THE SHARE OF OUTSTANDING LOANS BY NBFCS VIS-A-VIS THE OUTSTANDING LOANS BY BANKS IN AUSTRIA

THE SHARE OF OUTSTANDING LOANS BY NBFCS VIS-A-VIS THE

OUTSTANDING LOANS BY BANKS IN AUSTRIA

(Project towards partial fulfilment of the assessment in the subject of lsquoCorporate

Finance Law Policy and Practice)

Finance Part ndash IX Semester

No of Words- 12036

SUBMITTED TO SUBMITTED BY

Dr Rituparna Das Nitish Kaushik (776)

Associate Professor Asst Dean Preethika Gidia (778)

Faculty of Policy Science Sukanya Bhattacharya (780)

National Law University Jodhpur Vinayak Panikkar (782)

Kartikay Khetarpal (773)

Mahima Minocha (774)

National Law University Jodhpur

Summer Session

(July - November 2014)

2

ACKNOWLEDGEMENT

Apart from the efforts put in by us the success of this

project depends largely on the encouragement and guidelines of

many others We take this opportunity to express our gratitude

to the people who have been instrumental in the successful

completion of this project

We would like to show our deepest gratitude to Dr Rituparna

Das for giving us an opportunity to work on this project

Without his encouragement and guidance this project would not

have materialized

We would also like to thank the library staff of NLU Jodhpur

for providing us with all the essential research material

which we required during the course of this project

This acknowledgement will be incomplete without thanking our

parents and friends who always held us back their

encouragement has been instrumental in motivating us and

making this project a success

3

TABLE OF CONTENTS

ACKNOWLEDGEMENT2

INTRODUCTION4

BANKING SECTOR OF AUSTRIA7

The Domestic Market8

Foreign Loans9

SHARE OF OUTSTANDING LOANS BY BANKS IN AUSTRIA11

Risks to financial market stability remain13

Swiss Franc-Denominated Loans Granted by Austrian Banks 13

The Breakdown of the Unsecured Swiss Franc Interbank Money

Market16

Capital Market Issuance ndash an Important Source of Funding 16

Secured Markets ndash a Reliable Source of Funding in Turbulent

Times16

Further Official Funding via the SNB-ECB Swap Facility 18

National Banking Sector Description of Austria19

Efforts are Necessary to Strengthen the Resilience of the

Banking Sector21

Wave of Bad Loans tied to Eastern Europe22

Lending behaviour of small and medium sized Austrian banks 24

SHARE OF OUTSTANDING LOANS BY NBFCs IN AUSTRIA25

Corporate Ownership Structure in Austria27

Lending Concentration30

4

Internal Rates of Return31

CONCLUSION32

5

INTRODUCTION

Financial system stability requires that the principal

components of the system ndash including financial institutions

markets and infrastructures ndash are jointly capable of absorbing

adverse disturbances It also requires that the financial

system facilitates a smooth and efficient reallocation of

financial resources from savers to investors that financial

risk is assessed and priced reasonably accurately and that

risks are efficiently managed By laying the foundations for

future vulnerabilities inefficiencies in the allocation of

capital or shortcomings in the pricing of risk can compromise

the future stability of the financial system

The Austrian banking system is in a recovery phase following

the 2008ndash2009 global financial crisis The financial crisis

exerted significant pressure on Austriarsquos financial system

Substantial liquidity and capital support was provided by the

government and three mid-sized domestic banks were fully or

partly nationalized However Austrian banks on the whole have

benefited from limited exposures to sovereign and market

risks a stable funding structure and relatively favourable

domestic macroeconomic conditions In CESEE countries

Austrian banks have not resorted to large-scale deleveraging

notwithstanding somewhat weaker growth recent volatility and

rising vulnerabilities including high and rising NPLs Crisis

legacy issues have been addressed through the gradual

restructuring of intervened banks Stress testing results

suggest that Austrian banks on aggregate have sufficient

6

capital buffers to withstand severe but plausible shocks from

adverse macroeconomic developments Under the most severe

scenario the estimated total capital shortfall amounts to 1

percent of GDP The results of the solvency stress test

reflect comfortable initial capital buffers built in response

to the crisis in part because of de-risking of balance

sheets and in part due to banksrsquo recapitalization efforts

through increased retained earnings However these results

need to be interpreted with caution given asset quality

particularly in some CESEE countries are still deteriorating

and difficult to assess with full confidence The upcoming

bank asset quality reviews by the ECB should provide a more

robust basis for assessing the strength of the balance sheets

of Austrian banks and the policy responses that may be needed

Also the three-year stress testing horizon does not consider

the repayment of state participation capital which benefited

from a grandfathering clause under the Basel III phase-in

transitional schedule (until 2018) or the potential

implementation of a capital surcharge on domestic systemic

institutions (from 2016 on) More generally stress tests are

subject to a number of methodological limitations that should

be kept in mind when interpreting their results The banking

sector appears well positioned to meet Basel III capital

requirements On aggregate the banking sector would

comfortably pass the hurdle rates laid out by the Basel III

phase-in arrangements for CET1 under the most severe scenario

Capital buffers above the minimum Tier 1 capital ratio are

somewhat thinner as Austrian banks hold limited amounts of

7

non-common equity Tier 1 qualifying capital in the form of

private preferred stock and minority interests Austrian

banksrsquo funding structure appears resilient across major

currency buckets Under a severe 30-day funding stress

scenario the total liquidity shortfall is estimated at only

01 percent of total liabilities Liquidity stress tests show

that the foreign currency liquidity position of the system has

substantially improved since 2008 although some banks will

have to continue their efforts regarding their CHF funding

The improvement in the liquidity position of Austrian banks

can be attributed to enhanced liquidity supervision and

monitoring by the OeNB and strengthened supervisory standards

of banksrsquo liquidity risk management The Austrian banking

system is also robust to funding and contagion shocks based on

network analysis Large banking groups do not experience

losses due to their strong counterbalancing capacity as well

as to the network structure of the Austrian interbank market

The impact on capital adequacy for the whole banking system is

not material and is driven primarily by fire sales rather than

by rising funding costs or contagion defaults1

Non-bank financial institutions (NBFI) also played an

important role in the build-up and transmission of risks

leading up to the financial crisis As a result since the

onset of the financial crisis policy-makers have focused on

gaining a better understanding of the nature and role played

1 Alissa M Winkler Peter R Haiss Post-Crisis Business Models of Austrian Banks inCentral and Eastern Europe Available athttpwwweefseuconfathensPapers558pdf (Last visited on October 152014)

