned banks. CEE countries are clearly concerned; POland, for instance, has been extremely strong in insisting parent banks - which are facing an urgent need for capital to meet new capital adequacy ratios set by the EU - refrain from syphoning cash from their local units.
However, whilst the Polish sector joins Czech and Slovak peers in exhibiting remarkable stability, the banks are struggling in other markets. Oesterreichische Nationalbank points out that positive business in some countries have helped soften the blow of huge losses in the likes of Hungary and Romania.