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A n n u a l R e p o r t 2 0 0 4A n n u a l R e p o r t 2 0 0 4

O e s t e r r e i c h i s c h e Nat i ona l b a n k

Stabi l i ty and Security.

E u r o s y s t e m

√

ˆ

Report

on the Financial Year 2004

with Financial Statements

for the Year 2004

Submitted to the General Meeting on May 24, 2005

Six years after the beginning of Stage Three ofEconomic and Monetary Union (EMU), theEurosystem may look back on the successfulintroduction of the common currency. Conti-nuing European integration and EU enlargementpose new challenges, which will also requireadjustments within the European System ofCentral Banks (ESCB).

Historically low interest rates and the on-going strong appreciation of the euro againstthe U.S. dollar have created a difficult opera-tional environment for Eurosystem centralbanks. Despite these demanding conditions,the Oesterreichische Nationalbank (OeNB)managed to achieve profits close to the long-term average in 2004. This is particularly re-markable given the significant revenue shortfallsof other national central banks (NCBs). Therecord profits following the establishment ofthe monetary union as well as the high risk pro-visions of recent years, however, have put a capon future profit potential. In this context it isimportant to call to mind the NCBs� obligationwithin the ESCB to hold sufficient reserves tofulfill their tasks and to make risk provisions.Compliance with this obligation is a prerequisitefor Eurosystem credibility.

In addition to fulfilling a wide range of re-sponsibilities in the field of monetary policy im-plementation, the OeNB also contributed signif-icantly to the ESCB�s activities in 2004. Specialemphasis was placed on the communication ofmonetary policy objectives, the promotion of fi-nancial stability and the preparations for a SingleEuro Payments Area (SEPA). Once more, theOeNB�s subsidiaries were key for the efficientprovision of means of payment which meet thehighest security requirements.

Looking at the challenges that lie ahead, co-operation with Central and Southeastern Euro-pean countries will take on an important rolein the future, and the OeNB�s expertise in thisarea will prove very valuable for the Eurosystem.

Efficient performance is crucial for longer-term corporate success, in particular for a smallNCB. Thus, it is of great importance for theOeNB to continue optimizing its business proc-esses, to make effective use of synergies and topromote cooperation. The high degree of trustthe OeNB enjoys as a monetary institution isan acknowledgement of its performance and amandate for the future.

Herbert SchimetschekPresident

Statement

4 Annual Report 2004�

In 2004 the global economy expanded by morethan 4% in real terms. The euro area also sawan economic recovery, recording a growth rateof 1.8% (seasonally and working-day adjusted),which was well above the levels of previousyears. However, from the spring of 2004 theglobal upturn lost momentum, mainly becauseof a surge in oil and commodity prices, a slow-down in export activity and monetary policytightening in several countries induced by infla-tionary pressures.

As in the previous year, inflation in the euroarea as measured by the Harmonised Index ofConsumer Prices (HICP) stood at 2.1% in2004, driven largely by energy prices. In viewof a favorable medium-term outlook for pricedevelopments, however, the Governing Councilof the ECB decided to leave key interest ratesunchanged at their historically low level. Infla-tion expectations in 2004 were stable and in linewith the Governing Council�s medium-termHICP inflation target for the euro area of below,but close to, 2%. The Eurosystem�s monetarypolicy continued to enjoy a high degree of cred-ibility.

By contrast, the credibility of the sustain-ability and soundness of fiscal policy in the euroarea was put to the test in 2004. Half of the euroarea countries recorded deficit ratios of aroundor above 3%, and debt ratios exceeded 60% ineight countries. In March 2005 the reform ofthe Stability and Growth Pact led to changesin, and a weakening of, EMU�s fiscal policyframework, the consequences of which are notyet foreseeable. Greater scope for discretionarydecision-making entails an even higher degree ofresponsibility for policymakers in safeguardingthe sustainability and long-term growth orien-tation of fiscal policy. The Governing Councilof the ECB is firmly convinced that sound publicfinances are indispensable for sustainable eco-nomic development in the euro area.

2004 was also marked by the mid-termreview of the Lisbon strategy, which revealedthat — while some progress has been made withregard to employment, the network industriesand the financial services sector — Europeanresearch, innovation and education systems stillrequire reform. Member States should swiftlyimplement further reforms at the national levelwithin the framework of national growth strat-egies or action plans.

Economic policymaking in Austria wascharacterized by further reforms in 2004: Thereform of the Austrian pension system willrender pension schemes more sustainable andwill contribute to safeguarding their long-termfinancing. The corporate tax and income tax

reforms will strengthen both Austria�s positionas a business location and real disposable in-come. The IMF and the OECD have acknowl-edged these reform efforts. The reform processneeds to be continued to guarantee Austria�scompetitiveness and prosperity.

Austria�s economy gathered considerablesteam in the first half of 2004, mainly drivenby booming external trade. At 2%, economicgrowth in 2004 clearly exceeded the levels ofthe previous two years and was also slightlyhigher than the euro area average. While thedeceleration of economic growth in the euroarea toward the end of 2004 also affectedAustria, investment remained lively. At 2%,Austria�s inflation rate stood slightly below theeuro area average in the reporting year.

Austria�s deficit ratio according to theMaastricht definition came to 1.3% of GDP in2004, which was less than half of the euro areaaverage. The government�s 2005 tax reform isgoing to raise the deficit ratio to 1.9%. Underits stability program, Austria is to achieve a bal-anced budget and a debt ratio of below 60% ofGDP by 2008. The OeNB welcomes the plansto reduce the tax-to-GDP ratio to around 40%as early as in 2006; at the same time, however,the reduction of the government spending ratioshould be speeded up.

The accession of ten new Member States tothe European Union on May 1 was a landmarkachievement in 2004. EU enlargement fostersAustria�s economic potential, as Austrian busi-nesses have already been actively expanding into,and cooperating with, Austria�s neighboringcountries in Eastern Europe. Enlargement hasvalidated the OeNB�s decision to put a specialfocus on Eastern European issues, which wastaken many years ago.

The IMF�s Financial Sector Assessment Pro-gram confirmed the high resilience of theAustrian financial system to shocks and theexcellent cooperation between the OeNB andthe Austrian Financial Market Authority (FMA).

The OeNB has redesigned its website(www.oenb.at) and relaunched several of its mac-roeconomic and statistical publications, namelyMonetary Policy & the Economy, the Workshopseries, Focus on European Economic Integrationas well as its exclusively German publicationStatistiken — Daten & Analysen to furtherimprove the quality, scope and accessibility ofthe analyses and data it provides in the serviceof economic policy and the Austrian public.

Klaus LiebscherGovernor

Statement

Annual Report 2004 5�

General Council (Generalrat), State Commissioner,

Governing Board (Direktorium) and Personnel Changes,

Organizational Structure of the Bank

General Council (Generalrat), State Commissioner 10

Governing Board (Direktorium), Personnel Changes 11

Organization Chart 12

Report of the Governing Board (Direktorium) on the Financial Year 2004

The Eurosystem Secures Price Stability 17

Euro Area Key Interest Rates Unchanged in 2004 17

Austria — Export-Led Recovery 22

Powerful Global Economic Growth in 2004 24

The Stability and Growth Pact — A Key Pillar of EMU�s Stability Architecture 28

Mid-Term Review — Further Massive Reforms Required to Implement Lisbon Strategy 31

European Integration Makes Headway 34

The OeNB as a Competent Partner in Ensuring Financial Stability 37

Austrian Financial Sector Posts Improved Results 37

IMF Gives Positive Assessment of Austrian Financial Market 40

The OeNB Supports Implementation of Basel II 42

The OeNB Organizes a Wide Range of Activities to Promote Financial Stability 43

Close Cooperation between OeNB and FMA 45

Guidelines for the Austrian Banking Industry 46

Integration of Payment Services in Europe and Consolidation of Cash Distribution Structures in Austria 48

New European Structures for Cashless Payment Services 48

The OeNB�s Regional Network Ensures Smooth Cash Supply and Cash Handling 54

Cash Services and Cashless Payment Solutions Provided by the OeNB through Its Associated Companies 59

The OeNB�s Information Policy — Conveying Stability and Security 62

Communicating Monetary Policy Objectives — A Prerequisite for Credibility and Trust 62

The OeNB as a National and International Forum for Dialogue 66

The OeNB — An Innovative, Dynamic and Cost-Efficient Enterprise 68

Structures Aligned to the OeNB�s Strategy 69

Innovative Projects Pave the Way for Future-Oriented Management and Top Performance 71

Sound Expert Knowledge — A Major Success Factor 73

OeNB Shows Commitment to Research, Science and Culture 74

Contents


Financial Statements of the Oesterreichische Nationalbank for the Year 2004

Blance Sheet as at December 31, 2004 78

Profit and Loss Account for the Year 2004 80

Notes to the Financial Statements 2004 81

General Notes to the Financial Statements 81

Realized Gains and Losses and Revaluation Differencesand Their Treatment in the Financial Statements of December 31, 2004 84

Capital movements 86

Development of the OeNB�s Currency Positions in the Financial Year 2004 87

Notes to the Balance Sheet 87

Notes to the Profit and Loss Account 111

Governing Board (Direktorium), General Council (Generalrat) 115

Report of the Auditors 116

Profit for the Year and Proposed Profit Appropriation 117

Report of the General Council (Generalrat)

on the Annual Report and the Financial Statements for 2004

119

Notes

Abbreviations 122

Legend 123

Glossary 124

Periodical Publications of the Oesterreichische Nationalbank 129

Artwork 131

Addresses of the Oesterreichische Nationalbank 132

Editorial close: April 14, 2005.

Contents


ˆ

General Council (Generalrat),

State Commissioner,

Governing Board (Direktorium)

and Personnel Changes,

Organizational Structure of the Bank

General Council (Generalrat), State Commissioner

on December 31, 2004

Herbert SchimetschekPresident

Chairman of the Board

of Austria Versicherungsverein

auf Gegenseitigkeit

Manfred FreyVice President

retired President of the regional

finance authority of Vienna,

Lower Austria and Burgenland

August AstlSecretary General of the Board of Presidents

of the Austrian Chamber of Agriculture

Christian DomanyMember of the Management Board

of Flughafen Wien AG

Bernhard FeldererDirector

of the Institute for Advanced Studies (IHS)

Philip Go‹thCertified public accountant/tax consultant

Partner of Deloitte Austria

Elisabeth Gu‹rtler-MauthnerManaging Director

of Sacher Hotels Betriebsges.m.b.H.

and Vice President

of the O‹ sterreichische Hoteliersvereinigung

Herbert KoflerIndependent accountant/tax consultant

Head of the Section

Financial Accounting and the Tax System

of the University of Klagenfurt

Georg KovarikHead of the Economics Division

of the Austrian Trade Union Federation

Johann MarihartChief Executive Director

of Agrana Beteiligungs-AG

Werner MuhmChief of the Chamber

of Labor of Vienna

Gerhard RandaChairman of the Supervision Board

of Bank Austria Creditanstalt AG

and Member of the Board of

Managing Directors of Bayerische

Hypo- und Vereinsbank AG

Walter RothensteinerChief Executive Director

of Raiffeisen Zentralbank O‹ sterreich AG

Johann ZwettlerChief Executive Director

of Bank fu‹r Arbeit und Wirtschaft AG

Representatives delegated by the Staff Council to attend proceedings

that deal with personnel matters pursuant to Article 22 paragraph 5 of the

Oesterreichische Nationalbank Act:

Thomas ReindlStaff Council Chair

Martina GerharterStaff Council Deputy Chair

State CommissionerThomas WieserDirector General at the Austrian Federal

Ministry of Finance

Deputy State CommissionerHeinz HandlerAustrian Institute

of Economic Research (WIFO)



on December 31, 2004

Klaus LiebscherGovernor

Wolfgang DuchatczekVice Governor

Peter Zo‹llner Josef ChristlExecutive Director Executive Director

Personnel Changesbetween April 19, 2004, and April 14, 2005

The ordinary General Meeting of May 13, 2004, marked the endof the term of office of General Council member R. EngelbertWenckheim. Christian Domany, then Secretary-General of theAustrian Federal Economic Chamber and since October 1, 2004,Member of the Management Board of Flughafen Wien AG, wasappointed as his successor.

At its session of July 6, 2004, the federal government decided toappoint Philip Go‹th, certified public accountant, tax consultant andpartner of Deloitte Austria, and to reappoint Johann Marihart asmembers of the General Council, both with effect from August 1,2004. The term of office of General Council member Karl WernerRu‹sch ended on July 31, 2004.

Richard Leutner and Lorenz Fritz resigned from their seats in theGeneral Council with effect from July 1, 2004, and August 13,2004, respectively. Georg Kovarik, Head of the Austrian TradeUnion Federation�s Economics Division, and Elisabeth Gu‹rtler-Mauthner, Managing Director of Sacher Hotels Betriebsges.m.b.H.and Vice President of the O‹ sterreichische Hoteliersvereinigung,were appointed as their successors at the extraordinary GeneralMeeting of September 9, 2004.


PresidentHerbert Schimetschek

Office of the General CouncilRichard Mader, Head

Vice PresidentManfred Frey


Central Bank Policy DepartmentKlaus Liebscher, Governor

Office of the GovernorWolfgang Ippisch, Head

Internal Audit DivisionWolfgang Winter, Head

Secretariat of the Governing Board and Public RelationsGu‹nther Thonabauer, Head

Planning and Controlling DivisionGerhard Hoha‹user, Head

Anniversary FundWolfgang Ho‹ritsch, Head

Personnel DivisionAxel Aspetsberger, Head

Unit

Future UnitPeter Achleitner, Director

Money, Payment Systems, Accountingand IT DepartmentWolfgang Duchatczek, Vice Governor

Legal DivisionHubert Mo‹ lzer, Head

Section

Payment Systems and Information TechnologyWolfgang Pernkopf, Director

Information Technology and Payment Systems Strategy DivisionWalter Hoffenberg, Head

IT Development DivisionReinhard Auer, Head

IT Operations DivisionErich Schu‹tz, Head

Payment Systems DivisionAndreas Dostal, Head

Section

Cashier�s Division and Branch OfficesStefan Augustin, Director

Printing OfficeGerhard Habitzl, Technical Manager

Cashier�s DivisionGerhard Schulz, Head

Northern Austria Branch OfficeJosef Kienbauer, Branch Manager

Southern Austria Branch OfficeFriedrich Fasching, Branch Manager

Western Austria Branch OfficeArmin Schneider, Branch Manager

Section

AccountingMichael Wolf, Director

Financial Statements DivisionFriedrich Karrer, Head

Accounts DivisionHerbert Domes, Head

Organization Chart


Economics and Financial Markets DepartmentJosef Christl, Executive Director

Section

Economic Analysis and ResearchPeter Mooslechner, Director

Economic Analysis DivisionErnest Gnan, Head

Economic Studies DivisionEduard Hochreiter, Head

European Affairs and International Financial Organizations DivisionFranz Nauschnigg, Head

Foreign Research DivisionDoris Ritzberger-Gru‹nwald, Head

Brussels Representative OfficeMarlies Stubits, Chief Representative

Paris Representative OfficeAndreas Breitenfellner, Chief Representative

Section

Financial Institutions and MarketsAndreas Ittner, Director

Financial Markets Analysis and Surveillance DivisionMichael Wu‹rz, Head

Banking Analysis and Inspections DivisionHelmut Ettl, Head

Credit DivisionFranz Richter, Head

Investment Policy, Internal Services and Statistics DepartmentPeter Zo‹ llner, Executive Director

Equity Interest Management DivisionFranz Partsch, Head

Section

TreasuryRudolf Trink, Director

Treasury — Strategy DivisionWalter Sevcik, Head

Treasury — Front OfficeRudolf Kreuz, Head

Treasury — Back OfficeGerhard Bertagnoli, Head

London Representative OfficeDoris Kutalek, Chief Representative

New York Representative OfficeGerald Fiala, Chief Representative

Section

Organization and Internal ServicesAlbert Slavik, Director

Organization Division1

Wolfgang Ruland, Head

Administration DivisionRoland Kontrus, Head

Security DivisionGerhard Valenta, Head

Documentation Management and Communications ServicesAlfred Tomek, Head

Section

StatisticsAurel Schubert, Director

Banking Statistics and Minimum Reserve DivisionGerhard Kaltenbeck, Head

Balance of Payments DivisionEva-Maria Nesvadba, Head

1 Environmental Officer Johann Jachs.

As of April 14, 2005.