8

by NBFIs and their potential contribution to systemic risk

The literature identifies four key-risk originating and

transmission channels Firstly NBFIs generate product risk

through the production of structured products especially

involving securitisation The recent financial crisis has

clearly shown that due to a lack of understanding of the

risks embedded in a number of securitised assets many banks

and NBFIs held assets that turned out to be much more risky

than originally thought such as for example various mortgage

structure products On the eve of the financial crisis these

holdings represented a substantial build-up of risks

threatening financial stability Secondly some NBFIs are

highly inter-connected with banks and other non-bank

financials This inter-connectedness implies that financial

distress at the level of an individual non-bank financial

institution can transmit to other financial institutions

(banks and non-banks) via counterparty risk generating

distress at the level of the financial system as a whole

Thirdly some NBFIs were very large Any financial distress at

one of these institutions (the distressed institution) may

also result in financial distress at the level of the

financial system Market participants may be uncertain as to

the extent to which the distressed institution is connected to

other financial institutions and creates risks for the latter

As a consequence uncertainty or mistrust affects the

financial system as a whole as many financial institutions

could pose counterparty risk Fourthly in instances in which

NBFIs experience distress or fail altogether the liabilities

9

of that non-bank financial institution held by other financial

institutions have to be written down For NBFIs such as

pension funds and other investment funds there are two

consequences Firstly there is the direct effect of the loss

in value of some of the assets held Secondly many pension

funds will not invest in non-AAA-rated assets Other funds may

advertise to customers that they only hold high-grade assets

Thus if these assets are downgraded they have to be disposed

of which puts further downward pressure on their prices This

in turn will affect the balance sheets of all financial

institutions holding such assets So-called fire sales of

assets also occur when some financial institutions (banks or

non-banks) find themselves liquidity constrained and dispose

some of their assets rapidly Typically such a course of

action tends to depress the price of these assets and thus

generate a negative feedback loop to all institutions holding

such assets if the latter are held for trading or are for sale

(ie have to be marked to market) Under these

circumstances it is important to note that even if the

banking sector does not hold problem assets they are likely

to be affected by the general downturn resulting from these

events The value of marked-to-market assets would fall

reducing their capital and limiting the extent to which they

can lend or invest in new assets This impacts the real

economy and also influences wholesale funding conditions that

places particular strain on highly leveraged financial and

NBFIs (eg certain hedge funds and private equity

firms)Overall NBFIs played important and multi-faceted roles

10

in the build up and transmission of the recent financial

crisis As highlighted above this could be through

counterparty risk as a consequence of size and inter-

connectedness excessive leverage and product risk among

other reasons Part of the difficulty of assessing the impact

of NBFIs on financial stability is the wide range of

institutions involved The sector of NBFIs is defined as

including insurance undertakings pension funds and other

financial intermediaries (OFIs) The latter group includes

financial institutions engaged in the securitisation of

assets securities and derivatives dealers (operating on own

account) and specialised financial institutions (eg hedge

funds venture capital firms etc) The definition of the

NBFIs sector is very similar to the one used in a recent ECB

Occasional Paper on the shadow banking in the eurozone but

differs from the definitions used in recent US papers such as

for example Adrian and Aschcraft who define shadow banking as

comprising all institutions which undertake credit

intermediation without direct explicit access to public

sources of liquidity and credit guarantees2

BANKING SECTOR OF AUSTRIA

The Austrian banking sector has a high exposure to the

Central Eastern and South-eastern European (CESEE) countries

These operations generate the major part of the profits of

Austrian banks but are also subject to a higher credit risk

against which higher loan loss provisions are taken Moreover

local lending by these subsidiaries is often refinanced2 Ibid

11

through intra-group transfers (ie funded by the Austrian

banking group An indicator of the increased use of these

liquidity facilities is the buildup of net liabilities in the

Target2 system which doubled since the global financial

crisis but recently stabilized at EUR 40bn (about 133 of

GDP) In order to reduce the risks to the Austrian banking

system stemming from foreign operations new guidelines were

introduced in 2012 by the regulators Banks have to increase

their capital buffers and attract more local funding for their

subsidiaries Banks also have to prepare recovery and

resolution plans The operations in the CESEE countries still

have high NPL ratios Whereas the domestic NPL was 46 in

June 2012 the NPL-ratio of the subsidiaries was 159 mainly

driven by problems in foreign-currency denominated loans

provided by the subsidiaries in the CESEE countries (NPL ratio

of 197) The current difficulties in many of these countries

will probably lead to more non-performing loans going forward

The subsidiaries increased their loan loss provisions (to

106 of total outstanding loans) to cover future losses

Whether this will be enough is still to be seen

The Austrian banking system is also facing some domestic-

related risks The sector is characterized by its high number

of banks branches and bank employees per capita leading to a

high degree of competition higher costs and therefore low

profit margins in the domestic market Whereas household debt

is relatively low (87 of disposable income at mid-2012)

compared to the European average (106 in the first quarter of

12

2012) it has some risky characteristics Household debt

consists mainly of variable rate loans (initial rate fixation

less than 1 year) In 2012 86 of new loans had variable

rates Moreover a relatively large share of the debt is

denominated in a foreign currency and is often not hedged In

the period from 1995 up to 2008 a major part of Austrian

mortgages were denominated in Swiss francs since then the

amount of foreign-currency loans is gradually declining due to

a ban on these products for households without income in the

same currency Summarized the main risks for the Austrian

banking sector are related to their foreign subsidiaries but

the domestic market also bears some risks Further reform

measures and higher capital buffers are necessary to make the

sector more resilient to downside risks3

The Domestic Market

In Austria housing finance is mainly raised from banks and

Bausparkassen with the Bausparkassen being the leading

residential mortgage lenders in the Austrian market whereby

the savings bank group (including their Bausparkassen branch)

have the largest market share of the Austrian mortgage market

The mortgage market expanded since 2001 till 2007 quite

rapidly The mortgage debt to GDP ratio increased from 137

per cent in 2001 to 239 per cent in 2007

In Austria the usual maximal loan-to-value (LTV) ratio

amounts to 70 per cent though Bausparkassen hypothecate up to

3 See httpseconomicsrabobankcompublications2013maycountry-report-austria

13

a LTV ratio of 80 per cent and their loans are usually placed

as second lien mortgages to provide favourable conditions for

further mortgages needed According to a central bank study

over 65 per cent of new home loans were issued at variable

rates in 2007 though this high level has been falling back to

54 per cent till the end of 2008 Furthermore a considerable

share of the mortgage credits (around 30 per cent in 2008) was

denominated in foreign currencies In the course of the

financial crisis the Austrian Financial Market Authority

restricted the possibility to raise a foreign currency loan

for private households as the Authority assumes that private

households are usually not able to properly assess the

risk inherent to foreign exchange loans Banks may only offer

foreign currency loans if their customer has a steady income

in the respective foreign currency House prices have been

quite stable though they were increasing from 2005 to 2007 by

3 to 4 per cent annually So far house prices did not decline

in the course of the financial crisis Austria has a

contractual savings system the Bauspar system which is

characterized by low interest rates on loans and a government

interest premium paid on savings It is offered by specialised

credit institutions the Bausparkassen The government grants

an interest premium between 3 to 6 per cent of the amount

saved (up to a set maximum) The actual size of the premium is

readapted every year according to the interest rates on the

Austrian capital markets (2009 4 per cent 2010 35 per

cent) Most mortgage lending is still financed through

deposits Outstanding Covered Bonds represented only 64 per

14

cent of the outstanding mortgage debt and

the securitisation of mortgages played an even smaller role4

Foreign Loans

Foreign currency lending started to become popular among

nonbank borrowers especially households in Austria in the

mid-1990s While the share of foreign currency lending made up

only 1 of total loans to households at the beginning of 1995

it had risen to more than 31 by mid-2006 and had hovered

around 30 until mid-2011 Due to the strong appreciation of

the Swiss franc until the summer of 2011 the peak in the

outstanding volume (in absolute terms) was reached in July

2011 when EUR 62 billion of loans to domestic nonbanks were

denominated in a foreign currency primarily in Swiss francs

Loans to households accounted for the lionrsquos share ndash EUR 42

billion ndash of this amount Real demand for new foreign currency

loans started to decline in August 2008 which can be

attributed to the financial crisis to developments in foreign

exchange markets that brought to the fore the risks of foreign

currency loans and also to Austrian authorities starting to

implement a stricter stance on foreign currency lending

Nevertheless the strong appreciation of the Swiss franc in

2010 and 2011 increased the euro value of the outstanding

loans and thus prevented a noticeable decline in outstanding

volumes Now these outstanding volumes are to a large extent a

legacy of the past Over the past few years various

supervisory initiatives in Austria succeeded in almost

completely stopping the issuance of new Swiss franc-4 See httpwwwhousing-finance-networkorgindexphpid=279

15

denominated loans the ldquoExtension of the FMA Minimum Standards

for Granting and Managing Foreign Currency Loans and Loans

with Repayment Vehiclesrdquo issued in spring 2010 requests banks

ndash inter alia ndash to restrict new foreign currency lending to

domestic households with a natural hedge or with the highest

credit worthiness However due to long residual terms to

maturity the outstanding volume will continue to be a

challenge to financial stability in Austria Three quarters of

foreign currency loans of domestic households and nonfinancial

corporations outstanding in mid-2011 had a remaining maturity

of more than five years and more than 80 of these loans were

bullet loans (ie loans whose principal is paid back at the

end of the loan term) As far as Central Eastern and South

eastern Europe (CESEE) and the countries of the Commonwealth

of Independent States (CIS) are concerned Austrian banks

committed themselves under the ldquoGuiding Principlesrdquo (issued by

the Austrian Financial Market Authority (FMA) and the OeNB in

early 2010) to refrain from granting new non-euro denominated

(non-US dollar-denominated in CIS) foreign currency loans to

unhedged households and small and medium-sized enterprises

Foreign currency loans taken out by Austrian households also

have another distinctive feature More than 70 are bullet

loans linked to repayment vehicles Borrowers pay monthly

instalments for investment in separate repayment vehicles

(predominantly capital market-orientated types of investment

eg mutual funds or life insurance contracts) which are

expected to cover the total outstanding loan at maturity

Therefore private foreign currency borrowers in Austria very

16

often act as carry traders without having at their disposal

the methods and knowledge of professional carry traders The

largest share of foreign currency loans to Austrian nonbank

borrowers was and still is denominated in Swiss francs there

was only one short period at the beginning of the 2000s when

loans denominated in Japanese yen were nearly as popular

Since mid-2004 Swiss franc loans have accounted for 85 or

more of the total of foreign currency loans to Austrian

nonbanks (and for solidly over 90 in the case of households)

