Yet, international credit rating agency Moody's Investors Service warned last December that "Austrian banks face a slowing domestic economy and continued growth as well as challenges in Central and Eastern Europe."
The banks' rapid expansion has strained management and capital resources.
Austrian banks maintain a low Tier One capital-adequacy ratio of about 6 percent and less than stellar returns on equity of about 11 percent. The cost to income ratio is a staggering 69 percent. Austria's banks have the lowest average financial strength in Western Europe.
Nevertheless, Austria's banking industry continues to enjoy robust ratings.
According to Moody's, "debt and deposit ratings of the majority of Austrian banks are enhanced or underpinned by external or sector support ... the increasing cohesion within the larger banking groups should improve the competitiveness of the banking system in the medium to longer term ... (regardless of) the slowing economy and some high-profile bankruptcies."
At the same time, Austrian banking is also consolidating. The nation's five largest banking groups control well over half the sector. Meanwhile, operational costs are being cut and there are hesitant steps towards e-banking.
Wolfgang Christl, an investment banker with Euroinvestbank in Austria, defended the country's banking curiously strong rating in an interview with United Press International:
UPI: What are the advantages and disadvantages of Austria as far as banking goes?
Christl: Austria has adopted European Union banking laws. Austrian banks within the EU have no special advantages or disadvantages.
Q: How does Austrian tax treatment of banking operations compare with other countries?
A: In Austria, we have a capital gains tax of 25 percent applicable to individuals and trusts. Banks cannot deduct value-added tax on their transactions. The state levies stamp duties on credits and loans. Otherwise, the tax treatment of banks is comparable to other EU members.
Q: Austria's banks were renowned -- or notorious -- for their strict anonymity. Can you describe the history of Austrian bank anonymity and how it came to be abolished? What, in your view, was the effect on the banking system, the composition of bank clientele, and the volume of foreign savings and deposits?
A: Anonymity of savings accounts and equity investments, introduced after World War II, was abolished gradually after 1995, in accordance with EU regulations. Banking secrecy can be lifted in case of criminal and fiscal investigations. The effect of abolishing bank anonymity was minimal since there are not many substitutes for these financial institutions. Some foreign deposits may have been moved elsewhere, but that's just about it.
Q: The EU has recently fined Austrian banks, members of the Lombard Club, for fixing the prices of deposits in a cartel-like arrangement. Could you give us the Austrian angle of this affair?
A: The Lombard Club was eventually historically justified in the post-War economy. The arguments presented by the Austrian banks were very weak because there was no awareness of wrongdoing. We think that the fines are rather high since the effect of the cartel was minimal and bank margins in Austria were much lower than in other EU countries. Mr. Haider (Jorg Haider, leader of the anti-immigrant Austrian Freedom Party) wrongly claims his involvement in the EU-Lombard Club decision. He is a populist and a free-rider on the poor and small folks.
Q: Many Austrian banks have aggressively spread to Central Europe -- notably the Czech Republic, Slovakia, Poland, Croatia and Slovenia. Do you think it is a wise long-term strategy? The region is in transition and its fortunes change daily. Poland has switched from prosperity to depression in less than seven years. Aren't you concerned that Austrian banks are actually importing instability into their balance sheets?
A: The move by the Austrian banks into Central and Eastern Europe is a very good niche market growth strategy. Austrian banks lost a lot of money in the United Kingdom, the United States and other parts of the world. But they were very risk-conscious in Central and Eastern Europe, where, today, they generate high margins. In the years to come, this will be a strongly growing region. Entering these markets was a very positive decision.
Q: Austria's banks are small by international standards. Do you foresee additional consolidation or purchases by foreign banks, possibly German?
A: I am convinced that there will be additional domestic consolidation coupled with some foreign purchases. The three big German banks -- HVB, Bayerische Landesbank and Deutsche Bank -- are already present in Austria.
Q: In 1931, the collapse of Creditanstalt in Vienna triggered a global depression. The markets are again in turmoil, the global economy is stagnant and trade protectionism is increasing. Can you compare the two periods?
A: Thank you for the honor of triggering a global recession, but Creditanstalt was too small to do so. In my view, you cannot compare the markets today and in 1931. Financial skills and organizations are much more developed today. Social systems are much more secure than in the 1930s.
Q: Could you tell us about bank supervision in Austria?
A: Since April 1, 2002, Austria has an independent financial markets supervisor for banks, insurance companies and the capital markets.
Q: Does Austria have non-bank financial institutions such as thrifts (i.e., savings and loans, or building societies), credit cooperatives, microfinance lending, sectoral credit institutions, etc.?
A: Yes, we do have these kind of non-bank financial institutions but they play a minor role -- maybe less than 1 percent of the market.
Q: Does Austria have federal deposit insurance?
A: Yes, it does. Individuals are covered for a maximum of 20,000 euros in all their accounts in any single bank. Companies are covered up to 90 percent of this amount. There is a centralized claims institution for the banking sector.