ˆ

Report of the


on the Financial Year 2004

Euro Area Key InterestRates Unchanged in 2004

Following two years of subduedgrowth (2002: 0.9%; 2003: 0.5%),euro area GDP expanded by 2.1%in 2004. The growth momentum thatgained a foothold in the second half of2003 was maintained at the beginningof 2004 but subsequently dampenedby surging oil prices in the secondhalf. Investment remained moderatethroughout 2004. Despite low inter-est rates and a pickup in profitability,investment in plant and equipmentmerely edged up. Construction in-vestment, in fact, even diminishedmarginally. While consumer spend-ing picked up somewhat toward theend of the year, it provided hardlyany impulses. The revival in worldtrade lifted Austria�s current accountsurplus slightly compared with 2003,bringing it to 0.5% of GDP. The up-turn hardly had a perceptible impacton the labor market yet in 2004: Em-ployment rose by 0.5% and unem-ployment persisted at 8.9% in 2004.

Euro area inflationary pressureremained subdued even though de-mand recovered in the first half of2004, above all because wage in-

creases were modest and the impactof the appreciation of the euro wasdelayed. From May 2004, the rateof inflation as measured by the HICPtopped 2%, which may be traced tothe hike in indirect taxes and admin-istered prices as well as the gain in oilprices. In the second quarter of 2004,the energy component accounted foras much as 20% of the price growth.Yet in its judgment of the medium-term risks to price stability, the Gov-erning Council of the ECB assessedinflationary pressures to remain lim-ited, above all because the labor mar-ket was weak and wage adjustmentswould thus remain moderate. The in-flation projections of the Eurosystemof June 2004 put inflation at between1.9% and 2.3% for 2004 and at 1.1%to 2.3% for 2005.

These developments brought in-flation to an average of 2.1% in2004, the same level as in 2003.Against this background of only slightprice pressures and a positive me-dium-term outlook for prices, theGoverning Council left the key Euro-system interest rates unchanged at ahistorically low level. Throughout2004, the minimum bid rate for mainrefinancing operations (MROs) thus

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Strong euro and oilprice surge dampeneconomic recovery inthe euro area

Inflationary pressuremoderate — keyinterest ratesunaltered


The Eurosystem Secures Price Stability

stood at 2.0%, the interest rate forthe deposit facility at 1.0%, and theinterest rate for the marginal lending

facility at 3.0%. These interest rateshave in fact remained unaltered sinceJune 2003.

Box 1

The Monetary Policy Strategy of the Eurosystem: An Overview

The primary goal of the Eurosystem�s monetary policy is to maintain price stability. Monetarypolicy decisions are thus taken with inflationary expectations in mind, as guided by the under-lying monetary policy strategy. This strategy provides a framework that structures all informationrelevant to monetary policymaking and thus assists the Governing Council of the ECB in takinginterest rate decisions and clearly communicating them to the general public.

To this end, the monetary policy strategy of the Eurosystem consists of three elements. Thekey element is a quantitative definition of price stability, which aims at inflation rates of below, butclose to, 2% over the medium term. This measure is complemented by a framework for assessingthe risks to price stability that consists of two pillars. The first pillar, economic analysis, containsthose indicators which provide information about the factors determining price developments overthe short to medium term. The second pillar, monetary analysis, draws on monetary indicators;these serve as a means of cross-checking, from a medium- to long-term perspective, the short-to medium-term indications from the economic analysis.

At the beginning of 2004, datacorroborated the progressive revivalof business activity in the euro area,and leading indicators confirmed thestaying power of the rebound. In thefirst quarter of 2004, real GDP ex-panded by 0.7% against the preced-ing quarter, with exports benefitingmost from robust global growth.Fairly powerful consumer spendingadvances (+0.7% against the pre-vious quarter) registered as a favor-able surprise and also signaled a con-tinuation of the recovery. In the sec-

ond quarter, however, oil prices bur-geoned to just under USD 40 perbarrel (Brent), posing a risk to pros-pects for the expansion. For the timebeing, though, the positive effect ofrapid global economic growth ap-peared to prevail. Forecasters ex-pected the upswing to accelerate inthe second half and revised estimatesupward. The Eurosystem�s projec-tions of June 2004 pegged real GDPgrowth at between 1.4% and 2.0%in 2004, with an increase to 1.7%to 2.7% in 2005.

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Economy recoversgradually in the first

half of 2004



In the second half of the reviewyear, three key factors influencedcyclical developments: World eco-nomic growth lost some speed, oilprices surged further to top USD 50per barrel (Brent) in the summer of2004, and the euro continued toappreciate, especially in the fourthquarter. Available indicators increas-ingly confirmed that oil price devel-opments were dampening growth inthe euro area and beyond. As a result,

euro area quarter-on-quarter growthcontracted to just 0.3% in the thirdand 0.2% in the fourth quarter. Inview of these developments, fore-casters revised their outlooks forgrowth downward; the Eurosystem�seconomic projections of December2004 pegged the expansion of realGDP at 1.4% to 2.4% in 2005 and1.7% to 2.7% in 2006. The expertsunderlined the downside risks of oilprices for economic activity.

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Upswing slowsnoticeably in thesecond half of 2004



In the second half of 2004, infla-tion came in at over 2% every month.The contribution of the componentenergy to inflation widened from0.5 percentage point at mid-year to0.8 percentage point in October2004. However, no price pressuresemanated from developments withinthe euro area itself, as wage increaseswere still moderate and as the oilprice rise had not produced second-round effects; moreover, given damp-ened growth, this pattern was ex-pected to persist. Against this back-ground, the Eurosystem�s inflationprojections of December 2004 put

inflation at between 1.5% and 2.5%for 2005 and at 1.0% to 2.2% for2006.

The expansion of M3 slowed from6.5% at the beginning of 2004 to4.9% in May 2004, reflecting aboveall the normalization of investors�marked preference for liquid assetsas a result of their cautiousness from2001 through 2003. Economic agentsregained market confidence and be-gan to reinvest in longer-term andriskier assets. On the back of low in-terest rates, M3 growth reacceleratedfrom 5.3% in June 2004 to 6.4% inDecember 2004. The low interestrate level also boosted credit de-mand, in particular for mortgageloans, which is indicative of the realestate price boom in some euro areacountries. In view of these develop-ments, the Governing Council ofthe ECB cautioned that the stock ofexcess liquidity and strong creditgrowth represented not only a riskto price stability, but could also entailan excessive rise in asset prices.

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of 2004, quickensfrom mid-2004



Box 2

The Links between the Balance of Payments and

Monetary Developments in the Euro Area

The Role of the Balance of PaymentsThe theoretical literature widely recognizes that cross-border transactions have an impact on themonetary dynamics of a currency area. Classical economic theory provides insights into the linkbetween monetary developments and the balance of payments; at the same time, this connectionis also a fundamental proposition of international macroeconomics. Against the background ofglobally linked financial and capital markets, model-based analyses provide topical evidence formonetary policymaking. For the euro area, research undertaken by the ECB implies that thedynamics of the broad monetary aggregate M3 since 2001 have been associated in large partwith transactions involving nonresidents. Thus, the observation of cross-border capital flows hasbecome an important element in euro area monetary analysis.

Conceptual Framework and StatisticsFor the euro area institutional analysis, the ECB compiles a monetary presentation of the euroarea balance of payments in close cooperation with the NCBs of the ESCB. The OeNB has pre-sented the new conceptual framework to the interested public and has explained the statisticaland analytical principles on which it is based.1 Because of their principle of balance sheet identityand because balance of payments statistics are harmonized with monetary statistics (the con-solidated MFI balance sheet) it is possible to use balance of payments data to derive structuralinformation about the development of the external counterpart of M3 (the MFIs� net externalassets). The monetary presentation of the euro area balance of payments shows net capital flowsbetween the resident money-holding (non-MFI) sector and the rest of the world.

Changes in International Capital Flows — From Net Inflows to Net OutflowsDuring a first phase after the introduction of the euro, from 1999 to mid-2001, the euro arearecorded substantial net capital exports, which exerted a restrictive effect on monetary growth.In this period companies in the euro area were diversifying abroad under the impact of globaliza-tion, and euro area investors had a preference for investment in equities in the rest of the world,among other things for reasons of diversification. Nonbanks borrowed cheap in the euro area andinvested these funds abroad, especially in the U.S.A., at higher yields. During the second phase,from 2001 to 2003, net capital flows switched and capital was repatriated to Europe in the wakeof the bursting of the technology bubble and crumbling stock prices as well as the market reper-cussions of the 9/11 terrorist attacks, which sent investors on a search for safe havens. Hence,external transactions contributed to the acceleration of M3 growth observed in the euro areaduring this period.

Developments in 2004In 2004, the expansionary impact of transactions with euro area nonresidents on M3 growthincreased further. Higher net capital imports to the euro area are the result both of real trans-actions with the rest of the world, in particular lower net income outflows, and of financialtransactions, i.e. investment on international capital markets and external lending and depositsof the money-holding (nonbank) sector. For example, euro area investors placed fewer funds inforeign equities and mutual fund shares whereas foreign investment in euro area securities rose.Cross-border investment in bonds developed along the same lines. Conversely, investment inmoney markets produced net capital outflows, and net exports in direct investment expanded,causing the euro area to be harder hit by the persistent reduction in foreign direct investment thanthe rest of the world.1 See: OeNB. 2003. Understanding the Impact of External Trade and International Capital Flows on Euro Area Monetary

Growth and Austria�s Contribution from 1999 to 2002: The Monetary Presentation of the Balance of Payments. In: Focuson Austria 3/2003. OeNB. 76—94.



To ensure the smooth implemen-tation of monetary policy operations,the Governing Council of the ECBintroduced two changes to the mone-tary policy framework in March 2004.In a first step, the timing of thereserve maintenance periods wasadjusted to start on the settlementday of the main refinancing operation(MRO) following the first GoverningCouncil meeting of a given month.This aligned the reserve maintenanceperiod with the cycle for interestrate decision making, ensuring thatchanges in key interest rates alwaystake effect at the beginning of a mini-mum reserve period. This measureeliminated expectations of changesin key interest rates within a mini-mum reserve period and their desta-bilizing impact on counterparties�bidding behavior in the MRO.

In a second step, the maturity ofthe MROs was shortened from twoweeks to one week. Thus, MROssettled in one reserve period nolonger extend into the subsequentreserve maintenance period. Theimplementation of both changes wassmooth. Halving the MRO maturityto one week led to a doubling inthe size of each MRO.

Austria —Export-Led RecoveryPowerful export demand buoyed eco-nomic activity in Austria in the firsthalf of 2004. Despite dampeningeffects induced by the appreciationof the euro, Austrian exporters suc-ceeded in boosting deliveries abroadsignificantly. Domestic demand, bycontrast, was sluggish. With dispos-able income making little headwayand energy prices high, consumerspending did not take off. In the firsthalf of 2004, investment did not pickup speed either, but the pronouncedimprovement of capacity utilizationand the results of the InvestmentSurvey conducted by WIFO, the Aus-trian Institute of Economic Research,signaled a growing propensity to in-vest toward the end of the year.Moreover, the expiration of the spe-cial investment tax credit at the endof 2004 may have prompted investorsto frontload investment. Investmentbecame noticeably more animated inthe second half of 2004. GDP growthsurged from 0.8% in 2003 to 2.0% in2004.

Real Gross Domestic Product and Its Components in Austria

(seasonally adjusted)Chained volume measures (reference year = 2000)

2002 2003 2004 Q1 04 Q2 04 Q3 04 Q4 04

Annual change in % Quarterly change in %

Real GDP 1.2 0.8 2.0 0.6 0.8 0.8 0.3

Contributions to GDP growth Percentage points

Private consumption 0.0 0.4 0.8 0.2 0.2 0.1 0.2Government consumption 0.2 0.1 0.2 0.0 0.1 0.1 0.0Gross capital formation �0.8 0.9 0.8 0.0 0.3 0.6 0.4Net exports 1.5 �1.0 1.8 0.8 1.1 0.3 �0.8Statistical discrepancy 0.3 0.4 �1.6 �0.5 �0.9 �0.3 0.5

Source: WIFO, OeNB.

Monetary policyframework adjusted



Inflation rose in Austria in thecourse of 2004. HICP inflation ranto 2.0%; core inflation — defined asinflation exclusive of the componentsenergy and unprocessed food — stood at1.6%. Therefore, the annual averageHICP for Austria in 2004 was withinthe definition of price stability for-mulated by the Governing Councilof the ECB. The rise in the rate ofprice increase stems largely from thecontribution of two categories: energy(+6.9%) and housing, water, elec-tricity, gas and other fuels (+4.2%).By contrast, wage moderation — thewage settlements for 2004 providedfor increases of 2.1% — was instru-mental for price stability.

The defining trends on the labormarket were the rise in the numberof reported vacancies and above allthe surge in labor supply as a resultof the boom in labor from abroadand of the pension reforms imple-mented in the past few years. Em-ployment advanced by 0.5% in 2004,with most of the new positionscreated in the service sector. Morerecently, job shedding in manufactur-

ing and construction also came to ahalt. Nevertheless, the acceleratingrecovery failed to offset the above-average gain in labor supply andhence to reduce unemployment.The unemployment rate (Eurostatdefinition) came to 4.5% in 2004,somewhat more than in 2003(4.3%), despite substantially highereconomic growth.