At the end of June 2012 the total volume of Swiss franc loans

to nonbank borrowers made up EUR 47 billion (CHF 56 billion)

of which EUR 34 billion (CHF 41 billion) were owed by

households Besides the foreign currency loans to domestic

customers Austrian banks also have a substantial foreign

currency exposure in CESEE and the CIS In CESEE and the CIS

the Swiss franc plays a less prominent role however Of the

EUR 86 billion of foreign currency loans granted by Austrian

subsidiaries to households and nonfinancial corporations by

mid-2012 EUR 16 billion (CHF 19 billion) or 19 were

denominated in Swiss francs Euro loans on the other hand

accounted for EUR 50 billion (58) and US dollar loans for

EUR 19 billion (22)Cross-border loans are the third aspect

to be considered when analyzing Swiss franc-denominated

lending by Austrian banks At the end of June 2012 the total

volume of cross-border loans outstanding to foreign nonbanks

was EUR 7 billion (CHF 9 billion) of which EUR 2 billion (CHF

2 billion) went to the CESEE and CIS region and EUR 3 billion

(CHF 4 billion) to Switzerland Altogether in mid-2012 the

17

outstanding amount of Swiss franc loans granted by Austrian

banks to nonbanks came to EUR 68 billion (CHF 81 billion)

which due to the lack of a customer deposit base in Swiss

francs needs to be refinanced by various other (non-deposit)

sources5

SHARE OF OUTSTANDING LOANS BY BANKS IN AUSTRIA

The banking sector is relatively large compared to the size of

the economy and significantly exposed to CESEE countries in

contrast to more limited exposure to troubled peripheral euro

area countries Concerns of generalised deleveraging of

Austrian banks in the CESEE have not materialised On the

contrary Austrian banks continued to increase their overall

exposure to countries in the region residents of which still

hold large foreign currency (predominantly euro) loans

However developments were not uniform and the exposure of

Austrian banks to some CESEE countries with high political and

economic risks decreased These activities contribute to the

profitability of Austrian banks but they also imply higher

risks as illustrated by the increase in loan loss provisions6

The authorities have introduced several measures to increase

the resilience of large internationally active Austrian banks

For example in March 2012 they introduced a regulatory

guideline (currently concerning Erste Group Bank Raiffeisen

Zentralbank and UniCredit Bank Austria) which calls for the

5 Raphael A Auer Seacutebastien Kraenzlin David Liebeg ldquoHow Do AustrianBanks Fund Their Swiss Franc Exposurerdquo FINANCIAL STABILITY REPORT 24 ndashDECEMBER 20126 Aghion Ph (2012) Growth and The Smart State Annual Lecture HarvardUniversity mimeo

18

implementation of the Basel III capital standards already in

2013 and submission of group wide recovery and resolution

plans to promote quick restructuring in the event of a crisis

The guideline aims at avoiding boom-bust cycles in lending by

requesting banksrsquo CESEE subsidiaries to enhance stable funding

from local sources mainly deposits At the same time the

initiative Vienna 20 was launched in February 2012 The new

initiative focuses on fostering co-ordination between home and

host financial market regulators in addition to the private

sector co-ordination of its predecessor (Vienna Initiative)

set up during the global crisis By covering the whole CESEE

region it allows for co-operation with countries outside EU

regulations and umbrellas7

In May 2013 the Austrian government approved a legislative

proposal on bank intervention and restructuring The law

foresees early warning mechanisms commits banks to write last

wills in order to facilitate their restructuring and

strengthens the pre-emptive powers of the financial

supervisor The proposal does not include a mechanism to wind

up bankrupt banks In this respect Austria will likely adopt

the future EU rules that are currently under discussion

Loan growth to non-financial corporations has been subdued for

several quarters Nevertheless credit growth has stayed

consistently above the euro area rate According to the euro

area bank lending survey Austrian banks tightened their

7 BMLFUW (Bundesministerium fuumlr Land- und Forstwirtschaft Umwelt undWasser) (2002) A Sustainable Future for Austria The Austrian Strategy forSustainable Development downloadable atwwwnachhaltigkeitatfilemanagerdownload40505

19

credit standards for loans to non-financial corporations

slightly for the fourth time in a row in the first quarter of

2013 At the same time banks have also observed a decline in

loan demand over the last seven quarters

Foreign currency loans in the domestic market pose potential

risks to Austrian financial stability Since 2008 regulatory

standards concerning new foreign currency loans have been

tightened several times However the stock of foreign

currency denominated loans (mainly Swiss Francs) is still

considerable As of September 2012 the share of foreign

currency loans in total outstanding loans to households and

non-financial corporations was 25 and 7 respectively

Moreover outstanding foreign currency loans to households

were in large part designed as repayment vehicle loans ie

the principal is paid back at maturity and capital for

repayment is accumulated through investment in financial

products Potential price fluctuations of these financial

products add further risks to this type of loans

Two medium-sized banks have had to be fully nationalised since

the onset of the global crisis and one of the five largest

banks was partly nationalised In 201112 some of the

participation capital (ie non-voting equity capital with

preferential dividend payments) that was initially provided

had to be written off andor converted into common Tier 1

equity and additional capital injections became necessary to

comply with regulatory requirements Besides these measures

participation capital was also provided for the two largest

banks none of which has yet repaid these funds As of20

September 2012 the total amount of capital injections and

participation capital reached EUR 8 billion (26 of GDP)

Dividends on participation capital are rising over time

providing strong incentives for repayment In addition the

outstanding guarantees for debt and equity vehicles amount to

more than EUR 12 billion (39 of GDP) (Schratzenstaller

2013) As of May 2013 the nationalised banks were in the

process of being restructured ndash including dealing with bad

assets- in order to comply with the EU competition law The

privatisation process has started and further restructuring

plans have been submitted to the European Commission

Overall the Austrian banking sector strengthened its capital

position Austrian banksrsquo leverage ratio (unweighted assets

over Tier 1 capital) declined from 24 to 16 between 2008 and

2012 and the leverage ratio of the three largest banks at 16

is below European peers with a comparable business model at

22 The aggregate Tier 1 capital adequacy ratio reached 11 in

the fourth quarter of 2012 29 percentage points higher than

at the end of 2007 However large internationally active

Austrian banks still have a lower Tier 1 capital adequacy

ratio than their peers In addition to the lending portfolio

risks the repayment of participation capital and upcoming

tighter regulatory requirements warrant a better

capitalisation of these banks

Recently Austrian property prices soared markedly In the

third quarter of 2012 real prices rose 84 (year on year) and

the rise was particularly pronounced in Vienna where they rose

by 127 The rise in property prices was however only to a21

limited degree credit financed Loans for housing purposes

rose 17 year on year in the first quarter of 2013Total

household debt remains with about 90 of net disposable income

lower than the euro area average While house price increases

are still moderate compared to developments in some other

countries before the crisis the authorities should closely

monitor these developments assess their potential impacts on

financial stability and stand ready to tighten macro-

prudential tools such as loan-to-value ratios


Swiss Franc-Denominated Loans Granted by Austrian Banks



mid-1990s While the share of foreign currency lending made

up only 1 of total loans to households at the beginning of

1995 it had risen to more than 31 by mid-2006 and had

hovered around 30 until mid-2011 Due to the strong8 OeNB (Austrian Central Bank) OECD Economic Outlook Database OeNB(2012) Financial Stability Report 24

