Guest Post: Update On the (Bad) Situation of Austrian Banks

In early August a number of banks operating in the region reported sometimes startling rises in loan losses. Among them were UniCredit, Erste Group and OTP. It had been hoped that loan losses would start falling. Instead they have continued to climb—alarmingly in some cases. In Kazakhstan more than a third of outstanding debt is non-performing. In Latvia, almost a fifth of debt is going bad.

In Hungary and Poland the proportion of debt that is souring is below 8%, though in both countries it is still rising and, because their economies are bigger, their bad debts can cause more havoc. Non-performing loans in Ukraine are officially below 10% of the total, but quirks in the tax law punish banks for writing off loans. The IMF reckons the true figure is closer to 30%.

The main reason for the sharp rise in bad debts is that borrowers had became unhealthily addicted to loans in foreign currencies, such as the Swiss franc, which offered lower interest rates than local-currency debt. In Hungary almost two-thirds of household debt is in foreign currencies (see chart). In Latvia about 90% of all private borrowing is. A steep rise in the value of the Swiss franc against local currencies has increased the burden of debt and interest payments on the region’s borrowers. The strains have been made worse by collapsing housing markets and the general economic slowdown.

GRAPH: Austrian banks have reduced their share of private forex loans in the Eurozone from 48% to 41.6% since January 2007. The small to midsize banks of this tiny country of 8 million still hold by far more forex loans than any other Eurozone bank sector on the national level. I am not sure whether the Austrian arm of Italy’s Unicredit Group is included in this data set or nt. Data: OeNB, ECB.  

Read the original story at Israel’s Financial Expert