The current account closed theyear 2004 with a surplus of EUR0.8 billion (+0.3% of GDP). Ani-mated export growth (+13.0% innominal terms in 2004) shored upthe merchandise and services balan-ces substantially, which had a surplusof EUR 4.8 billion, nearly twice thatrecorded in 2003. Austria�s healthyexport performance hence counter-acted a more pronounced slippageinto deficit of the current accountcaused by marginally rising shortfallson incomes and transfers. The finan-cial account posted a surplus ofEUR 1.1 billion in 2004; net capitalinflows on other investment com-pared with net capital outflows onall other subbalances (direct invest-

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Marked enlargementof labor supply

Vigorous exportgrowth compensatesfor pronounced shiftof the currentaccount into deficit



ment, portfolio investment, financialderivatives). Both inward and out-ward direct investment contractedperceptibly against the 2003 values,partly on account of extraordinarilyhigh direct investment as a result ofrestructuring measures.

Powerful GlobalEconomic Growth in 20042004 marked the highest real-termworld economic growth in 20 years —more than 5.1% (IMF, April 2005).The growth powerhouses were theU.S.A., China and the East Asianemerging economies. The global re-covery was to a good extent pro-pelled by expansionary economicpolicy impulses, but began to losemomentum from the spring of2004. This weakening, albeit at a highlevel, stemmed from a more restric-tive economic policy stance, aboveall in the U.S.A. and in China,coupled with burgeoning oil pricesand the resulting decline in consumerspending as well as the boost incommodity prices in the wake of

the Chinese industrial sector�s highdemand for raw materials.

Real economic growth was fast-paced in the U.S.A., coming to4.4% in 2004. However, the upswinglost some momentum in the courseof the year; especially export growthslipped despite the weak dollar. Con-versely, import growth was far live-lier, causing net exports to tonedown growth and the current accountdeficit to augment to 5.4% of GDP.Furthermore, household consump-tion decelerated temporarily in thesecond and third quarters, remaininganimated overall, however (2004:+3.8% in real terms). The dip inspending growth may be traced tothe petering out of the impulse pro-vided by expansionary fiscal policy,mounting prices and the U.S. FederalReserve System�s tightening of themonetary reins with higher interestrates from June 2004. By contrast,investment growth was unabatedthroughout 2004. Investment inequipment and software as well as ex-penditure on housing posted solid

Key Figures for Selected Regions

EU-12 EU-15 EU-25 U.K. U.S.A. Japan China

Annual change in %GDP (real) 2002 0.9 1.0 1.1 1.8 1.9 �0.3 8.0

2003 0.5 0.8 0.9 2.2 3.0 1.4 9.32004 2.1 2.3 2.4 3.1 4.4 2.7 9.5

Inflation rate 2002 2.3 2.1 2.1 1.3 1.6 �0.9 �0.82003 2.1 2.0 1.9 1.4 2.3 �0.3 1.22004 2.1 2.0 2.1 1.3 2.7 0.0 3.9

%Unemployment rate 2002 8.4 7.7 8.9 5.1 5.8 5.4 x(Eurostat definition) 2003 8.9 8.1 9.1 4.9 6.0 5.3 x

2004 8.9 8.1 9.0 4.7 5.5 4.7 x

% of GDPNet deficit 2002 �2.4 �2.2 �2.3 �1.7 �3.8 �7.9 �3.3

2003 �2.8 �2.8 �2.9 �3.4 �4.6 �7.7 �2.82004 �2.7 �2.6 �2.6 �3.2 �4.4 �7.0 �2.4

Current account surplus/deficit 2002 1.0 0.7 x �1.7 �4.4 2.8 2.82003 0.5 0.3 x �1.8 �4.7 3.2 3.22004 0.6 0.4 �0.2 �1.9 �5.4 3.7 4.2

Source: Eurostat, European Commission; China: IMF.

U.S. economyremains dynamic



gains on the back of high domesticdemand, sound profit margins andfavorable financing conditions. Thegain in oil prices was instrumentalin driving up inflation from 2.3% in2003 to 2.7% in 2004. At 4.4% ofGDP, the U.S. budget deficit stayed

high in 2004. The U.S. twin (budgetand current account) deficit waspartly responsible for the U.S. dol-lar�s weakness in 2004 (see box 3)and weighs on medium-term U.S.growth prospects.

Box 3

International Exchange Rates, Foreign Exchange Reserves

and Gold Reserves

International Exchange Rates and Foreign Exchange ReservesThe U.S. currency�s continued downtrend against the euro since 2001 remained more or less un-broken throughout 2004. Whereas the U.S. dollar strengthened substantially until the end of May— on May 13, 2004, it stood at USD 1.18 to the euro — the dollar started to slip again in fits andstarts during the summer and depreciated considerably during the fourth quarter of 2004.

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With market participants paying close atten-tion to the issue of the sustainability of exter-nal imbalances, reports about the enlarge-ment of the twin deficit — the shortfalls onthe U.S. current account and the budget —also acted as a damper on the dollar�s value.Yet until the late summer, the data signaledthat net U.S. liabilities did not represent amajor financing burden. Expected and actualinterest rate hikes by the U.S. Federal ReserveSystem secured the attractiveness of the U.S.markets for investment compared with otherfinancial centers.1 Even when private sectorcapital flows began to shrink as investors werereassessing the profitability of holding dollar-denominated investments, the principal Asianmonetary authorities still hoarded substantial

amounts of U.S. dollars in an effort to uphold their currencies� parities to the U.S. dollar, thusfinancing the U.S.A.2 The rapid slide in the value of the U.S. dollar against the euro in the fourthquarter of 2004 was set off above all by expectations that U.S. business activity was letting up, asreflected by flagging industrial output, disappointing labor market data and deteriorating con-sumer confidence. Moreover, the persistently high oil price stoked fears that the economy wouldsuffer.

New Central Bank Gold AgreementThe gold price broadly mirrored the USD/EUR exchange rate changes in 2004, bottoming out onMay 5, 2004, at around USD 372 per fine ounce and then rising gradually to about USD 457 perfine ounce by the end of November.

The OeNB has been able to pursue a profitable, active gold policy, using e.g. gold leasingtransactions within the framework of the Central Bank Gold Agreement. On March 8, 2004,15 European central banks issued a joint statement on gold by which they renewed the goldagreement that expired on September 26, 2004, for another five years. The Bank of Englandleft the agreement whereas the Bank of Greece joined. The gold sales already decided and tobe decided by the undersigned institutions will be achieved through a concerted program of salesover a period of five years. Annual sales will not exceed 500 tons, and total sales over this periodwill not exceed 2,500 tons (previously: 2,000 tons). The participating central banks also agreedthat the total amount of their gold leasings and the total amount of their use of gold futuresand options would not exceed the amounts prevailing at the date of the signature of the previousagreement.

1 The Federal Reserve System raised the federal funds target rate step by step from 1.00% to 2.25% in the course of 2004(measures taken at the Federal Open Market Committee meetings of June 30, August 10, September 21, November 10and December 14). Market players had anticipated each of the 25 basis point hikes months in advance, and each movewas discounted in the yield curves.

2 According to IMF statistics, Asia�s net currency reserves (excluding gold) alone widened from some USD 1.500 trillion toUSD 1.787 trillion from the beginning of 2004 to November 2004. In the meantime, these countries� foreign exchangereserves have attained such a large volume that even minor portfolio shifts have an impact on the exchange rate.



Japanese output expanded bysome 4% in 2004, mainly on the backof very vigorous growth until spring2004. However, the Japanese econ-omy — especially gross fixed capitalformation — slowed down perceptiblythereafter. Furthermore, Japan�s ex-ports lost momentum when Chinesedemand slackened. Additionally, thedecline in public investment weighedon growth. Conversely, with employ-ment growth boosting consumer con-fidence, household spending washealthy even though real incomesrose only moderately. Japan couldstill not shake loose deflation in2004. Despite fairly animated outputgrowth and the surge in oil prices,consumer prices persisted at theyear-earlier level. Consequently, theBank of Japan stayed its monetarypolicy course with interest rates near0% since 2001.

At the beginning of 2004, China�seconomy showed signs of overheat-ing, such as capacity constraints ofthe energy and transport infrastruc-tures and quickening inflation. Butfrom mid-2004, above all becausepolicymakers steered a more restric-tive course, the pace of economicgrowth eased in China, too, thoughit remained at a high level. As a casein point, minimum reserve rates forcommercial banks were raised andstandards for investment lending weretightened. These measures broughtthe growth in loans to the nonbanksector to a standstill at mid-year.Furthermore, public-sector infra-structure investment was scaled back.Finally, the surge in commodity andoil prices also tempered growth. Yetdespite all these restraints, Chineseeconomic activity shot up by about9.5% in 2004. High growth in tan-dem with soaring commodity pricespushed up inflation considerably toa yearly rate of almost 4%.

Russia chalked up continued solideconomic growth of 6.6% in 2004.This expansion was sustained by amassive boost in investment drawingon quickly rising profits and a notableincrease in consumer spending fueledby rapid gains in real wages. As anexporter of oil and commodities,Russia benefited from the high pricesof these goods. The country againconcluded the year with a largecurrent account surplus thanks tothe pronounced improvement of theterms of trade. The budget closedwith a surplus as a result of substan-tial tax receipts in connection withexpensive oil. While inflation camedown somewhat from 2003 levels,it remained high at 10,7%.

The eight new Member Stateslocated in Central and EasternEurope (CEEC-8) showed a fairlysolid growth performance in 2004,as did Southeastern Europe (withthe exception of the Former YugoslavRepublic of Macedonia), Ukraine andBelarus. The upswing in these coun-tries was buoyed mainly by strength-ening private investment and house-hold spending alongside healthyexports stimulated by the revival inthe remainder of the EU. Consumerprice inflation also picked up in2004, with the outcomes spanning alarge range among countries: Infla-

Japanese economyposts robust growth— deflation persists

Chinese businessactivity overheats

Russia — high growth,high inflation

Robust growth in theCentral and EasternEuropean newMember States



tion was lowest in Lithuania at 1.1%and highest in Slovakia at 7.4%.Despite animated economic growth,the unemployment rate averaged15% across the CEEC-8.

The upswing in the United King-dom that had begun in 2003 contin-ued until mid-2004, sustained largelyby domestic demand. In particularconsumer spending advanced at alively pace, drawing on the markedincrease in real disposable incomes,favorable employment prospects andhefty asset price gains linked to theboom in real estate prices. However,growth abated noticeably in the thirdquarter of 2004, as manufacturingoutput and retail sales declined andas the situation on the real estate mar-ket eased, which dampened house-hold spending. The British economyexpanded by 3.1% in real terms in2004. The revival reduced the unem-ployment rate to 4.7%, and despitehigh growth, inflation remained lowat 1.3%.

The Stability andGrowth Pact —A Key Pillar of EMU�sStability ArchitectureThe slowness of the recovery in theeuro area kept the aggregate budgetdeficit at the previous year�s level of2.7% of GDP in 2004. The positive

impact of moderate primary expen-diture growth and of a slight dropin interest expenditure was offset bythe gradual disappearance of deficit-decreasing temporary measures andthe decline in revenue following taxreform. Adjusted for the effects oftemporary measures, the euro areabudget deficit would have run toapproximately 3.0% of GDP.

Germany, France and Greececlosed the year with deficits in excessof 3% of GDP; Italy posted a 3%deficit. Looking ahead, in their spring2005 excessive deficit procedure(EDP) reports all three countriescommitted themselves to reducingtheir deficits to below the Maastrichtreference value of 3% of GDP in2005; success will, however, be con-tingent on a considerable improve-ment of the economic frameworkand on expenditure restraint.

In this respect it is worth notingthat on July 13, 2004, the EuropeanCourt of Justice annulled Ecofin�sdecision to put into abeyance theEDP for Germany and France. To pre-vent a stalemate, the Ecofin Council,on recommendation of the EuropeanCommission, gave both countries un-til 2005 to bring their deficit ratiosback under the 3% limit, in recogni-tion of their firm commitment toreduce their budget deficits. Greece,however, was found not to have takeneffective action to avoid an (exces-sive) deficit, prompting the EuropeanCommission to recommend that theEcofin Council give notice to Greece.

All euro area countries exceptSpain, Luxembourg, Ireland, theNetherlands and Finland still posteddebt ratios that surpassed the 60%reference value in 2004.

According to the national con-vergence programs, among the non-euro area Member States, the CzechRepublic, Cyprus, Hungary, Malta,

United Kingdom —pronounced upturn

Euro area budgetdeficit remains high

in 2004



Poland and Slovakia posted excessivedeficits in 2004. In all cases butCyprus, the Council decisions allowfor the correction of these excessivedeficits in a medium-term frameworkrather than already in 2005 given theexistence of special circumstances,namely continuing structural adjust-ment. The debt ratios of the newMember States — except for thoseof Cyprus and Malta — are, inciden-tally, below the euro area average.

In 2004, the European Commis-sion made proposals to reform theStability and Growth Pact. Thechanges agreed by the Ecofin Councilon March 20, 2005, and adopted bythe European Council on March 22,2005, include the commitment toimprove the coordination of nationalbudgetary policies with the stabilityand convergence programs, statisticalgovernance and forecast reliability.

The preventive arm of the Stabil-ity and Growth Pact was altered totake into account in the definitionof the medium-term objective of abudgetary position �close to balanceor in surplus� factors such as poten-tial growth, debt ratios and certainstructural reforms. Moreover, theEuropean Council Presidency conclu-sions stressed the importance of usingperiods of growth above trend moreeffectively for budgetary consolida-tion.

As to the corrective aspects of theStability and Growth Pact, it wasagreed that in addition to an in-creased focus on debt and the long-term sustainability of public financesin establishing whether an excessivedeficit exists, systemic pension re-forms and �other relevant factors,�such as costs associated with the uni-fication of Europe, should be givendue consideration. The deadlines forcorrecting an excessive deficit wereextended, and the definition of �se-

vere economic downturn� was eased.The reference values for the deficit-to-GDP ratio and the debt-to-GDPratio remained unchanged at 3%and 60%, respectively.

The Governing Council of theECB expressed serious concern thatthe changes to the Stability andGrowth Pact could reduce the effec-tiveness of the EDP. It must beavoided that changes in the correctivearm undermine confidence in thesustainability of public finances inthe euro area countries. The Govern-ing Council also took note of someproposed changes which are in linewith the possible strengthening ofthe preventive arm of the Stabilityand Growth Pact.