22

appreciation of the Swiss franc until the summer of 2011 the

peak in the outstanding volume (in absolute terms) was reached

in July 2011 when EUR 62 billion of loans to domestic

nonbanks were denominated in a foreign currency primarily in

Swiss francs Loans to households accounted for the lionrsquos

share ndash EUR 42 billion ndash of this amount Real demand for new

foreign currency loans started to decline in August 2008

which can be attributed to the financial crisis to

developments in foreign exchange markets that brought to the

fore the risks of foreign currency loans and also to Austrian

authorities starting to implement a stricter stance on foreign

currency lending Nevertheless the strong appreciation of the

Swiss franc in 2010 and 2011 increased the euro value of the

outstanding loans and thus prevented a noticeable decline in

outstanding volumes9

Now these outstanding volumes are to a large extent a legacy

of the past Over the past few years various supervisory

initiatives in Austria succeeded in almost completely stopping

the issuance of new Swiss franc-denominated loans the

ldquoExtension of the FMA Minimum Standards for Granting and

Managing Foreign Currency Loans and Loans with Repayment

Vehiclesrdquo issued in spring 2010 requests banks ndash inter alia ndash

to restrict new foreign currency lending to domestic

households with a natural hedge or with the highest credit-

worthiness However due to long residual terms to maturity

the outstanding volume will continue to be a challenge to

9 Auer R A M Brown A M Fischer and M Peter 2009 Will the CrisisWipe Out Small Carry Traders in Central and Eastern Europe VoxEUorgAvailable at httpwwwvoxeucomindexphpq=node2916

23

financial stability in Austria Three-quarters of foreign

currency loans of domestic households and nonfinancial




end of the loan term)10 As far as Central Eastern and South-














expected to cover the total outstanding loan at maturity11



the methods and knowledge of professional carry traders

though (for more details on the risks of foreign currency

lending in Austria The largest share of foreign currency10 Auer R A and S P Kraenzlin 2009 The Effectiveness of Central BankSwap Agreement as a Crisis-Fighting Tool VoxEUorg Available athttpwwwvoxeuorgindexphpq=node408411 Auer R A and S P Kraenzlin 2011 International liquidity provisionduring the financial crisis a view from Switzerland In Federal ReserveBank of St Louis Review Vol 93 No 6 409ndash418

24

loans to Austrian nonbank borrowers was and still is

denominated in Swiss francs there was only one short period

at the beginning of the 2000s when loans denominated in

Japanese yen were nearly as popular Since mid-2004 Swiss

franc loans have accounted for 85 or more of the total of

foreign currency loans to Austrian nonbanks (and for solidly

over 90 in the case of households) At the end of June 2012

the total volume of Swiss franc loans to nonbank borrowers

made up EUR 47 billion (CHF 56 billion) of which EUR 34

billion (CHF 41 billion) were owed by households12

Besides the foreign currency loans to domestic customers

Austrian banks also have a substantial foreign currency

exposure in CESEE and the CIS In CESEE and the CIS the Swiss

franc plays a less prominent role however Of the EUR 86

billion of foreign currency loans granted by Austrian





EUR 19 billion (22)13

Cross-border loans are the third aspect to be considered when

analyzing Swiss franc-denominated lending by Austrian banks

At the end of June 2012 the total volume of cross-border loans

outstanding to foreign nonbanks was EUR 7 billion (CHF 912 Beer C S R G Ongena and M Peter 2010 Borrowing in ForeignCurrency Austrian Households as Carry Traders In Journal of Banking andFinance 34(9) 2198ndash221113 Struktur und Risiken von Fremdwaumlhrungskrediten in Oumlsterreich OeNBAvailable at httpwwwoenbatdeimgfremdwaehrungskredite_2003_tcm14-9912pdf

25

billion) of which EUR 2 billion (CHF 2 billion) went to the

CESEE and CIS region and EUR 3 billion (CHF 4 billion) to

Switzerland Altogether in mid-2012 the outstanding amount

of Swiss franc loans granted by Austrian banks to nonbanks

came to EUR 68 billion (CHF 81 billion) which due to the lack

of a customer deposit base in Swiss francs needs to be

refinanced by various other (non-deposit) sources that we will

describe in the following


Market

Banks can refinance their loans through nonbank deposits or

through the capital and money markets Anecdotal evidence

suggests that before the outbreak of the financial turmoil

banks used the unsecured interbank money market to refinance a

large part of their Swiss franc loans However against the

backdrop of the global financial crisis and the fear of

counterparty default risk activity in the unsecured interbank

money market collapsed leading to a higher reliance on the

other financing segments14

The turnover in the unsecured (blue area) and secured (orange

area) interbank money market in Swiss francs shows a

diametrically opposite development until 2011 which was most

pronounced at the height of the crisis in September 2008

Turnover plummeted in the Swiss franc unsecured interbank

14 Guggenheim B S P Kraenzlin and S Schumacher 2011 Exploring anUncharted Market Evidence on the Unsecured Swiss Franc Money Market InAussenwirtschaft 66(1)

26

money market whereas it doubled in the repo market

Thereafter activity also decreased in the repo market mainly

because of the generous liquidity provision by the SNB and the

low level of interest rates Up to date there is no evidence

that the relative importance of these two markets changed to

the opposite Based on turnover data we find that the Swiss

franc repo market has proven to be a crisis resilient

financing source Banks with access to the repo market in

Switzerland were thus able to bridge unexpected liquidity

outflows resulting from a collapse of the unsecured interbank

money market

Capital Market Issuance ndash an Important Source of Funding

A sizeable part of Swiss franc loans is funded by issuances

denominated in Swiss francs At the end of June 2012 a total

volume of CHF 26 billion in Swiss franc-denominated capital

market issuances by Austrian banks was outstanding In fact

since 2007 this form of funding has accounted for about 30

(and slightly more) of the total of Swiss franc-denominated

loans granted to nonbank borrowers However not only did the

strong increase in the outstanding volume come to a halt in

late 2007 since late 2008 the total outstanding volume have

actually declined The underlying reason for this decline is

that currently very few new such bonds are being issued while

maturing ones are not being replaced15

15 Kraenzlin S P and B von Scarpatetti 2011 Bargaining Power in theRepo Market Swiss National Bank Working Paper 2011ndash14