Sound fiscal policies and a mone-tary policy geared to price stabilityare fundamental for EMU�s success.They are prerequisites for macroeco-nomic stability, growth and cohesionin the euro area. The GoverningCouncil underlined that it was imper-ative that the Member States, theEuropean Commission and the Coun-cil of the European Union implementthe revised framework in a rigorousand consistent manner conducive toprudent fiscal policies. Withouttransparent fiscal rules, the financialmarkets play a greater role in impos-ing discipline.

Reform of theStability andGrowth Pact



Budgetary developments inAustriaBased on the figures provided by Sta-tistics Austria (March 2005), the gen-eral government deficit (Maastrichtdefinition) came to 1.3% of GDP in2004, substantially below the euroarea average of 2.7% of GDP. Thepublic deficit rose by 0.2 percentagepoint of GDP from the 2003 result.1

Expenditure cuts did not suffice tooffset the decline in the revenue ratiothat was triggered, above all, byshrinking income and wealth tax rev-enues (which reflect, inter alia, theeffects of the first stage of tax reformand anticipation effects of the secondpart of the tax reform scheduled for2005) and contracting value addedtax receipts. Expenditure growth

slowed mainly as a result of the pen-sion reform already implemented andthe administrative reform measurestaken so far (including personnel re-ductions). However, the effect ofthese consolidation measures wasdampened by the residual effects ofchild-care benefit payments andhigher social security spending (auto-matic stabilizers).2

The update of the Austrian stabil-ity program for 2004 to 2008 ofNovember 30, 2004, has three aims:First, achieving a general governmentbudgetary position which is in bal-ance over the business cycle; second,reducing the tax-to-GDP ratio to40% by 2010; and third, boostinggrowth potential by investing in re-search, education and infrastructure.

The goal is a balanced budget in2008. Especially in 2005 and 2006,fiscal stimulus packages, a �growthand location package� and most ofall tax reform will cause the deficit

ratios to swell. Nevertheless, thesemeasures will not jeopardize the 3%deficit target at any time. From2006, the reduction in the generalgovernment deficit will result nearly

1 The value for 2003 was revised downward from 1.3% to 1.1%.2 Automatic stabilizers are cyclical changes in tax revenues (especially income tax revenues) and public spending(mainly on unemployment insurance) which have a positive impact on GDP.

Fiscal Convergence Criteria for Austria

% of GDP2003 2004 2005 2006 2007 2008

FinalBudgetAccount

Outturn Stability program1

Receipts2 49.5 49.4 47.5 46.2 46.0 45.8Expenditure2 50.6 50.5 49.5 48.0 46.7 45.8Budget balance2 �1.1 �1.2 �1.9 �1.7 �0.8 0.0Interest expenditure (net) 3.2 3.2 3.1 3.1 3.0 2.9Primary expenditure 47.4 47.3 46.4 44.9 43.7 42.9Primary surplus 2.1 2.0 1.2 1.3 2.2 2.9Cyclically adjusted budget balance �0.4 �0.5 �1.5 �1.5 �0.7 0.0Cyclically adjusted primary surplus 2.8 2.7 1.6 1.6 2.3 2.9Debt ratio 64.7 64.2 63.6 63.1 61.6 59.1Tax ratio3 42.8 42.8 41.6 40.5 40.3 40.0

Source: Federal Ministry of Finance, Statistics Austria.

Note: Discrepancies may arise from rounding.1 Update of November 30, 2004.2 Swaps shown net.3 Direct taxes, indirect taxes, social security contributions excluding imputed contributions,inheritance taxes.

Austrian generalgovernment deficitcomes to 1.3% in

2004

Update of theAustrian stability

program



exclusively from structural improve-ments. Under the stability program,the tax ratio of 40% of GDP is tobe attained already in 2006.

Along with a new fiscal sharingscheme for the years 2005 through2008, a new Austrian stability pactwas adopted to support budget coor-dination. Within the framework offiscal sharing, further improvements(above all for local government) andsimplification measures as well asthe further procedure for the secondstage of the administrative reformpackage were agreed. Moreover, thethree levels of government agreedon introducing additional revenue-raising measures worth 0.12% ofGDP to finance the health care deficit(posted by the social security andhospital sectors) and on drawing upan expenditure cut package of thesame magnitude.

The debt ratio is projected to de-cline by 5.1 percentage points from2004 and thus fall below the limitof 60% of GDP by 2008, amongother things thanks to reboundingprimary surpluses and contractingpositive interest rate/growth differ-entials.

Mid-Term Review —Further Massive ReformsRequired to ImplementLisbon StrategyIn 2004, a high-level group headed byWim Kok performed a mid-termreview of the Lisbon strategy,3 thereform program aimed at makingEurope the most dynamic and com-petitive knowledge-based economy

in the world. The strategy definesemployment, research, internal mar-ket, environmental sustainability andsocial goals to be reached by 2010.The Kok report4 criticizes the disap-pointing delivery of the Lisbon goalsof growth and employment. Whilesome progress was observable andEurope�s social model had a muchbetter record than its U.S. counter-part in important areas (poverty, in-fant mortality rates, life expectancy),productivity growth in Europe haddeclined and so far, the political willto implement reforms was lacking.Overall, there was little improve-ment in many areas, such as employ-ment or research. Some areas insome countries represented excep-tions, e.g. achievements toward theknowledge society in Finland andSweden, the reduction of unemploy-ment in Italy and productivity gainsin Ireland. The unfavorable frame-work conditions of economic stagna-tion and global political uncertaintyrepresented obstacles to reachingthe Lisbon goals. Moreover, the EU�sfocus was on enlargement and theConstitution for Europe.

The EU scored some progress inreaching the employment rate targetof 70%. Despite economic stagna-tion, Italy succeeded in loweringunemployment from nearly 12% to8%; the employment rate for Europeas a whole advanced by 1 percentagepoint to just under 65% from 2000.Liberalization has made strides inmost European network industries,such as telecommunications, energy(gas and electricity), the postal serv-

3 The 32nd Economics Conference of the OeNB on May 27 and 28, 2004, also dealt with this topic: �Growth andStability in the EU: Perspectives from the Lisbon Agenda.� (The conference proceedings may be found on theOeNB�s website at www.oenb.at.)

4 See: Facing the challenge. The Lisbon strategy for growth and employment. Report from the High Level Groupchaired by Wim Kok. Luxembourg: Office for Official Publications of the European Communities. November2004.

Kok Report is critical

Progress in employ-ment, network indus-tries and financialservices



ice and the railroad sector, albeit todifferent degrees in different coun-tries. In its tenth Progress Reporton the Financial Services Action Plan,the European Commission observesthat nearly all legislative measureshad been completed on schedule.The successful implementation ofthe Financial Services Action Plan isattributed to a good extent to theLamfalussy procedure. According tothis procedure, EU bodies to whichrepresentatives of national regulatoryand supervisory authorities (and cen-tral banks) are appointed are involvedin the legislative process and in theconsistent transposition of Commun-ity law in the Member States. This re-duces the burden on the EuropeanCommission. Moreover, the classifi-cation of legislation into basic legisla-tion requiring a political decision anddetailed provisions to be passed at thetechnical level provides for speedydecision making. Full integration ofthe internal market for services willhave to be preceded by a thoroughdebate about the services directiveof the European Commission, asthe draft still requires fundamentalchanges according to the EuropeanCouncil of March 22 and 23, 2005.

Europe�s research, innovation andeducation systems appear to have along way to go toward becomingcompetitive. The discussion sur-rounding the single European patentis typical of the failure to pushthrough reforms. The EU�s R&D ra-tio merely edged up from 1.93% in2000 to 1.99% in 2002 (Austria:2.27% in 2004). The Kok and Sapir5

reports both urge the authorities toimplement research promotion anduniversity reforms.

To speed up implementation, theKok report recommends a greateremphasis on the national level via�partnerships for reform� and na-tional action programs subject to de-bate within national parliaments. Thereport proposes that the EU budgetbe reshaped to reflect the Lisbon pri-orities of R&D and education expen-diture, that communication be im-proved and that a European ResearchCouncil be created. The strategy is tobe focused on fewer targets overall.European Commission President Jose«Manuel Barroso has already called fora relaunch of the Lisbon strategy as a�partnership for growth and employ-ment.�

Implementation may be improv-ing for a number of reasons. In thepast, efforts have typically been re-doubled when a deadline drew near.Furthermore, the European Com-mission and the Member State gov-ernments should invest more politicalenergy in the Lisbon process from2005 to 2010. Economic stagnationhas prompted many member coun-tries to begin to tackle reforms. Ifthe Lisbon agenda is to be transposedinto a �national growth strategy� or apartnership for reform and broughtto the attention of Europe�s citizens

5 Sapir, A., P. Aghion, G. Bertola, M. Hellwig, J. Pisani-Ferry, D. Rosati, J. Vin�als und H. Wallace. 2003. AnAgenda for a Growing Europe: Making the EU Economic System Deliver. Brussels.

Improvingimplementation

Little progress inresearch and innova-tion systems; AustrianR&D indicators near

EU-15 average



more effectively, the chance of atleast getting decisively closer to at-taining the Lisbon goals by 2010 willbe much better, which will revitalizeenthusiasm.

The European Council of March22 and 23, 2005, agreed to reformthe Lisbon strategy and to refocus iton the priorities of growth and em-ployment. Knowledge and innovationwere designated as vital strands of therelaunch. Furthermore, the Euro-pean Council confirmed the three(economic, social and environmen-tal) dimensions of the strategy.Streamlining the various governanceprocesses represents a further keypriority of the mid-term review.

Crucial structural reformsimplemented in Austriain 20046

In 2004, the Austrian Research Pro-motion Agency was founded througha merger of four previously inde-pendent research companies. Themerger did not include the AustrianScience Fund. This reform is targetedat boosting the efficiency of publicR&D promotion. In a few years, anevaluation will be able to showwhether this step has improved per-formance.

Austria has succeeded in acceler-ating implementation of InternalMarket directives, and after establish-ing an implementation watchdog nowranks among the top third of coun-tries in terms of implementationspeed. Moreover, under the newminimum acceptance provisions forjob seekers, the protection unem-ployed persons used to have frombeing obligated to accept a job out-side their former industry (Berufs-

schutz) has been replaced by a mini-mum pay guarantee (Entgeltschutz).Hence, jobless persons turning downjobs unrelated to their qualificationafter being unemployed for 100 dayswill lose their entitlement to unem-ployment benefits. However, the in-come of the new job must not fall be-low 75% of job seekers� last salaries.The new acceptance conditions forthe first time stipulate commutingtime limits (no more than a quarterof the working hours). Moreover,the government made further prog-ress on the Administrative ReformProgram, the electronic filing systemELAK has been in use since 2004,and headway was made on paperlessgovernment initiatives, such as publice-procurement (e-government legis-lation, simplification of electroniccommunications with public author-ities).

Implementing health care reformand the results of the ConstitutionalConvention, whose objective is moreefficient governance relations be-tween the central, regional and localgovernment, is still on the Austriangovernment�s agenda. A first draftFederal Constitution was presented

6 Issue Q2/2005 of the OeNB�s publication Geldpolitik & Wirtschaft (published in English as MonetaryPolicy & the Economy), scheduled to appear at the end of June 2005, will cover the topic �10 Years ofAustrian EU Membership,� presenting studies on structural reforms from a variety of angles.



at the beginning of 2005, but it doesnot take into account a number ofobjectives. Also, in a European com-parison, rules governing the liberalprofessions are far more stringent inAustria. The results of the OECD�sPISA7 survey assessing students�knowledge and skills have triggeredlively discussions about educationalreform in 2005.

European IntegrationMakes HeadwayBy concluding the accession negotia-tions with ten countries, the Copen-hagen European Council of Decem-ber 12 and 13, 2002, laid the foun-dation for the accession of the CzechRepublic, Cyprus, Estonia, Hungary,Latvia, Lithuania, Malta, Poland, Slo-vakia and Slovenia to the EU. Afterthe Accession Treaty was signed inAthens in April 2003, the historicalenlargement of the EU by these tenMember States was celebrated onMay 1, 2004.

As part and parcel of their EUaccession, the new Member Statesbecame members of the ESCB, andtheir central bank presidents becamemembers of the General Council ofthe ECB. Likewise, their NCBs� ex-perts in the ESCB committees now

have full member status wheneverthe committees meet in ESCB com-position, i.e. with representativesfrom all EU NCBs.

EU enlargement automaticallyentailed an increase in the ECB�s sub-scribed capital to EUR 5.565 billionon May 1, 2004. The 12 EurosystemNCBs have paid up their subscribedcapital in full. The 10 new non-euroarea NCBs are required to pay up aminimal percentage of their sub-scribed capital (7% as at May 1, 2004)as a contribution to the operationalcosts of the ECB. At the same time,the paid-up shares of the nonpartici-pating NCBs (Bank of England, Dan-marks Nationalbank and SverigesRiksbank) in the ECB�s subscribedcapital increased from 5% to 7%.

The European Commission andthe ECB published their ConvergenceReports 2004 on October 20, 2004.They conclude that at the momentof examination neither the newMember States nor Sweden fulfilledall the criteria needed to introducethe euro.

To measure the countries� com-pliance with the inflation criterion,the August 2004 reference value of2.4% was used. The Czech Republic,Estonia, Cyprus, Lithuania and Swe-den had inflation rates below thereference value. Five countries —Estonia, Latvia, Lithuania, Sloveniaand Sweden — fulfilled the criterionon the government budgetary posi-tion, with fiscal deficits below the3% of GDP reference value and debtratios below the 60% of GDP refer-ence value. None of these MemberStates participated in the exchangerate mechanism ERM II for the fulltwo-year reference period. To deter-mine compliance with the long-terminterest rate criterion, a reference

7 Programme for International Student Assessment.

The EU expands tobecome the EU-25

The ConvergenceReports of the ECBand the European

Commission



value of 6.4% over the 12 monthsending in August 2004 was chosen.The Czech Republic, Cyprus, Latvia,Lithuania, Malta, Slovenia, Slovakiaand Sweden fulfilled this criterion.A harmonized long-term interest rateto examine the degree of conver-gence was not available for Estonia,which has no long-term governmentbonds or similar securities, but noindications suggested a negative as-sessment. The Convergence Reportsalso included an examination of the

compatibility of national legislationwith the Treaty, notably the compati-bility of the statutes of the countries�NCBs with the Treaty and with theESCB Statute. None of the countriesfulfill the necessary legal conditions.Hence, the status of the 11 countries(the ten new Member States andSweden) as Member States with aderogation remains in force. Thenext Convergence Reports are ex-pected for 2006.

Box 4

Milestones of European Integration in 2004

— On May 1, 2004, the biggest enlargement in the EU�s history became reality. The EUexpanded to include 25 countries. The accession of the Czech Republic, Estonia, Cyprus,Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia (in protocol order) boostedthe population of the EU from some 370 million to about 455 million people.