27


Times

How did Austrian banks finance their sizeable exposure amidst

the breakdown of the unsecured interbank money market and the

decline of Swiss franc-denominated bonds To answer this

question we first examine the role of secured short-term

funding via the Swiss repo market and the SNBrsquos repo

operations Repo transactions are secured money market

transactions in which the cash taker provides collateral in

the form of securities and in return receives money from the

cash provider The delivered securities primarily serve the

purpose of eliminating counterparty risk

The outstanding volume in the Eurex interbank repo market ndash

the most important secured money market in Swiss francs ndash as

well as the outstanding volume of the SNBrsquos repo operations is

broken down by the cash takersrsquo country of domicile

(Switzerland Austria and other European countries) As banks

domiciled in Switzerland are almost exclusively providing

Swiss franc liquidity the volume ascribed to Switzerland can

be referred to as domestic transactions Conversely the

volume related to cash takers domiciled in Austria and other

European countries belongs to the cross-border repo segment

While before August 2007 most activity in this market was

domestic (ie between banks domiciled in Switzerland) the

cross-border segment took over the lead with the onset of the

financial crisis During early and mid-2009 of the total

amount outstanding of CHF 80 billion nearly three-quarters

were provided to banks domiciled outside Switzerland The

28

Swiss repo market thus became an internationally driven market

during the financial market turmoil 16

As far as Austria is concerned two points are noteworthy

First Austrian banks used the Swiss repo market already

before the financial crisis In the years before 2007

Austrian banks accounted for the vast majority of the cross-

border market segment and also for a large share of the

overall repo market

Second Austrian banksrsquo use of the Swiss repo market increased

during the financial crisis and this increase was much less

pronounced than the cross border use by other European banks

until mid-2010 Regarding the ultimate source of Swiss franc

funds it is noteworthy that a large share of this cross-

border volume in the Swiss repo market was directly provided

by the SNB to banks domiciled outside Switzerland as opposed

to the SNB providing funds to domestic banks which then pass

these funds on to banks domiciled outside Switzerland Auer

and Kraenzlin (2011) describe the SNBrsquos policies in providing

liquidity highlighting that the SNBrsquos direct provision of

liquidity to banks outside Switzerland is a particular

institutional feature not found in most other central banks

The original intent of allowing foreign banks to access the

Swiss repo market was to reduce banksrsquo dependence on a few

large Swiss financial institutions and to improve the general

liquidity in the banking system thereby facilitating the

16 Kraenzlin S P and T Nellen 2012 Access policy and money marketsegmentation Swiss National Bank Working Paper 2012

29

steering of a longer term money market rate namely the three-

month Swiss franc London Interbank Offered Rate (LIBOR)17

As the SNB uses the same platform as the interbank market a

large number of banks have established access not only to the

SNB but also to numerous banks While the repo system had 37

participants (of which four were domiciled outside

Switzerland) in 1999 the number of participating banks had

increased to 170 banks by 2012 Of these 170 banks 59 are

domiciled outside Switzerland and of these 59 non-Swiss

banks 23 were located in Austria 16 in Germany and 6 in the

United Kingdom Given that much of the secured cross-border

funding came directly from the SNB a large number of Austrian

banks obtained liquidity from the SNB

Further Official Funding via the SNB-ECB Swap Facility

Although a large number of banks domiciled outside Switzerland

have access to the Swiss repo market not all of them always

have sufficient SNB-eligible collateral and there are also

many that do not have this access at all The latter banks

cannot draw the required Swiss franc funding via the SNB or

the interbank market where SNB-eligible collateral is also

market standard To overcome this problem in October 2008 the

SNB and the ECB jointly announced that they would directly

distribute Swiss franc liquidity to their counterparties via

an inter-central bank swap facility18

17 Pann J R Seliger and J Uumlbeleis 2010 Foreign Currency Lending inCentral Eastern and Southeastern Europe The Case of Austrian Banks InFinancial Stability Report 20 OeNB 56ndash7618 Swiss National Bank 2011103rd Annual Report 2010

30

Since all Austrian banks that require funding for their Swiss

franc exposure are registered with the ECB the Austrian banks

that had not obtained funds through the Swiss repo market

instantly gained access to the primary source of Swiss franc

funding the SNB Auer and Kraenzlin (2009 and 2011) show that

with the introduction of the central bank swap facility demand

for Swiss francs in the euro area jumped to around CHF 40

billion and stayed at this level for about six months

Thereafter demand for Swiss francs under the EURCHF swap

facility levelled off and ceased after the termination of the

facility in January 201019

The precise volume of swap facilities used by Austrian banks

is not publicly available but the OeNBrsquos Financial Stability

Report 20 states that ldquoAustrian banks accounted for on

average 28 of all bids in CHF swap tenders and in July 2009

for even 45rdquo

Total assets of Austrian banks amounted to euro1164bn as of the

end of 2012 with about two thirds being domestic assets and

one third being foreign assets Loans and advances to non-

banks make up to two thirds of total assets of the top

Austrian banking groups which is exceptionally high compared

to other EU banking groups and peers In terms of the EU 15

banksrsquo shares in total exposure to CESEE Austria holds the

highest share at 20 with a total exposure of euro2104bn to the

CESEE area as of the end of 2012 The total international

exposure of Austrian banks reaches 107 of GDP

19 Waschiczek W 2002 Foreign Currency Loans in Austria ndash Efficiency andRisk Considerations In Financial Stability Report 4 OeNB 83ndash99

31

National Banking Sector Description of Austria

Austria has a highly developed banking sector Access to

banking services measured as number of inhabitants per bank

branch is among the highest in Europe (1673 inhabitants per

branch in 2010) The Austrian banking sector consists of 842

banks with a total of 4180 branches (2010 year-end numbers)

Employment in the industry reached about 78000 people in

2010 The Austrian banking sector can be divided into 7

subsectors (joint stock banks and private banks savings

banks state mortgage banks Raiff eisen credit cooperatives

Volksbanken credit cooperatives building and loan associations

and special purpose banks) The biggest sectors are the joint

stock banks and private banks the Raiff eisen credit cooperatives

and the savings banks The Austrian banksrsquo geographical focus

is Central and Eastern Europe (CEE) branching out into

Central Eastern and South-Eastern European (CESEE) countries

Apart from their home country Austrian banks and their

subsidiaries are present inter alia in Albania Bosnia-

Herzegovina Bulgaria Belarus Serbia Montenegro the Czech

Republic Croatia Hungary Poland Romania Russia Slovenia

Slovakia and the Ukraine While there is a significant

exposure in CEE and CESEE Austrian banks are facing only

relatively small risks with respect to markets currently in

severe conditions20

The Austrian banking sectorrsquos total assets amounted to euro 978

billion in 2010 euro 581 billion of these are total loans with

the most important constituent sums being loans to MFIs (euro 21820 EUROPEAN BANKING SECTOR Facts and Figures 2012 lthttpwwwebf-fbeeuuploadsFF2012pdfgt

32

billion) loans to non-financial corporations (euro 159 billion)

and loans to households (euro 140 billion) Corporate financing

of Austrian non-financials is dominated by loans and internal

financing Financing through bonds and equity instruments have

tentatively been gaining ground over the past years

especially prior to 2008 and during the then ensuing crisis

One noteworthy detail about loans to households is the

relatively high proportion of foreign currency loans Due to

interest rate differentials and favourable exchange rate

developments compared to euro-denominated loans foreign

currency loans offered lower financing costs for borrowers and

used to be a popular financing method The Eurorsquos depreciation

since the beginning of the financial and economic crisis in

2008 has prompted regulators to introduce stricter rules by

considerably tightening standards for granting of foreign

currency loans in March 2010 Aiming at a significant

reduction of the overall volume of foreign-currency

denominated loans to consumers they can now only be granted

to people with sufficiently large income in the relevant

foreign currency and to individuals who are considered top-

rated debtors

By the end of 2010 total deposits received accrued to euro 525

billion Deposits from MFIs were euro 219 billion whereas

deposits received from non-MFIs were as high as euro 302 billion

Deposits are the private householdsrsquo preferred way of holding

financial assets in Austria Insurance products are ranking

second but they have a far smaller volume than deposits They

are followed by stocks and interest bearing securities

33

At the end of 2011 Austrian authorities came up with a

package of lsquosustainability- boostingrsquo measures for Austrian

banks and their subsidiaries active in Central and Eastern

Europe On the one hand the implementation of the Basel III

rules will be very timely as a measure to bolster banking

groupsrsquo capital bases On the other hand credit growth in the

future will be made conditional on the growth of sustainable

local refinancing (comprising mainly local deposits) in order

to improve the subsidiariesrsquo refinancing structure Thus in

the future subsidiaries that are particularly exposed must

ensure that the rati o of new loans to local refinancing (ie

the loan-to-deposit ratio including local refinancing) does

not exceed 110

The Austrian Banking Sector generally displays solid numbers

regarding regulatory capital the cost-to-income ratio the

return on equity as well as profits before taxes The

institutionsrsquo efforts to improve their capital ratios

especially with the imminent burden and prospect of the CRD

IV are in full progress The regulatory burden emanating from

the EU and its subordinated authorities are further aggravated

by various new national regulations including a yearly general

levy for banks totalling euro 500 million in order to pay for the

effects of the crisis and a new capital gains tax

34


Banking Sector







2013 and submission of groupwide recovery and resolution





initiative Vienna 20 was launched in February 2012The new






regulations and umbrellas





strengthens the pre- emptive powers of the financial




35
































banks none of which has yet repaid these funds As of











plans have been submitted to the European Commission21

Wave of Bad Loans tied to Eastern Europe

Austrian banks have outstanding loans in Central and Eastern

Europe totalling some euro200 billion Euros ($273 billion) an

amount equal to 70 percent of their countryrsquos gross domestic

product (GDP) With the world financial crisis hitting

that region particularly hard there have been fears that a

tidal wave of bad loans could overwhelm Austriarsquos banks

possibly pulling the country itself into bankruptcy

The government here has already spent euro100 billion ($137

billion) to shore up its banks guaranteeing loans and

refilling their depleted coffers In December it nationalized21 OECD Economic Surveys AUSTRIA July 2013lthttpswwwbmfgvatwirtschaftspolitikoecdOECD_Economic_Surveys_-_Austria_2013pdf4jwl2ogt

37

Hypo Group Alpe Adria a Klagenfurt-based regional bank

overwhelmed by bad loans to clients in the Balkans for fear a

collapse would endanger the rest of the sector In the event

of a regional meltdown it is unclear if Austria has the

resources to save its highly exposed banks22

Through the 1980s Austriarsquos banks were sleepy places in a

city on the periphery of European events But the collapse of

the Soviet Empire changed all that opening new opportunities

in lands that were once part of Imperial Austriarsquos empire

Austriarsquos banks moved in a big way taking advantage of their

cultural historical and geographic proximity to seize an

outsized share of the banking opportunities

in HungaryCzechoslovakia Poland Slovenia and other

countries

The bankers boldly invested in the regionrsquos many unmet needs

providing loans to manufacturers and real estate developers

and buying up local banks where they introduced East European

customers to credit cards mortgages ATM cards and small

business loans

But many of those investments became vulnerable when crisis

swept the world financial system in the wake of the collapse

of New York-based Lehman Brothers in September 2008 Hungary

and Latvia had to be rescued from national bankruptcy by

the International Monetary Fund export orders plummeted

national currencies weakened against the Euro and the newly22 Colin Woodard Austria bankers fear wave of bad loans tied to Eastern EuropelthttpwwwcsmonitorcomWorldEurope20100212Austria-bankers-fear-wave-of-bad-loans-tied-to-Eastern-Europegt