— On June 18, 2004, the European Council meeting in Brussels reached an agreement on theTreaty establishing a Constitution for Europe (Constitutional Treaty). The Constitutional Treatyis set to replace all current European treaties by a single legal act with the intention of makingthe EU more democratic, transparent and efficient; it is currently expected to enter into forceon November 1, 2006.

— Estonia, Lithuania and Slovenia took a major step toward introducing the euro by joiningERM II on June 28, 2004. The central parities against the euro were set at EEK/EUR15.6466, LTL/EUR 3.45280 and SIT/EUR 239.640. Participation in ERM II for at least twoyears without severe tensions is one of the convergence criteria a country has to fulfill tointroduce the euro.

— On December 14, 2004, the accession negotiations with Bulgaria and Romania were formallyconcluded. Both countries are scheduled to become EU members on January 1, 2007.

— At its meeting on December 16 and 17, 2004, the European Council agreed to open acces-sion negotiations with Turkey and Croatia. As a prerequisite for the opening of accession talks,Turkey is committed to signing the protocol on the adaptation of the Ankara Agreement(a free-trade agreement between the EU and Turkey, which has to be extended to the tennew EU members). The negotiation framework for Turkey is to be based on the following prin-ciples, which may be considered: long transitional periods, derogations, specific arrangementsor permanent safeguard clauses for areas such as freedom of movement of persons, struc-tural policies or agriculture. The opening of accession negotiations with Croatia is conditionalon full cooperation with the International Criminal Tribunal for the former Yugoslavia.

The Intergovernmental Confer-ence started its proceedings on Octo-ber 4, 2003, and at the BrusselsEuropean Council on June 18, 2004,reached an agreement on the Treatyestablishing a Constitution for Europe(Constitutional Treaty). The finaldraft of the Constitutional Treatyhas been submitted to the Member

States for ratification and is cur-rently expected to enter into forceon November 1, 2006.

The Constitutional Treaty reaf-firms the framework conditions formonetary union as embodied in theTreaty on European Union; allamendments are purely technical.The legal and institutional framework

Treaty establishinga Constitution forEurope



for the ESCB and ECB as well as forthe single monetary policy is definedin both the constitutional provisions(Part I) and the policy areas (PartIII) of the Constitutional Treaty. TheESCB Statute is annexed to the Con-stitutional Treaty as a Protocol.

The constitutional provisions(Part I) not only define the pricestability goal as one of the EU�s gen-eral objectives, but also confirms thesui generis nature of the ECB as en-shrined in the Treaty on EuropeanUnion. The draft Constitution inte-grates the �Eurosystem� concept andincorporates into primary legislationthat the euro be defined as currency

unit and symbol of the Union. Thepart pertaining to monetary union(Part III) embodies a number ofnew provisions applicable exclusivelyto euro area member countries.

On November 5, 2004, the OeNBheld a workshop on the Constitu-tional Treaty.8 This meeting providedexperts from Austria and abroad withan opportunity to discuss the eco-nomic and monetary policy aspectsof the Constitutional Treaty and toprobe its possible impact on futuredevelopments of EMU.

8 See also: A Constitutional Treaty for an Enlarged Europe: Institutional and Economic Implications for Economicand Monetary Union. Workshops — Proceedings of OeNB Workshops No. 4. February 2005.

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Promoting financial stability in Aus-tria is a key priority for the OeNB.Since the OeNB aims at detecting po-tential risks for the domestic financialmarket as early as possible, a substan-tial proportion of its activities in 2004was dedicated to conducting audits,drawing up comprehensive analysesand regularly monitoring the financialmarket. In the course of off-site sur-veillance, the OeNB continuouslymonitored the developments, andpotential risks, in the Austrian finan-cial market with the help of pruden-tial data Austrian banks reported ona regular basis.

Austrian Financial SectorPosts Improved ResultsAfter 2002 had been characterized byeconomic difficulties and 2003 hadmarked the beginning of an upswing,the year 2004 saw further improve-ments in the Austrian financial mar-ket: banks, insurance companies, in-vestment funds and pension fundswere able to expand their business ac-tivities and achieve — in part consider-able — improvements in their profit-ability and performance.

In December 2004, Austrianbanks� total assets amounted toEUR 653 billion, up 7.9% against De-cember 2003, which means that thegrowth rate of banks� total assetswas significantly higher than boththe 2003 rate (+5.5%) and the aver-age growth rate of the past ten years(+5.9%). This uptrend mainly re-sulted from more animated externalbusiness and domestic interbank op-erations; domestic retail banking alsoincreased in 2004. Loans to domesticcustomers picked up (+4.7%), andcustomer deposits augmented again

(+4.9%) after subdued growth be-tween end-2002 and mid-2003. Sav-ings deposits, and especially depositsunder a savings and loan contract,continued to be very popular amonginvestors. On average, every Austrianholds savings deposits worth EUR16,700.

The significance of foreign cur-rency loans in lending to householdsremained high: The share of foreigncurrency loans in total loans to house-holds peaked at a new high of 29.1%in December 2004, whereas theirshare in total loans to domestic non-banks remained at a relatively stablevalue of approximately 19%. Sincemid-2000, the share of foreign cur-rency loans in total loans to nonfinan-cial corporations has declined stead-ily, amounting to a mere 14.8% inDecember 2004.1 The share of for-eign currency loans denominated inJapanese yen declined further in2004, coming to no more than 5.6%of all foreign currency loans at end-2004, whereas loans denominated inSwiss francs had risen to more than90%. From the point of view of finan-cial stability, this currency shift is wel-come, as the Swiss franc fluctuatedagainst the euro within a muchsmaller range than the Japanese yendid. The high share of foreign cur-rency loans in total lending is a dis-tinctively Austrian feature within theeuro area: While accounting for only3% of total euro area loans, Austrianborrowers held 20% of all yen-de-nominated loans and 42% of all Swissfranc-denominated loans. These pro-portions indicate that foreign cur-rency lending will still need to beclosely monitored in the interest offinancial stability.

1 As no information is available on repayment vehicles accumulated for paying back these loans, these figuresrepresent an upper limit.

Banks expand theirbusiness activities


The OeNB as a Competent Partner inEnsuring Financial Stability

The quality of loans granted byAustrian banks remained stable in2004. At end-2004, the ratio of spe-cific loan loss provisions to claimson nonbanks for the entire bankingsector stood at 3.3%, thus corre-sponding to the values recorded inthe two previous years. The analysisof nonaccrual and nonearning assetsand of nonperforming and irrevoca-ble loans did not show any worryingdevelopments, and market risk re-mained limited. Regulatory capitalrequirements for interest rate riskand equity price risk picked up some-what but stayed well below the histor-ical peak levels, whereas capital re-quirements for open foreign ex-change positions declined slightly to-ward the end of 2004. Austrianbanks� interest rate risk exposure re-sulting from maturity transformationoccurred mainly in euro and did notpose a major risk.

The results of the stress tests (car-ried out by the OeNB on a regular ba-sis) confirmed these data; they didnot indicate any threats to financialstability in Austria. The effects ofmarket risk shocks on the capital ra-tio remained constant, whereas thoseof credit risk shocks increasedslightly; this rise was more than com-pensated by the higher capital ratio.At 14.7% by end-2004, the unconso-

lidated capital ratio of Austrian banksremained well above the 8% level re-quired as a minimum by the AustrianBanking Act. The core capital ratio of10% was higher than the long-termaverage, too.

In 2004, Austrian banking groups�business in the Central and EasternEuropean countries (CEECs) contin-ued to boom, which resulted in sub-stantial growth rates in total assetsand profits. The dividends of theirsubsidiaries in this region sharplyboosted income from equity sharesin affiliated enterprises abroad andconstituted a key factor in their im-proved profitability.

The CEEC subsidiaries contrib-uted approximately one eighth toAustrian banks� total assets and al-most one quarter to total annual prof-its. As for banking services, marketpenetration in the CEECs is still lowcompared with that in the EU-15,which means that there is additionalgrowth potential. Competition is ex-pected to augment, however, whichwill reduce the margins in these mar-kets.

Profit growth in the Austrianbanking sector continued to acceler-ate in 2004, with operating profit ex-panding 7.7% (year on year) in thefourth quarter of 2004 on the backof the stronger increase in incomelevels than in expenses. Operating in-come rose by 4.3%, whereas operat-ing expenses went up by only 2.7%.The increase in operating incomewas primarily fueled by income fromsecurities and participating interestsas well as fee-based income from se-curities transactions. However, net in-terest income, which makes up half ofoperating income, also picked upagain in 2004 after a longer periodof decline. Operating expenses edgedup after having decreased betweenthe first quarters of 2003 and 2004.

Austrian bankingsector stability has

strengthened further

Business in CEECscontributes

significantly to banks�income


The OeNB as a Competent Partner in

Ensuring Financial Stability

While staff costs and income develop-ments seem to have shown a highercorrelation recently, staff costs in-creased more significantly (+2.5%per annum in the fourth quarter of2004) than operating expenses.

Austrian banks continued theirconsolidation efforts by further re-ducing the number of banking officesand staff: Between end-1997 and De-cember 2004, the number of bankingoffices (head offices and branches)was cut by 7.7% from 5,686 to5,248, and the number of credit in-stitutions went down from 995 to882. A similar development may bereported for staff numbers. Duringthe period under review, the numberof employees2 declined from 70,967to 65,615 (—7.5%). However, banksstill ensured a high degree of bankingservice coverage: Banking density inAustria remained well above theEuropean average, and the demandfor traditional bank services dimin-ished as more and more customersopted for alternative distributionchannels (especially Internet bank-ing).

Operating business is improvingand the impact of provisioning is ex-pected to decrease further. Banks op-erating in Austria expect profits toamount to EUR 2.98 billion for theyear 2004, which is considerablyhigher (+44%) than the actual profitfor the year 2003. Return on assets(ROA)3 is expected to rise to 0.46%after climbing from 0.24% in 2002to 0.34% in 2003. The profitabilityof Austrian banks remained weakcompared with those of other EUcountries despite strong domesticprofit growth, high margins frombusiness activities in the CEECs andcontinued consolidation efforts. This

tepid performance may be attributedto strong competition, which re-sulted in low interest margins, as wellas high staff costs (by internationalstandards) and the high cost of main-taining an extensive banking officesnetwork.

2004 was a good year also forother financial intermediaries. Insur-ance companies, for example, consid-erably expanded their total assets andimproved their profits mainly ongrounds of better financial results, astrong performance in the Centraland Eastern European (CEE) marketsas well as tighter cost management.

The assets held by Austrian invest-ment funds enlarged by 12.9% toEUR 125 billion between December2003 and December 2004, with debtsecurities making up the largest partof invested capital (70%). Stocksand equity securities accounted for17%; the remaining capital was in-vested in other assets and mutualfund shares. With assets to the tuneof EUR 456 million, the significanceof real estate funds (which have beenin the market since end-2003) wasstill low despite strong capital in-flows. The total performance (real-ized yields) of all Austrian investment

2 These figures refer to actual staff capacities, i.e. excluding staff on paid paternal leave or unpaid sabbaticals.3 Annual profits relative to total assets.

Positive trends forother financialintermediaries




funds between January and Decem-ber 2004 came to 6.0%, up from5.5% in 2003.

Pension funds� assets amounted toEUR 10.1 billion at end-December2004, with most investment decisionsbeing outsourced to investmentfunds: 94% of total assets were in-vested in mutual fund shares. In2004, the annual performance of allpension funds stood at 7.3%, up sig-nificantly from the results recordedin previous years.

IMF Gives PositiveAssessment of AustrianFinancial MarketBetween June 2003 and August 2004,the Austrian financial sector was sub-ject to a voluntary evaluation withinthe framework of the Financial SectorAssessment Program (FSAP) con-ducted by the International MonetaryFund (IMF). FSAPs aim to identifythe vulnerabilities of a country�s fi-nancial system both to prevent crisesand determine priorities for the fu-ture development of the financial sec-tor as well as to enhance financial sys-tem efficiency. In the course of theFSAP, IMF representatives spent sev-eral weeks on working visits inVienna. These visits were dedicatedto reviewing the financial market re-forms that had been implemented

over the past few years and to assess-ing the compliance of both the newsupervisory structures and supervi-sory legislation with internationallyrecognized principles and standards(principles of efficient banking, insur-ance and securities supervision, com-bating money laundering and the fi-nancing of terrorism).

The OeNB and the IMF devisedand conducted stress tests to assessthe impact of exogenous shocks onthe Austrian banking sector with aview to determining financial stabil-ity in Austria. These stress tests com-bined scenarios of extreme (but stillplausible) changes in one or morerisk factors (e.g. waning economicgrowth, crash of the Austrian stockmarket, increasing interest rates, ap-preciation of the Swiss franc, etc.)with information on banks� exposures(e.g. loan portfolio, equity exposure,interest rate-sensitive position, openforeign exchange position, etc.) andmeasured the resulting loss (orprofit) that subsequently changesbanks� capital ratios. Stress tests werecarried out for individual institutionsand for entire banking sectors with aspecial focus on credit risk, marketrisk (interest rate risk, exchange raterisk and equity price risk) and conta-gion risk in the Austrian bankingsector.

A key result of the stress tests wasthat the Austrian banking system is re-silient to external shocks thanks to itshigh degree of capitalization: The un-consolidated capital ratio of the Aus-trian banking sector stood at 14.8%in mid-2004. The stress tests didnot suggest any systemic impacts ofexternal shocks for the entire Aus-trian banking sector. As expected,two factors had the strongest impacton the capital ratio: credit risk (do-mestic credit risk, credit risk in theCEECs, indirect credit risk of foreign

Stress test resultsprove shock

resilience of theAustrian banking

system




currency loans) and interest rate riskin euro. Even a combination of sev-eral shocks reduced the capital ratioto no less than 13.2%.

In addition to confirming theshock resilience and stability of theAustrian financial sector, the IMFnoted in its findings that— the establishment of an integrated

supervisory approach and in thisconnection the consolidation ofsupervision competence withinthe Financial Market Authority(FMA) is in line with high interna-tional standards and that coopera-tion between the FMA and theOeNB is working well;

— the level of compliance with inter-national standards in banking, in-surance and securities supervisionand anti-money laundering is gen-erally very high;

— the banking sector is profitable,banks� capital adequacy is goodand the banking sector has under-gone a large-scale restructuringand consolidation process in re-cent years;

— the financial sector has been de-veloping well despite the difficulteconomic environment; and

— the early expansion of Austriancredit institutions in CEE has con-tributed significantly to strength-ening profitability.