38

jobless fell behind on their mortgage and credit card

payments

Austriarsquos banks have been under close watch ever since with

some recalling that a similar chain of events brought

down Viennarsquos Creditanstalt in 1931 an event widely credited

with sparking the Great Depression In the spring of last

year analysts were warning that Austria was itself at risk

for national bankruptcy including Nobel laureate Paul

Krugman

Last July the Organization for Economic Cooperation and

Development warned that the financial system was still at risk

from its exposure in Eastern Europe and that contingency plans

should be kept at the ready to deal with any downside risks

But even in the aftermath of the latest bank nationalization

some experts are now cautiously optimistic that the worst will

not come to pass

Indeed Austriarsquos banks say the situation has always been less

dire than supposed The region they point out did not have a

financial crisis of its own but rather has been suffering

from the economic downturn But the Austrian Institute for

Economic Research isnrsquot as certain The worst affected

countries have been shored up by emergency aid from

the IMF and other international institutions but it is

unclear if they are really stabilized

39

Lending behaviour of small and medium sized Austrian banks

The scope and depth of the micro-econometric analysis of

Austrian banks lending to small and medium-sized companies

are primarily determined by the quantity and quality of the

existing data Although the data base of this analysis is of

exceptionally high quality (and quantity) it nevertheless

permits only a very incomplete representation of the credit-

relationship between banks and commercial customers Privacy

protection regulations of banking supervision legislation in

particular prevent the unlimited access to those individual

bank data which would facilitate a comprehensive analysis of

credit-relationships between banks and borrowers For the

current analysis outstanding loans and the volume of new loans

to small enterprises the risk-weighted capital ratios

according to Basel I and Basel II and the loan structure

according to banks internal or regulatory credit ratings

(eg weighted according to the standards of Basel I risk-

rated internally according to Basel II) would have been

required at the level of individual banks Using the company

data base of the Austrian Kreditschutzverband von 1870 (KSV)

an association for the protection of creditors some companies

could partly be matched with their main banks23

23Franz R Hahn Werner Houmllzl Effects of the New Capital Requirements of Basel III on theFinancing of Small and Medium-sized Enterprises in Austrialthttptestwifoacatjartprj3wiforesourcesperson_dokumentperson_dokumentjartpublikationsid=45100ampmime_type=applicationpdf

40

SHARE OF OUTSTANDING LOANS BY NBFCS IN AUSTRIA

The financial crisis severely affected the financial system

with the banking sector at the centre of the crisis

experiencing significant losses In response to this

governments focused on providing substantial rescue measures

with the aim of restoring financial stability However non-

bank financial companies (NBFC) also played an important role

in the build-up and transmission of risks leading up to the

financial crisis As a result since the onset of the

financial crisis policy-makers have focused on gaining a

better understanding of the nature and role played by NBFCs

and their potential contribution to systemic risk The

literature identifies four key-risk originating and

transmission channels

Firstly NBFCs generate product risk through the production of

structured products especially involving securitisation The

recent financial crisis has clearly shown that due to a lack

of understanding of the risks embedded in a number of

securitised assets many banks and NBFCs held assets that

turned out to be much more risky than originally thought such

as for example various mortgage structure products On the eve

of the financial crisis these holdings represented a

substantial build-up of risks threatening financial stability

Secondly some NBFCs are highly inter-connected with banks and

other non-bank financials This inter-connectedness implies

that financial distress at the level of an individual non-bank

financial institution can transmit to other financial41

institutions (banks and non-banks) via counterparty risk

generating distress at the level of the financial system as a

whole

Thirdly some NBFCs were very large Any financial distress at








could pose counterparty risk

Fourthly in instances in which NBFCs experience distress or

fail altogether the liabilities of that non-bank financial

company held by other financial companies have to be written

down For NBFCs such as pension funds and other investment

funds there are two consequences Firstly there is the

direct effect of the loss in value of some of the assets held

Secondly many pension funds will not invest in non-AAA-rated

assets Other funds may advertise to customers that they only

hold high-grade assets Thus if these assets are downgraded

they have to be disposed of which puts further downward

pressure on their prices This in turn will affect the balance

sheets of all financial institutions holding such assets So-

called fire sales of assets also occur when some financial

institutions (banks or non-banks) find themselves liquidity

constrained and dispose some of their assets rapidly

Typically such a course of action tends to depress the price42

of these assets and thus generate a negative feedback loop

to all institutions holding such assets if the latter are held

for trading or are for sale (ie have to be marked to

market)

The Austrian legacy of a foreign currency loan portfolio is

still an issue for the Austrian banking market though the

share of foreign currency loans in Austria is declining year

by year currently from 174 in 2011 to 144 in 2012 In

CESEE approximately 44 of all outstanding loans are still

foreign currency loans with a significant decrease in the

last years The weak economic situation in the region together

with political uncertainty eg in Hungary poses an

additional challenge for the banks to improve credit quality

and reduce foreign currency loans in the region

The Austrian regulator published a new release of the minimum

requirements for foreign currency loans24 Credit quality of

the Austrian bankrsquos loan portfolio is a concern as NPL ratios

remain on a high level A current PwC study25 shows that on a

background of expected regional macro improvements the

quality of Austrian assets is expected to remain stable

However in CEE the picture is different with NPL expected to

increase in terms of both volume and ratio The NPL ratio in

2012 for Austria remained stable at ca 27 For the same

24 Source OeNB Facts on Austria and its bankshttpwwwoenbatdeimgimf_country_report_2012_austria_-_selected_issues_tcm14-249909pdf p20 ff25 Banking in times of financial distress Austria and CEE nonperformingassets review 2012 httpwwwpwcatfilespublicationsfinancial-servicesbanking-in-financial-distressaustria-cee-non-performing-assets-2012pdf

43

period the average NPL ratio in CEE reached 10 MiFID II

follows the overall trend towards transparency with a specific

focus on securities trading Starting from the regulations

outlined in MiFID I for investor protection MiFID II further

expands the requirements for product and trade related

aspects Implementation of these requirements poses a

significant challenge especially for smaller Austrian banks

due to high costs for adjustments of the trading

infrastructure adjustments to products processes and

reporting tools It remains to be seen how many institutions

will take the burden of compliance and how many will just

withdraw from capital markets business focusing on bricks and

mortar business to minimise the required effort for

implementation This focus on core competencies is of

relevance given the ongoing discussion on the future of

universal banking also fuelled by recovery and resolution

aspects Universal banks are still the most widely used

concept for Austrian financial institutions but increasingly

strict regulations for parts of the business require banks to

take their stand and choose one particular direction It is

highly unlikely that especially smaller institutions can at

the same time comply and be profitable in all areas of

business Another hit for securities trading is looming from

the Financial Transaction Tax (FTT) The overall goals of the

introduction of an EU FTT regime are to ensure that large

financial institutions bear their fair share of the burden in

the aftermath of the financial crisis and to ensure suitable

44

barriers for financial transactions that harm the efficiency

of financial markets eg high frequency trading26

The current proposal made by the European Commission for a

Council Directive implementing enhanced cooperation in the

field of financial transaction tax provides for a taxation of

equity securities and derivatives transactions worldwide if

issued in a participating EU FTT country or if one

counterparty is a resident of a participating EU FTT country

However it remains to be seen to what extent the high

expectations set for the EU FTT may be met as the outcome

from the recently introduced FTT regimes of Italy and France

have fallen short so far27

Corporate Ownership Structure in Austria

To account for the specific structure of corporate governance

in Austria sample 1 ie Data about the 600 largest non-

financial companies in Austria (measured by turnover) are

provided by theWirtschafts-Trend-

Zeitschriftenverlagsgesellschaft mbH and are based on

information collected by a credit-rating agency the

Oumlsterreichischer Kreditschutzverband von 1870 The

corporations themselves also provided data Ownership and

pyramid data are available for the year 1996 About 25 of the

Austrian workforce was employed by a corporation in this

sample The aggregate turnover of these corporations accounts

for about 30 of GDP identifies different ldquocategoriesrdquo of

26 Source OeNB Financial Stability Report 25 ndash June 2013 p31 ff27 Sourcehttpwwwimforgexternalpubsftreo2013eurengpdftn0413pdf p3-6