In its assessment, the IMF concludedthat Austrian banks need to take fur-ther action to sustain their currentperformance, which has been sup-ported mainly by profits from thenew EU Member States in CEE, andto increase profitability in the homemarket (e.g. by additional restructur-ing and consolidation measures). Fur-thermore, the report recommendsreviewing the deposit insurance sys-tem in the light of the restructuringprocess and further improving corpo-rate governance. Finally, the IMF ad-

vocated intensifying the supervisionof insurance companies and pensionfunds and continuing the regularmonitoring of potential risks arisingfrom foreign currency loans for bothlenders and borrowers. The annualArticle IV Consultation in May 2004marked the preliminary conclusionof the FSAP mission. After havingbeen discussed by the IMF board,the final report was published onthe IMF website in August 2004.

The Austrian legislator reacted tothe recommendations voiced in theIMF report by having an amendmentto the Austrian Banking Act drafted;it comprises the requirement to de-fine consistent provisions on officialliability, the expansion of the FMA�sscope of regulatory power, the fur-ther development of corporate gover-nance and an adaptation of the respec-tive supervisory legislation. The FMAand the OeNB have already taken ac-tion to implement several IMF rec-ommendations, e.g. by increasingthe number of on-site examinationsand focusing their examination activ-ities on systemically relevant institu-tions.

In the course of the FSAP review,the IMF�s experts underscored thesignificance of a high-profit bankingsystem for medium- and long-term fi-nancial stability. An analysis of the

IMF assessesAustrian banks�profitability




cost and profit efficiency of Austria�s100 largest banks, initiated by theOeNB and based on the stochasticfrontier approach as well as the distri-bution free approach, produced thefollowing results: The level of profitefficiency is much lower than that ofcost efficiency, which indicates a satis-factory homogeneity of the cost effi-ciency factor and an insufficient aver-age utilization of the profit potential.Therefore, Austrian banks need toconcentrate their efforts on expand-ing existing profit potentials to com-ply with the focus on long-term finan-cial stability called upon by the IMF.Given the strong connection of costand profit efficiency, banks will alsoneed to maintain tight cost manage-ment policies, as banks with a highlevel of cost efficiency also rankedhigh in terms of profit efficiency. Fur-thermore, the FSAP clearly showedthat effective risk management andespecially risk-adjusted lending con-ditions constitute key factors in in-creasing banks� profitability.

The OeNB Supports Im-plementation of Basel IIOn June 26, 2004, the Basel Commit-tee on Banking Supervision publishedthe new Basel II framework.4 Byagreeing on the new framework afterfive years of negotiations at the inter-national level, the G-10 central bankgovernors and heads of bankingsupervision authorities defined thekey principles of the new capital ad-equacy requirements for banks.While this essentially concludes theBasel II process itself, it is now upto the EU Member States to imple-ment Basel II by reaching agreementon a new capital adequacy directive,

which will have to be transposed intonational law as a next step.

Concurrent to the proposals ofthe Basel Committee, the EuropeanCommission took measures to ensurethe timely implementation of Basel II.Thus, the European Commission�sMember States� Expert Group(MSEG) worked on preparing thedraft directive in the first half of2004. Austria was represented in theMSEG meetings by experts of theOeNB, the Federal Ministry of Fi-nance and the FMA. On July 14,2004, shortly after the Basel Commit-tee on Banking Supervision publishedthe new capital accord, the EuropeanCommission presented its Basel IIdraft directive5, which was subse-quently discussed by the EU Counciland the European Parliament. Tostrengthen Austria�s position throughcoordinated action in the negotiationson the draft directive, a Basel II secre-tariat was established and staffed withexperts of the Austrian Federal Minis-try of Finance, the FMA and theOeNB.

During the Basel II negotiationsat EU level, some of the OeNB�smajor concerns were a comprehen-sive preferential treatment of loansto small and medium-sized enter-prises (SMEs), the easing of dataand calculation requirements forbanks and the extension of the so-called partial use option, which per-mits the use of simpler calculationmethods for certain types of claimson nonbanks. In many respects, Aus-tria succeeded in incorporating itsproposals in the draft. In December2004, the Austrian Federal EconomicChamber and the OeNB organized aworkshop for the Austrian members

4 Basel Committee on Banking Supervision. 2004. International Convergence of Capital Measurement andCapital Standards: a Revised Framework. Basel.

5 See http://europa.eu.int/comm/internalx—market/regcapital/index—en.htm#capitalrequire.

OeNB supports smallenterprises and banks

in the Basel IInegotiations




of the European Parliament to informthem especially on SME-relevant as-pects of Basel II. The EU�s goal is thatthe European Parliament gives itsconsent to the new directive in itsplenary sessions of May or September2005. At the current state of negotia-tions, the EU Member States will beable to implement both the standar-dized approach and the foundationinternal ratings-based (IRB) approachby 2007. However, banks may post-pone shifting to the Basel II regimeuntil 2008, at which point it willbecome mandatory (the advancedIRB approach will also be availablefrom then on).

Preparations to transpose the EUdirective into Austrian law started in2005, and the OeNB will play anactive role in the process. At the sametime, the OeNB will also continue toexchange information with the Mem-bers of the European Parliament andthose of the Austrian Nationalrat. Astudy commissioned by the OeNB in2004 and conducted by the AustrianInstitute for Empirical Social Re-search (IFES) underscores the impor-tance of an intensified informationcampaign on Basel II, reporting thatAustrian enterprises in almost all eco-nomic sectors require more informa-tion on Basel II: Seven out of tenSMEs have heard of Basel II, butmerely 16% of SMEs have started tak-ing action to meet this challenge.This is why the OeNB decided tolaunch an information campaign onBasel II (see �The OeNB�s Informa-tion Policy: Conveying Stability andSecurity� for further details).

The OeNB Organizes aWide Range of Activitiesto Promote FinancialStabilityNumerous OeNB activities were tar-geted at promoting the stability of

the Austrian financial market: TheFinancial Stability Report, a semian-nual OeNB publication which is pre-sented to the public at special pressconferences, helps monitor the devel-opment of potential risk factors in thefinancial markets on a regular basis.Moreover, a comprehensive series oflectures on stability-related topics ad-dressed, inter alia, the issue of foreigncurrency loans. Since the OeNB playsan active role in the evaluation of fi-nancial market legislation, it ensuresthat financial stability considerationsare taken into account in the designof new financial market legislation.

Given Austria�s high banking den-sity, on-site examinations of a singlebank cannot be conducted frequently.This is why off-site analyses play animportant role in supervisory proce-dures in Austria. The OeNB, theFMA and the University of Viennatherefore launched a project to ex-pand the existing analysis proceduresby new risk-based off-site analysismodels. In the course of this project,two statistical and one structuralmodel were developed after a reviewof numerous modeling approaches.

A full report presenting themodel results for all Austrian banksin a well-structured manner and es-tablishing three risk categories(�problem banks,� �institutions re-

OeNB introducesstate-of-the-artprocedures of risk-based banking analysis




quiring supervisory attention� and�institutions with no material super-visory concerns�) will help integratethe new models in the existing analy-sis environment. For further details,see the publications New quantitativemodels of banking supervision and DieAnalyselandschaft der o‹sterreichischenBankenaufsicht.6

The Major Loans Register (MLR),which is maintained by the OeNB pur-suant to Article 75 of the AustrianBanking Act and in which monthlydata about loans above the reportingthreshold of EUR 350,000 are regis-tered, further enhanced its role inbanking sector stability. The numberof exposure inquiries submitted by re-porting institutions, guarantee facili-ties and bank auditors increased signif-icantly in 2004, which clearly showsthat the OeNB�s MLR not only pro-vides valuable information to these in-stitutions prior to making a lendingcommitment, but that the over-whelming majority of reporting insti-tutions continued to use MLR dataduring the whole life of the respectiveloans.

MLR data are also used in severalearly-warning models in the field ofbanking supervision.

In particular, the availability ofdata on the creditworthiness of bor-rowers from January 2003 onwardhas made off-site analyses more costefficient. An extended version ofthe MLR, which will be worked outin close cooperation with banks, willalso take account of Basel II reportingrequirements. As cooperation be-tween European credit registers is in-creasing, it will become possible to

harmonize and extend the coverageand analysis of credit risk data.

Pursuant to Article 44a of theFederal Act on the OesterreichischeNationalbank, the OeNB is entrustedwith payment systems oversight. Inaccordance with this mandate, theOeNB monitors the systemic safetyof multilateral payment systems op-erating in Austria as well as Austrianbanks� secure participation in inter-national payment systems. TheOeNB performs the related inspec-tions according to specific guide-lines.7 Inspections focus on the meas-ures payment system providers taketo ensure the legal, financial, organi-zational and technical safety of pay-ment systems.

The Secure Information Technol-ogy Center — Austria (A-SIT) regu-larly supports the OeNB in its inspec-tion activities by providing assistanceon oversight issues in connectionwith organizational and technical sys-tem stability. In its notification of Jan-uary 6, 2005, the Austrian FederalMinistry of Economics and Labourrecognized A-SIT retroactively as ofOctober 25, 2004, as a supervisorybody under the Austrian Accredita-tion Act (Akkreditierungsgesetz).8

Accredited payment system oper-ators benefit from this recognition,since the inspection reports providedby A-SIT are now recognized as offi-cial certificates of systemic safetyand as such can be used to communi-cate compliance with systemic safetyprovisions to the public.

Payment systems statistics wereimplemented as another importantinstrument of payment systems over-

6 See www.oenb.at or www.fma.gv.at. An English version of the second text is forthcoming.7 See www.oenb.at. Some documents are currently available in German only.8 The accreditation unit of the Austrian Federal Ministry of Economics and Labour is a member of the EuropeanCo-operation for Accreditation (EA). It concluded an agreement on the mutual recognition of accreditations bythe other members (i.e. the national accreditation units of the EU and EFTA Member States).

Major Loans Registerenhances financial

sector stability

Payment systemsoversight supports

stable infrastructure

Integration of MLRdata in current riskmonitoring systems




sight at the beginning of 2004. Thesestatistics help monitor the develop-ment and sound functioning of pay-ment systems on a regular basis. Theyprovide the OeNB with quarterly (ormonthly, as with systemically impor-tant systems) data on payment systeminfrastructure (including availability)and sales.

Other key factors for the effectivefunctioning of financial markets aresafe and efficient securities settle-ment systems. A joint working groupof the ESCB and the Committee ofEuropean Securities Regulators(CESR) was set up in October 2001to support the establishment of suchsystems at the EU level. The workinggroup, in which the OeNB and theFMA participate, defined 19 stand-ards aimed at improving systemicsafety and efficiency. After extensiveconsultations with market partici-pants, the group presented its final re-port entitled Standards for SecuritiesClearing and Settlement in the EU inSeptember 2004. The GoverningCouncil of the ECB and the CESRchairpersons approved the report inOctober 2004 and agreed to definethe measures necessary for imple-menting the standards in the courseof 2005, and to start assessing the var-ious systems in 2006.

Close Cooperationbetween OeNB and FMAIn the course of the past two and ahalf years, the cooperation of theOeNB and the FMA, which was es-tablished in April 2002, has been in-tensified and strengthened. In addi-tion to daily �routine� meetings(which result from the OeNB�s signif-icant statutory role in prudentialsupervision, e.g. in off-site monitor-ing or in conducting on-site examina-tions), the managers and heads of di-visions of the two institutions hold

meetings on a regular basis to ex-change information and discuss bothgeneral and specific topics. Jointworking groups are established when-ever necessary to deal with specificsupervision issues, thus pooling theknow-how of both institutions and co-ordinating concerted action at anearly stage. The OeNB maintainsclose contacts with the Austrian Fed-eral Ministry of Finance via the Finan-cial Market Committee, which wasestablished under Article 13 of the Fi-nancial Market Authority Act; the Fi-nancial Market Committee is a plat-form for the cooperation and dia-logue between the three institutions(Ministry of Finance, OeNB andFMA) which are jointly responsiblefor financial stability in Austria.

Supervisory cooperation was pro-moted and institutionalized at an in-ternational level as well. On January1, 2004, the Committee of EuropeanBanking Supervisors (CEBS) was setup with representatives of the na-tional central banks and the bankingsupervisory authorities of the EUMember States and the other Euro-pean Economic Area (EEA) countries(the latter are granted observer sta-tus). CEBS functions as a level 3 com-mittee within the Lamfalussy frame-work. It performs the followingtasks:— advising the European Commis-

sion, in particular in the prepara-tion of drafts of new implementa-tion measures;

— contributing to the consistent im-plementation of EU directives andsustaining converging supervisorypractices in the EU MemberStates; and

— promoting supervisory coopera-tion and information exchange.

CEBS carried out no less than threepublic consultations on various issuesin the first year of its existence. In




this period, CEBS focused mainly onBasel II issues (e.g. elaborating pro-posals for a reduction of national dis-cretion options as proposed in theEuropean Commission�s draft direc-tive on Basel II and publishing a con-sultation paper on Pillar 2). Further-more, CEBS conducted numerousprojects in other fields such as ac-counting, financial reporting or out-sourcing. In addition to being a CEBSmember, the OeNB is also repre-sented in the so-called CEBS Bureau,which advises and assists the CEBSchair and monitors the budget.

The Banking Supervision Com-mittee (BSC) of the ESCB continuesto serve as a consultative forum forthe representatives of central banksand banking supervisory authoritieson macroprudential and financialstability issues. The OeNB has a pro-active role in this committee�s work,for instance by chairing the WorkingGroup on Developments in Banking.

The OeNB considers the new in-stitutional framework for bankingsupervision in the EU very wellsuited — at least in the short or me-dium term — to ensuring a level play-

ing field for banks and to solvingthe challenges arising from the diver-sity of banks, the current status offinancial market integration and thenew regulatory framework (Basel II).However, supervisory authority co-operation and convergence via CEBSwill need to be further intensified.

Guidelines for theAustrian BankingIndustryIn 2004, the OeNB and the FMA pub-lished a series of guidelines on creditrisk management in view of the forth-coming changes in the supervisoryframework. Guidelines on the regula-tory framework of market risk man-agement and a handbook for the valu-ation of structured products had beenpublished earlier (Guidelines on Mar-ket Risk, Structured Product Hand-book). These guidelines give an over-view of the regulatory environmentand outline the technical fundamen-tals of effective risk management forbanks, thus contributing to the effec-tive cooperation of banks and super-visory authorities.

The know-how provided in theseries makes supervisors competentpartners for banks in the implementa-tion of Basel II. The information ispresented to banks and other inter-ested parties in a concise and struc-tured manner with the aim of pro-moting a constructive dialogue be-tween the banking industry and thesupervisory authorities. The seriesconsists of ten publications that dealwith issues related to the implemen-tation of Basel II as well as with gen-eral key topics of credit risk manage-ment.9

9 A German version of the guidelines can be downloaded from www.oenb.at (PDF) or ordered from the OeNB.English versions of some of these guidelines are also available; others are forthcoming.




The guidelines on Rating Modelsand Validation and on techniques ofcredit risk management10 supportbanks in the process of obtainingauthorization to use the more risk-sensitive advanced approaches to reg-ulatory capital requirements underBasel II. The guidelines Best Practicesin Risk Management of SecuritizedProducts and Credit Approval Processand Risk Management describe cur-

rent problems in the field and outlinepossible solutions. These guidelinespool ideas for the future design ofcredit risk management. Given theproportions of Austrian enterprises�and banks� activities in the CEECs,six additional guidelines focus onthe legal framework of the bankingsector in Croatia, the Czech Repub-lic, Hungary, Poland, Slovakia andSlovenia.

10 The guideline on techniques of credit risk management is currently available in German only.




New EuropeanStructures for CashlessPayment Services

The OeNB�s main objectives in thefield of payment services are (1)cost-efficient provision of effectiveservices for processing both large-value and retail payments, (2) activecooperation in the establishment andimplementation of harmonized stand-ards for Austrian and European pay-ment systems, (3) facilitation and col-laboration in national and interna-tional payment systems fora as wellas (4) participation in payment sys-tems-relevant organizations with aview to guaranteeing high securitystandards and efficient infrastruc-tures.

New Legal Frameworkfor Payments in the EU to BeIntroduced in 2005To pave the way for a single paymentarea, it is necessary to implement self-regulatory measures for the bankingcommunity, establish a harmonizedinfrastructure as well as lay down acoherent legal framework. Acknowl-edging this need, the European Com-mission has started to devise such anew legal framework for (retail) pay-ments in Europe. The stated objec-tives are:— to establish an internal market for

cashless payments;— to promote efficient and safe pay-

ment means and systems;— to improve consumer protection

and further strengthen publicconfidence in cashless paymentmeans; and

— to guarantee a level playing field.Reviewing and consolidating the ex-isting legal provisions thus advancesthe efforts of the European bankingindustry to create an integrated mar-ket for payments.

The European Commission�s ini-tiative resulted in the release of theconsultative document A New LegalFramework for Payments in the InternalMarket in December 2003. Submit-ting its fifth revision of this draft di-rective, the Commission launched afinal public consultation among thestakeholders in November 2004.The directive is scheduled to be final-ized by the European Commission inmid-2005.

Consumers and businesses in theEU are set to benefit from a singlepayment area offering less costlyand more efficient payment services.The OeNB welcomes this initiativeand is committed to supporting themodernization and integration ofAustria�s payment systems infrastruc-ture.

OeNB experts closely cooperatewith the competent EU bodies andcontribute to the relevant workinggroups at the European level.

Judging from the current and pre-sumably final draft, the new legalframework will not pose a challengeto the OeNB�s payment systems strat-egy. On the contrary, the efforts toincrease competitiveness and trans-parency in cashless payment services,in particular of card-based transac-tions, tie in well with the OeNB�s pol-icy. The same holds true for the in-tention to open up the market tonew payment services providers seek-ing authorization as �payment institu-tions.�

Initiative for a Single EuroPayments Area (SEPA)The Single Euro Payments Area willenable European citizens to makecashless payments throughout theeuro area from a single current ac-count, using a single set of paymentinstruments, as easily and safely asthey do in the national context today.

Harmonization ofnational legal provi-sions on payment

systems under way inEU Member States

Competition andtransparency in cash-less payment services

to be stepped up

ESCB promotes im-plementation of SEPA


Integration of Payment Services inEurope and Consolidation of CashDistribution Structures in Austria

The country or bank where custom-ers hold accounts should make no dif-ference for payments. The Eurosys-tem�s vision for the SEPA, hence, isthat all payments effected in the euroarea should be treated like domesticpayments.

One first milestone in approxi-mating national, i.e. intra-MemberState, and domestic, i.e. inter-Mem-ber State, payments was the imple-mentation of Regulation (EC) No2560/2001 of the European Parlia-ment and of the Council of 19 De-cember 2001 on cross-border pay-ments in euro, which stipulated thatas of July 1, 2002, customer chargeson cross-border payments1 in theeuro area must no longer exceedthose on national transactions. Fur-thermore, 42 European banks as wellas the European credit sector associa-tions demonstrated their support ofimplementing a SEPA by 2010, issuinga White Paper in May 2002 and estab-lishing the European Payments Coun-cil (EPC)2 in June 2002. The Eurosys-tem recommends that relevant instru-ments be made available as an option— in addition to the existing struc-tures in the Member States — for na-tional payments to individuals and en-terprises as early as 2008. A full mi-gration for banks and their customersto pan-European solutions is targetedto be achieved by end-2010.

The OeNB welcomes the ECB�sinitiative in implementing a SEPAand supports the Austrian banking in-

dustry in taking the necessary prepar-atory measures. The OeNB was ableto provide Austrian banks with a neu-tral gateway to the EBA3-operatedSTEP2 system at the earliest possibledate. EBA�s pan-European automatedclearing house (PEACH), as yet theonly clearing house to offer EU-wideservices, processes euro paymentscovered by Regulation (EC) No2560/2001. By providing a STEP2 ac-cess point, the OeNB underlines itsoperational commitment to guaran-teeing safe payment processing andincreasing market efficiency.

The OeNB strives to continuallyimprove the legal framework as wellas the standardization and automationof its range of payment services witha view to optimizing market struc-tures. This way, the OeNB contrib-utes to positioning Austria as a com-petitive financial marketplace andbacks Austrian banks in bringingabout a SEPA.

1 Up to EUR 12,500 provided the BIC and the IBAN are indicated.2 Body formed in June 2002 by European banks and banking associations to provide strategic orientation andguidance in implementing a Single Euro Payments Area.

3 EBA: Euro Banking Association. In 1985, 18 commercial banks and the European Investment Bank, with thesupport of the European Commission, founded EBA, which is based in Paris and, as at end-2004, comprisedsome 200 institutional members. In end-1998, EBA Clearing was set up to operate the large-value paymentsystem EURO1, which went live at the beginning of 1999. Apart from EURO1, EBA developed twopayment solutions for low- and medium-value payments, STEP1 and STEP2, under the S.T.E.P.S. (StraightThrough Euro Payment System) program.

OeNB welcomes ECBinitiative for SEPAimplementation andsupports banks�preparatory work


Integration of Payment Services in Europe and Consolidation

of Cash Distribution Structures in Austria

STEP2 — Pan-EuropeanClearing of Retail PaymentsAs a direct EBA STEP2 participant,the OeNB has been offering a neutralaccess point open to all market partic-ipants since November 3, 2003. Thisallows banks to effect cross-bordercredit transfers up to EUR 12,500in line with Regulation (EC) No2560/2001 in a cost-efficient man-ner. At present, more than 80 Euro-pean banks are direct and some1,400 banks indirect participants ofSTEP2. Accounting for over 12% ofthe total European STEP2 transactionvolume,4 the OeNB ranks among themost active STEP2 participants.

Customers benefit not only fromlower fees, but also from a shortertransfer execution time. Accordingto a survey carried out by the Aus-trian Society for Payment System Re-

search and Cooperation (STUZZA)5

in 2004, executing a cross-bordertransfer in the EU now takes 2.2 dayson average, which is quite an im-provement compared with the aver-age execution time documented instudies for 1999 (3.4 days) and 2001(3.3 days).

For customers to benefit fromthe lower transaction charges, thecredit transfer must be in euroand must not exceed EUR 12,500.This cap is scheduled to be raisedto EUR 50,000 in early 2006. Thereceiving account designated in thepayment order must be held in anEU Member State. The scope ofthe regulation was broadened inearly 2005 to include Norway andIceland, and Liechtenstein is dueto follow in July 2005. Both theBank Identifier Code (BIC) and the

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4 Based on the average of the fourth quarter of 2004.5 A cooperation platform of the OeNB and the largest Austrian credit institutions founded in 1991. STUZZAplays a pivotal role in the pursuit of cost cutting and service enhancements in the field of paymentprocessing via standardization and the use of innovative methods.




International Bank Account Number(IBAN) must be indicated in thepayment order. The automatic proc-essing of the payment order up tothe crediting of the beneficiary�s ac-count is only possible if these twocodes are (correctly) indicated. Cus-tomers may ask their banks to pro-vide their BIC and IBAN.

Thanks to the OeNB�s centralizedSTEP2 service, which the over-whelming majority of Austrian banksuses, it was possible to harness syner-gies and prevent the development of

parallel structures. The realizedeconomies of scale and a price struc-ture based on the principle of cost re-covery rather than a for-profit ap-proach afford all participants attrac-tive transaction fees.

Given Austrian banks� strong foot-hold in the new Member States andthe interest of banks based outsideof Austria in gaining access to STEP2,the OeNB started to service credit in-stitutions in other EU countries inMay 2004. At the end of last year,banks from the Czech Republic, Ger-

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many, Hungary, Malta, Poland, Slova-kia and Slovenia were using theOeNB�s STEP2 access point. In addi-tion, Slovakia�s Na«rodna« banka Slov-enska became the first central bankwith the status of an indirect STEP2participant. The OeNB�s averagedaily STEP2 transaction volumemore than tripled over the courseof 2004.

With its STEP2 access, the OeNB— in cooperation with the banking in-dustry — has succeeded in providing asolution that secures Austrian banks�competitiveness also in the field ofcashless payments, having earlier en-hanced cash logistics with the estab-lishment of the cash services com-pany GELDSERVICE AUSTRIA Lo-gistik fu‹r Wertgestionierung undTransportkoordination G.m.b.H.

ARTIS/TARGET6 — NewDevelopments in Large-ValuePayment SystemsActing as a role model for the Aus-trian financial market, the OeNB de-cided to support Austrian banks incombating money laundering and ter-rorist financing by implementing atransaction monitoring system de-signed to ensure compliance with em-bargo guidelines. The legal basis inthis respect was laid down by the Aus-trian government and the EuropeanParliament. While not obliged tomeet the provisions on money laun-dering and terrorist financing owingto its special status under the AustrianBanking Act, the OeNB neverthelessresolved to introduce precautionarymeasures to this end.

All relevant data on payment or-ders received by the OeNB are auto-matically checked prior to process-ing. This measure represents anothermajor step toward preventing misuseof the payment systems infrastructuremade available by the OeNB.

In 1999, when the Austrian real-time gross settlement (RTGS) systemARTIS was launched, an average of3,339 transactions with an average to-tal value of EUR 8 billion were proc-essed on a daily basis. In 2004, thedaily volume increased to 6,019 trans-actions worth EUR 10.3 billion,which corresponds to an increase by80.3% in volume and by 28.8% invalue. Year on year, the transactionvolume augmented by close to 10%in 2004, while the value remainedmore or less unchanged.

As from September 8, 2003, theAustrian Federal Financing Agency,a SWIFT7 participant under theMember Administered Closed UserGroup (MA-CUG),8 has been sendingmore than 3,000 messages a month tothe OeNB. The use of the SWIFT net-work and membership in the MA-CUG provide for an efficient and se-cure electronic message transfer be-tween the central government andthe OeNB. Straight-through process-ing is possible for 97% of payment or-ders owing to the use of standardizedmessage formats.

From 2003 to 2004, SWIFT mi-grated all 75 Austrian and some7,000 banks worldwide from theX.25 (dedicated line) technology tothe advanced Internet Protocol (IP)-based SWIFTNet technology. The

6 ARTIS: Austrian Real Time Interbank Settlement;TARGET: Trans-European Automated Real-time Gross settlement Express Transfer.

7 SWIFT: Society for Worldwide Interbank Financial Telecommunication. In more than 200 countries, thecompany, which is owned by the financial industry, provides safe and standardized messaging services andinterfacing software for some 7,650 financial institutions.

8 A service called for by banks and provided by SWIFTwhich facilitates the exclusive information exchange amongall the SWIFT participants registered in the Closed User Group.

OeNB takes anti-money laundering

action

ARTIS paymentsin 2004

Central governmentsends payment ordersto OeNB via SWIFT

Smooth Transition toSWIFTNet FIN




use of SWIFTNet Single Window9

now also facilitates liquidity manage-ment in real time and the securetransmission of data files on top of fi-nancial transaction messaging.

After the Electronic BankingCommunication system EBK10 hadbeen replaced by SWIFTNet FIN inNovember 2003, the number of mes-sages processed by the OeNB morethan quadrupled. In 2004, Austria�stransaction growth rate of 32.4%was the highest worldwide. In termsof total messaging volume, Austriais ranked 18th in an international com-parison.

TARGET2 — Austria inFavor of Standardization ofLarge-Value PaymentsIn 2002, the Governing Council ofthe ECB laid the foundation for to-day�s integration via an interlinkingsystem of the RTGS systems operatedby national central banks in theEU. Compared with the existingTARGET system, the next genera-tion, TARGET2, will offer an ex-tended core service that has beenharmonized across Europe as well asa single price structure for nationaland cross-border payments effectedin the entire Eurosystem. Connectingthe most important European ancil-lary systems to TARGET2 via tworeal-time and four batch-processingmodels is another milestone in theharmonization and integration of pay-ments in the euro area.

In December 2004, the Govern-ing Council of the ECB approvedthe establishment of a Single SharedPlatform (SSP) for TARGET2 on

the basis of the joint offer made bythe Deutsche Bundesbank, the Bancad�Italia and the Banque de France.The OeNB expressed its interest inparticipating to the ECB as early asAugust 2003 and notified the ECB inJanuary 2005 of its intent to use thecore service of the SSP. The OeNBanticipates that TARGET2 will proc-ess large-value euro payments in realtime more efficiently compared withtoday�s (decentralized) TARGET sys-tem.

In 2004, the TARGET2 projectteam focused on the identificationof the system�s functionality in coop-eration with the European financialsector as well as on the technical de-velopment of the SSP. The GoverningCouncil adopted the General Func-tional Specifications (GFS) for TAR-GET2 in July 2004. The User De-tailed Functional Specifications(UDFS) are likely to be finalized inApril 2005.

TARGET2 will offer comprehen-sive liquidity management functionsthat allow banks operating in severalEuropean countries to better control

9 Unlike in the past, when differing data formats, interfaces, security models and telecommunication networkswere used to communicate between different counterparties and market infrastructures, financial marketparticipants today may exchange information via a standardized (uniform) network using a singlecommunication window.

10 Proprietary Austrian system for the transfer of payment orders.

Single SharedPlatform forTARGET2

Functional TARGET2specifications




their euro liquidity. The new intradayliquidity pooling feature will enablebanks based in the euro area to mon-itor their accounts held with Eurosys-tem central banks from a single mas-ter account. Euro area banks will beable to group individual accountsand pool the available intraday liquid-ity for the benefit of all members ofthe group of accounts. This could re-duce banks� need to have recourse tointraday credit.