45

ownersinvestors bank (BA) non-bank domestic firm (NB)

foreign firm (FF) state (ST) individual or family (IN) and

public (PU) ie dispersed ownership In addition control

in conjunction with the structure of ownership is measured in

three different ways 1 by direct ownership 2 by ultimate

ownership where ultimate owners of firms owned by other

domestic firms are traced back (or better ldquouprdquo the pyramid) to

the owner at the top of the pyramid and 3 by the largest

ultimate shareholder where a dummy of one is assigned to the

largest shareholding class among BA FF ST and IN Franks and

Mayer (1997) conjecture that control lies with the ownership

category that constitutes ultimate control (that is on the

ldquotoprdquo of the pyramid) Therefore by remaining ldquostuckrdquo with

direct ownership one could mismeasure the actual extent of

control of the respective investor class28 The direct and

ultimate ownership and the largest ultimate shareholders have

broken down by investor categories and eight size classes as

measured by total sales The most important shareholders in

Austria are domestic and foreign firms holding together nearly

64 of total equity directly This underlines the importance

of pyramiding as a means of extending control in the Austrian

corporate governance structure At first sight banks and the

state play only a minor role in influencing corporations

through direct ownership claims However several factors

increase the importance of the state and the (mostly state

controlled) banks First the state more than doubles its

shareholdings via indirect equity ownership (from 52 to

28 Gugler K Kalss S Stomper A and Zechner J (1997) The Separation ofOwnership and Control An Austrian Perspective ECGNmimeo

46

117) Second the state and the banks are the largest

ultimate shareholders in more than one fifth of the 600

largest corporations Effective control should be attributed

to the shareholder who has ultimately the largest voting stake

in a company Third and as a mirror picture to the second

factor banks in particular are very active stakeholders in

listed firms where dispersed shareholdings are the largest

This enables them to effectively control a company with a

comparatively lower equity stake Presumably proxy votes also

contribute voting power in general meetings Together the

state and the banks ultimately control 23 of the 62 listed

corporations in the sample (356) Finally state and bank

holdings are concentrated in the largest size classes29 More

than half of the largest 30 companies are under state or bank

control In view of the large skewness of the size

distribution state andor bank control is one distinguishing

feature of Austrian corporate governance Nearly 40 of the

employees and 339 of the total sales of the 600 largest non-

financial companies in Austria are under either state or bank

control Families andor individuals hold 226 of the stakes

directly and 386 ultimately and are the largest

shareholders in 432 of the firms In 1995 35 of the

employees in the sample were governed by families or

individuals Foreign firms are very prominent shareholders in

Austria They hold 303 of the shares directly and 339

ultimately and are the ultimate controllers in 213 out of the

29 Morck R Shleifer A and Vishny RW (1988) lsquoManagement Ownershipand Market Valuation An Empirical Analysisrsquo Journal of Financial Economics 20293ndash315

47

600 largest firms (356) While they command 335 of total

sales foreign firms employ only 261 of the employees How

does this ownership structure compare to other countries

Across countries some tentative conclusions concerning the

importance of different investor categories can be drawn

First there are striking similarities in ldquobank-basedrdquo systems

of corporate governance concerning the ownership structure of

firms In Austria France Germany Italy and Japan the

importance of families or individuals is roughly equal On

average this category owns 20 to 25 of the equity directly

In contrast in the ldquomarket-basedrdquo system of finance in the

US families own 544 of the shares At the same time

dispersed holdings are of much greater significance in market-

based systems of governance while dispersed holdings are

below 10 in bank-based systems this percentage rises to

around 40 in market-based systems A second distinguishing

feature between these two systems is the relatively greater

importance of the corporate sector as large and controlling

shareholders in bank-based systems If one includes not only

ldquoNon-financial businessrdquo but also the financial and foreign

categories in the corporate sector around 70 of the shares

are directly owned by other corporations30 This compares to (a

nevertheless significant) 41 in the UK and 419 in the US

(Prowse 1992)

30 Jensen MC and Meckling WH (1976) lsquoTheory of the Firm ManagerialBehavior Agency Costs and Ownership Structurersquo Journal of Financial Economics 3305ndash360

48

A third feature common to ldquobank-basedrdquo systems is the

relatively greater importance of banks in the governance of

companies as (also) measured by equity holdings Particularly

in Japan bank holdings are significant At first sight banks

are minor shareholders in the other countries with equity

holdings between 02 and 81 However as outlined above

banks are more likely to be stakeholders in larger companies

so that unweighted shareholdings underestimate the economic

importance of banks as controlling institutions Likewise

banks exert influence over non-financial via other means than

equity holdings (proxy votes representation on the

supervisory board supply of external finance in the form of

credit) It seems that insurance companies substitute for

missing bank holdings in these countries In addition to the

broad differences between ldquobankrdquo- and ldquomarketrdquo-based systems

of corporate governance there are country specific features

As outlined above the state is a dominant player in Austrian

corporate governance This is also the case in France

Germany and Italy State holdings are of minor significance

in Japan and the UK and are absent in the US Foreign

holdings are particularly large in Austria but also of

significance in Germany31

31 Charkham JP (1994) Keeping Good Company Oxford Clarendon Press49

Lending Concentration

Direct ownership concentration is very high and prevalent in

all size classes in Austria Even in the largest 5 of the

companies the largest shareholder holds 67 of the equity on

average This percentage rises (though not monotonically) as

companies become smaller and the average largest stake in the

600 largest Austrian non-financial corporations is 822

(median 999) In 297 companies the largest stake is 100

only 97 have more than 3 direct owners Even for listed firms

ownership concentration remains very high the largest

shareholder owns on average 524 (median 53) By

international standards within the countries depicted

Austria is the European country with the largest ownership

concentration Two caveats with respect to sample selection

must be mentioned To the extent that smaller firms have

higher ownership concentration larger samples mean higher

ownership concentration Likewise the larger the ratio of

unlisted to listed companies in the sample the larger is

ownership concentration Nevertheless keeping these

limitations for comparisons across countries in mind the

following conclusions seem warranted As with Austria

concentrated equity holdings are also the primary means of

controlling managers in France Germany Italy and Belgium

In these countries the largest shareholder holds on average

around 60 of the equity When one includes only listed firms

this percentage drops to slightly lower 579 in France and

48 in Italy In contrast ownership concentration in the UK

the Netherlands the US and Japan is substantially lower and

50

the average equity holdings of the largest shareholder drops

to around 20 Contrary to popular belief however ownership

concentration remains surprisingly high in the US with the

largest shareholder controlling an average 228 of the votes

In the light of this evidence obtained from a large sample one

has to question the notion that the largest part of

shareholders is passive monitors in market-based systems as

they have insufficient incentive andor ability for proper

monitoring The high ownership concentration in continental

European countries implies that the separation of ownership

and control is not the biggest problem for the efficient

governance of companies except perhaps for the largest

companies with widely dispersed equity claims32 However

direct ownership holdings are likely to underestimate the

extent of the effective separation Pyramiding can extend

control at a relatively low cost Effective separation also

differs across investor categories Likewise conflicts of

interest can arise between majority (or even super-majority)

shareholders and minority owners Entrenchment of the former

opportunistic asset diversion and rent expropriation are not

excludable33

Internal Rates of Return

The internal rate of return (ROR) is crucial in assessing

investment decisions Despite the obvious importance of the

concept of the rate of return rather few studies have tackled

32 Baumol WJ Heim P Malkiel BG and Quandt RE (1970) lsquoEarningRetentions New Capital and the Growth of the Firmrsquo Review of Economics andStatistics 52 345ndash35533 Roe MJ (1994) Strong Managers Weak Owners Princeton University Press

51

the measurement of RORs Exceptions in this respect are

Baumol Heim Malkiel and Quandt (BHMQ 1970) Shinnar

Dressler Feng and Avidan (SDFA 1989) and Mueller and

Reardon (1993) The economic rate of return on any investment

is the discount rate that equates the present value of its

expected net revenue stream to its initial outlay34 In this

section internal rates of return are calculated for sample 3

and differences across ownership categories highlighted The

question is Does it make a difference to the quality of

investment decisions (measured ex post) as to whether the firm

is bank state foreign or family controlled

In this study the SDFA (1989) procedure is used to calculate

internal rates of return The choice of procedure is based on

data availability and theoretical considerations Because only

few Austrian firms are listed on the stock exchange the

Mueller and Reardon (1993) procedure which relies on the

capital marketrsquos evaluation of the firm cannot sensibly be

used The comparative advantage of the SDFA vis-agrave-vis the BHMQ

method is that SDFA works with the total cash flow in each

period while BHMQ utilize only the limited information about

the increments in profits For a discussion of the pros and

cons of the available procedures see Mueller and Yun (1995)

For a short description of the SDFA procedure see the

appendix It displays the distribution of the rates of return

of 94 Austrian companies Perhaps surprisingly nearly one

third of the companies earned negative real returns on their

34 Mueller DC and Reardon E (1993) lsquoRates of Return on InvestmentrsquoSouthern Economic Journal 60 430ndash453

52

investment during the 1985ndash1994 period Most of the firms are

located in the 0ndash20 return classes and a few corporations

earn returns of 20 or more35

It presents RORs broken down by ownership structure (largest

ultimate shareholder in 1990) The mean real ROR over the

period 1985 to 1994 is 11 (median 84) More than 40 of the

firms (39 out of 94) earned marginal rates of returns below

5 Foreign-controlled firms obtained the highest returns

(mean 162) and nearly three quarters of FF-firms (33 out of

46) are high profitability companies (ROR gt 5) Bank and

individually controlled firms lie in between With a median

ROR of 57 and 4 out of 9 bank-controlled companies earning

RORs below the 5 level again no profitability enhancing role

can be attributed to banks as controlling institutions State-

owned firms display particularly low rates of return on their

investments These had a mean ROR of 24 a median of 104857637

() and 14 out of 18 companies earned less than 5 in real

terms This points to the presence of managerial discretion

and corporate governance failures in state controlled firms

CONCLUSION

This project casts some light on the main funding channels of

Swiss franc denominated loans granted by Austrian banks While

the new issuance of Swiss franc loans has come to a virtual

halt since the crisis due to supervisory initiatives and the

fact that the major risks of loans denominated in Swiss francs

35 Shinnar R Dressler O Feng CA and Avidan A (1989) lsquoEstimationof the Economic Rate of Return for Industrial Companiesrsquo Journal of Business62(3) 417ndash445

53

were made visible for borrowers the loans granted in the past

will continue to be a challenge to financial stability in

Austria A major issue in this regard is the refinancing of

Swiss franc loans and its risks We show that the onset of the

financial crisis severely limited the Swiss franc funding

opportunities of Austrian banks in the cross-country interbank

market and through the issuance of Swiss franc-denominated

bonds However Austrian banks were able to put the funding of

Swiss franc loans on a different footing First they

established access to the Swiss repo market under which they

could also obtain SNB funding Second the joint SNB-ECB swap

facility brought into life in autumn 2008 and terminated at

the beginning of 2010 was crucial in securing funding in the

most stressed times

This project also explored the ownership structure of some

largest Austrian non-financial corporations Ownership

concentration is a distinct feature of ldquobank basedrdquo systems of

finance and ownership concentration in Austria is

particularly high in comparison to other countries

Accordingly insufficient incentives andor abilities of large

shareholders to monitor managers should not be of primary

concern in Austrian corporate governance However pyramiding

introduces some separation of ownership and control

especially in bank controlled pyramids and state controlled

pyramids may suffer from insufficient monitoring Balance

sheet data internal rates of return calculations and

regression estimates show that not only ownership

concentration but also the identity of the large controlling

54

shareholder are relevant to the efficient governance of

corporations While foreign control increases profitability

state control is particularly detrimental to shareholder

wealth maximization Likewise profit margin equation

estimates cannot reject the entrenchment hypothesis andor

expropriation of minority shareholders From this standpoint

concentration of ownership seems excessive in Austria

Particularly in family controlled firms high indebtedness

high interest payments and low own equity capital suggest that

dispersion of ownership claims (eg via equity issues) has

the potential of reducing the cost of capital A more

developed capital market especially a more developed stock

exchange surely would help in the efficient financing and

governing of Austrian corporations

55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans



The Breakdown of the Unsecured Swiss Franc Interbank Money Market


Secured Markets ndash a Reliable Source of Funding in Turbulent Times



Efforts are Necessary to Strengthen the Resilience of the Banking Sector



SHARE OF OUTSTANDING LOANS BY NBFCs IN AUSTRIA




CONCLUSION

Summer Session

(July - November 2014)

2

ACKNOWLEDGEMENT









have materialized








3

TABLE OF CONTENTS

ACKNOWLEDGEMENT2

INTRODUCTION4



Foreign Loans9





Market16



Times16




Banking Sector21






4


CONCLUSION32

5

INTRODUCTION



























6





























7



























8





























9





























10




























11




























12















The Domestic Market












13





























14



Foreign Loans

























15





























16





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION

ACKNOWLEDGEMENT









have materialized








3

TABLE OF CONTENTS

ACKNOWLEDGEMENT2

INTRODUCTION4



Foreign Loans9





Market16



Times16




Banking Sector21






4


CONCLUSION32

5

INTRODUCTION



























6





























7



























8





























9





























10




























11




























12















The Domestic Market












13





























14



Foreign Loans

























15





























16





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION

TABLE OF CONTENTS

ACKNOWLEDGEMENT2

INTRODUCTION4



Foreign Loans9





Market16



Times16




Banking Sector21






4


CONCLUSION32

5

INTRODUCTION



























6





























7



























8





























9





























10




























11




























12















The Domestic Market












13





























14



Foreign Loans

























15





























16





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION


CONCLUSION32

5

INTRODUCTION



























6





























7



























8





























9





























10




























11




























12















The Domestic Market












13





























14



Foreign Loans

























15





























16





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION

INTRODUCTION



























6





























7



























8





























9





























10




























11




























12















The Domestic Market












13





























14



Foreign Loans

























15





























16





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION





























7



























8





























9





























10




























11




























12















The Domestic Market












13





























14



Foreign Loans

























15





























16





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION



























8





























9





























10




























11




























12















The Domestic Market












13





























14



Foreign Loans

























15





























16





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION





























9





























10




























11




























12















The Domestic Market












13





























14



Foreign Loans

























15





























16





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION





























10




























11




























12















The Domestic Market












13





























14



Foreign Loans

























15





























16





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION




























11




























12















The Domestic Market












13





























14



Foreign Loans

























15





























16





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION




























12















The Domestic Market












13





























14



Foreign Loans

























15





























16





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION















The Domestic Market












13





























14



Foreign Loans

























15





























16





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION





























14



Foreign Loans

























15





























16





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION



Foreign Loans

























15





























16





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION





























16





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION





























17





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION





sources5





















18



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION



























19










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION










































































22




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION




























23


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION


























24

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION

























25










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION










Market
















26











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION











money market















27


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION


Times



























28








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION








overall repo market



















29


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION


























30
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION
















for even 45rdquo












31
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION
























severe conditions20




32





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION





















rated debtors








33













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION













not exceed 110











34


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION


Banking Sector



























35























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION























































37














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION














countries





business loans







38


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION


payments







Krugman







not come to pass









39
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION
























40






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION






























whole





























market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION




market)





















43




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION




























44



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION



























45





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION





























46




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION




























47
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION
























(Prowse 1992)


48




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION




















































50





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION





















excludable33






51




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION




























52




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION




















CONCLUSION







53














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION














most stressed times















54















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION















55

ACKNOWLEDGEMENT

INTRODUCTION


The Domestic Market

Foreign Loans















CONCLUSION

THE SHARE OF OUTSTANDING LOANS BY NBFCS VIS-A-VIS THE OUTSTANDING LOANS BY BANKS IN AUSTRIA

Documents

Transcript of THE SHARE OF OUTSTANDING LOANS BY NBFCS VIS-A-VIS THE OUTSTANDING LOANS BY BANKS IN AUSTRIA