In addition to the higher level ofservice, TARGET2 will be based ona state-of-the-art business continuityconcept ensuring that in the eventof wide-scale regional disruptiontransactions will be processed via an-other country.

With a view to the transition toTARGET2, the OeNB formed a na-tional migration team (NMT) inMay 2004. In close cooperation withAustrian banks, the NMT evaluatedTARGET2 functionality and efficientways of connecting the Austrian fi-nancial marketplace to the SSP.

Starting from January 2, 2007,TARGET users are scheduled to mi-grate to TARGET2 in waves at severalpredefined dates. Each �migrationwindow� will consist of a group of na-tional banking communities, includ-

ing the central bank and commercialbanks. The current RTGS systemsand the SSP will coexist during themigration phase. The individual EUcountries will be grouped for migra-tion in a way which minimizes projectrisk.

Two pricing models are likely toapply to TARGET2. Participants willbe able to choose between transac-tion fees only and lower transactionfees plus a periodic fee.

The dual pricing scheme shouldpermit recovery of a very large partof the total TARGET2 costs. Thefee per transaction will range fromEUR 0.25 to EUR 0.80; separatefees will be charged on optionalTARGET2 functions, such as theliquidity pooling feature.

The OeNB�s RegionalNetwork Ensures SmoothCash Supply and CashHandlingAt year-end 2004, a total of 9.7 bil-lion euro banknotes (equivalent toEUR 501.3 billion in value terms)and 56.2 billion euro coins (EUR15.4 billion) were in circulation. Thiscompares with 9 billion euro bank-notes (EUR 436.1 billion) and 49 bil-lion euro coins (EUR 14.1 billion) at

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TARGET2 road map

TARGET2pricing model




end-2003. In the year under review,the overall value of euro banknotesand coins in circulation thus increasedby 15% and 9%, respectively.

Currencyin circulation in Austriafollowed the trend of recent yearsin 2004 and into 2005: The net bal-ance of euro banknotes issued byand returned to the OeNB continuedto decrease steadily, given the freeflow of euro cash across borders andthe higher number of banknotes re-turned. In fact, at year-end, the num-ber of banknotes issued less the num-ber of notes returned to the OeNBequaled —43 million; in other words,more banknotes were deposited thanwithdrawn during the year under re-view. By contrast, more coins were is-sued than returned, with the balanceequaling 2.3 billion. Following thefirst drop in the net balance of eurocoins issued and returned in Austriaso far, namely in November 2004 inthe wake of World Thrift Day, thenumber of coins in circulation in-creased again to reach a historicalhigh at the end of 2004. Based ontransaction data, the OeNB estimatesthat at the end of 2004, some 300 mil-lion euro banknotes were in circula-tion in Austria. Coin circulation inAustria broadly corresponded to thevolume of coin withdrawals minus de-posits recorded by the OeNB.

The sustained demand for eurocash can be explained with two fac-tors. On the one hand, cash continuesto be the payment instrument ofchoice in the euro area; in Austriamore than 70% of all transactionsare still settled in cash despite thegrowing use of electronic paymentmeans. On the other hand, accept-ance of euro payments has increasedin non-euro area countries. Surveysconducted in Croatia, the Czech Re-public, Hungary, Slovakia and Slov-enia show that both the number and

the volume of euro deposits have in-creased. It is worth noting that in ad-dition to euro payments acceptedfrom tourists, a phenomenon ob-served for some time now, an increas-ing percentage of transactions hasbeen settled in euro without in factinvolving foreign counterparties. InCroatia and in Slovenia, for instance,more than 7% of the population set-tled some transactions in euro in2004.

In parallel with the demand foreuro banknotes, the number of coun-terfeits withdrawn from circulationrose as well. All in all, 594,000forged euro banknotes were recov-ered across Europe in 2004(+9.5%), with the number of coun-terfeits recorded in Austria totaling13,386. The number of counterfeitsrecovered on average in Europedropped in the second half of theyear. In Austria, a downward trendwas observed, for the first time, inthe final quarter of 2004, even thoughbanknote circulation peaked in theChristmas shopping season in linewith historical patterns.

All links in the cash cycle securitychain — the central bank, credit insti-tutions, law enforcers and retailers —have vital tasks in effectively protect-ing the population against counter-

Currencyin circulationin Austria

Protecting the publicagainst counterfeits




feits. In this respect, the OeNB (andits subsidiaries) focus on— producing high-quality banknotes

and coins (OesterreichischeBanknoten- und SicherheitsdruckGmbH — OeBS; Mu‹nze O‹ ster-reich Aktiengesellschaft);

— continually checking the authen-ticity of the banknotes and coinsin circulation (GELDSERVICEAUSTRIA Logistik fu‹r Wertges-tionierung und Transportkoordi-nation G.m.b.H. — GSA); and

— educating professional cash han-dlers (cashiers at banks and re-tailers; the police) and the generalpublic about the euro.

The OeBS prints the share of eurobanknotes allocated to the OeNB inclose coordination with the ECBand the printing works of the othereuro area countries. A top priorityin producing euro banknotes has beenthe integration of security featuresanyone can check without specialequipment. People run a lower riskof accepting counterfeit banknoteswhen they know what the genuinebanknotes look like and when theytake the time to verify a few securityfeatures. It pays to tilt the euro bank-notes to check for moving images andcolor-shifting ink features, and towatch out for the unique feel of bank-

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note paper and the distinctive �raised�feel produced by intaglio printing. Inall known counterfeit categories,forgers have so far failed to success-fully reproduce these features. Whilethe quality of the counterfeits recov-ered has increased, the FEEL —LOOK — TILT test (see box 5) re-mains sufficient to detect euro coun-terfeits.

To remain at the cutting edge oftechnical progress and innovation,banknote series are replaced at regu-lar intervals. A key aspect in design-ing the new series of euro banknotesis the Eurosystem�s objective to pro-vide state-of-the-art security fea-tures. Since banknotes are highly so-phisticated products that need to beproduced in large quantities, prepara-tory work on the next banknote ser-ies already started in 2004. The firstbanknotes of the new series are ex-pected to be issued toward the endof this decade.

When it comes to establishing theauthenticity of banknotes, their qual-ity (�fitness�) is a key factor. The bet-ter the quality is, the easier it is tocheck the security features, especiallythe property of the paper and theraised ink features. In order to guar-antee the fitness of the euro bank-notes circulating in Austria, theOeNB and GSA processed approxi-mately 960 million banknotes in2004. In other words, every banknotecirculating in Austria was checkedthree to four times on average byOeNB or GSA experts and removedfrom circulation when found unfit.

At the same time, more and morebanks and retailers with a high cashturnover use special equipment onsite to check banknotes for authentic-ity and, to some extent, for quality.To be able to offer guidance to usersand producers of such equipment, aTest Center was installed in the

OeNB�s Cashier Division in 2004,where banknote and coin handlingmachines can be checked for theirusefulness and effectiveness. Further-more, work is under way to establisha structured procedure for makingthe test results available to a closeduser group (via the dedicated websitefor professional cash handlers,https://bargeld.oenb.at). At the sametime, the OeNB thus meets ECB re-quirements for cash recycling ma-chines.

Yet the efforts to produce state-of-the-art banknotes and ensure thefitness of circulating banknotes aloneare not enough; cash users must alsobe familiar with the security featuresof banknotes. This is why educatingthe general public, but above all pro-fessional cash handlers about the dis-tinctive features of euro banknotesis of utmost priority. After all, cash-iers at banks and retailers and the po-lice are at the forefront of protectingthe public at large against counter-feits. In this respect, the OeNB againconsiderably stepped up its informa-tion activities in 2004. All in all, theOeNB hosted 495 workshops to pro-vide in-depth information to morethan 10,000 cash-handling experts.Furthermore, the OeNB reachedout to approximately 68,000 peoplevia its mobile branch office, the eurobus touring Austria, as well as at tradefairs.

The OeNB uses its regional net-work of cash service providers as achannel for disseminating informa-tion and hosting training sessions onbanknotes. The OeNB�s branch net-work offering cash services through-out Austria was reorganized in 2004following the changeover to the euro.The establishment of four regionalhubs ensures that the OeNB�s rangeof services continues to be accessiblethroughout Austria. The decision to

Continuousmonitoring ofbanknote quality

OeNB�s regionalnetwork of cashservice providers




turn the euro bus into a permanentmobile branch office underlines theOeNB�s commitment to enhance cus-tomer orientation.

The euro bus is literally a vehiclefor spreading information but alsocontinues to provide welcome oppor-tunities for converting old schilling

holdings locally into euro free ofcharge. Approximately 10% of allschilling holdings converted in 2004were returned to the OeNB via theeuro bus. On balance, the volume ofoutstanding schilling banknotes andcoins shrank from ATS 12 billion toATS 11.5 billion.

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The schilling coins and banknotesof the last series may be convertedinto euro indefinitely at the OeNBfree of charge. In contrast, the ex-change deadlines for banknotes ofearlier series, all called in by the timethe euro was launched, continue toapply (see box 6). Thus, conversionof the ATS 1,000 banknote featuringBertha von Suttner will only be possi-ble until the end of August 2005. Todate, some 464,000 called-in bank-notes of this motif have not yet beenreturned to the OeNB.

Cash Services and Cash-less Payment SolutionsProvided by the OeNBthrough Its AssociatedCompaniesOver the past two decades the OeNBhas developed a portfolio of subsidia-ries and associated companies thatsupport the central bank in providingcash services and cashless payment solu-tions. These associates are a key pillarof the overall framework put in placeto ensure that Austria will be ad-equately supplied with cash and thatpayment systems work smoothly.Through its associated companies,the OeNB can pursue its securityaims and take confidence-buildingmeasures at the operational level inthe field of cash services and paymentsolutions. The network of associatessupports the OeNB in meeting its re-sponsibility to help maintain thestability of the financial system, creat-ing a positive business and investmentclimate in Austria. Through the provi-sion of effective and efficient servicesthat ensure a smooth implementationof operations, the associated compa-nies substantially support the OeNBin fulfilling its tasks.

The core business of Mu‹nzeO‹ sterreich Aktiengesellschaft and ofOesterreichische Banknoten- undSicherheitsdruck GmbH is to pro-duce coins and banknotes. In addi-tion, a cash services company —GELDSERVICE AUSTRIA Logistikfu‹r Wertgestionierung und Trans-portkoordination G.m.b.H. — pro-vides cash processing and cash logis-tics services for both banknotes andcoins. The pooling of these serviceshas made it possible to keep cashhandling costs to a minimum.

AUSTRIA CARD — Plastikkartenund Ausweissysteme Gesellschaftm.b.H. is a producer of highly securechip cards. In the field of cashless pay-ment solutions, the OeNB moreoverholds minority interests in AustrianPayment Systems Services (APSS)GmbH, in the certification servicesprovider A-Trust Gesellschaft fu‹rSicherheitssysteme im elektronischenDatenverkehr GmbH, and in Stu-diengesellschaft fu‹r Zusammenarbeitim Zahlungsverkehr (STUZZA)G.m.b.H. The strategic objective ofthese undertakings is to provide asecure payment systems infrastruc-ture and ensure the provision of reli-able financial services.

The PaymentInstruments Cluster

The role of theOeNB�s associatedcompanies




The OeNB�s associates are sepa-rately managed companies that put akey emphasis on efficient perform-ance and the use of best practices inbusiness management.

As these companies need to assertthemselves in the national and inter-national markets, they are constantlyseeking to minimize costs and arededicated to the principles of innova-

tion, flexibility and customer orienta-tion. The associated companies usetheir know-how and resources to of-fer also products and services thatgo beyond the central banking busi-ness or related activities. By boostingthe financial results, these additionalactivities help secure the company�sfuture and thus the provision of thecentral bank-related activities.

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OeNB subsidiariesprovide efficient

services and ensuremarket proximity




Synergy effects contribute tomaximizing the benefits provided bythe OeNB and its associates. This iswhy special emphasis is put on ex-ploiting both horizontal and verticalsynergies by building alliances withfirms in the same industry as well asupstream or downstream partners inthe value chain.

At the strategic level, the OeNBand its associates strive to create syn-ergies by optimizing the businessportfolio and by bundling procedures.

Last, but not least, increased cost-efficiency is ensured by the joint useof human and capital resources.

Exploiting thepotential for synergy




Communicating Mone-tary Policy Objectives —A Prerequisite forCredibility and Trust

Communication is an importantvalue-adding factor. As such, it canbe planned, controlled and meas-ured, promoting understanding, trustand transparency. The OeNB has em-braced this principle jointly with theother euro area NCBs and the ECB;it is enshrined in the joint EurosystemMission Statement.

Trust has always been a sensitivekey value for central banks, and pub-lic confidence in the OeNB has tradi-tionally stood at high levels, as was re-cently confirmed by an IFES (Insti-tute for Empirical Social Research)survey. According to IFES, 78% ofAustrians continued to have high con-fidence in the OeNB in the fourthquarter of 2004. The OeNB has builtup this trust over decades by pursuingcredible and stability-oriented mone-tary policy objectives and by display-ing exceptional know-how in key cen-tral banking areas. High public confi-dence forms the basis for communi-cating the current monetary policystrategy, which in turn reinforcestrust in the OeNB. In communicatingthe single monetary policy the OeNBmakes use of all media our informa-

tion society has to offer. As econom-ics is frequently about complex proc-esses, it is a challenge for public rela-tions experts to convey these proc-esses to the general public in a clear,understandable manner.

To improve the general under-standing of basic macroeconomicprocesses and to strengthen confi-dence in the euro, in 2004, the OeNBlaunched an information campaign re-volving around the key values �Stabil-ity and Security� The objective of thiscampaign has been to inform the pub-lic about the euro (price stability, se-curity features), the single monetarypolicy and the OeNB�s tasks. Basedon the overarching principles ofstability and security, the campaignhas been designed to familiarize thepublic with the OeNB�s main task,i.e. the maintenance of price stability.

The OeNB has been placing ad-vertisements and has been broadcast-ing TV commercials conveying a mes-sage along the lines of �I work hardfor my money. Good that each eurois worth it.� and has been using mediacooperation and advertorials to ad-dress not only the general public,but also the people it has not beenable to reach so far. To prepare andfine-tune the campaign to the needsof the latter target group, the OeNBconducted both quantitative and qual-itative surveys with polling institutes.As a result, the campaign was de-signed to channel the patriotism ofthis target group into the euro as aEuropean value.

The print media campaign fo-cused on the following topics:— The euro on a path of stability— The euro�s stability as a guarantee

of our purchasing power— First-rate security features— Understanding price develop-

ments

�Stability andSecurity� — the

OeNB�s informationcampaign


The OeNB�s Information Policy —Conveying Stability and Security

— Handling euro banknotes andcoins

Furthermore, the OeNB addressed abroad range of TV viewers of all agegroups. The topics covered were:— The basket of goods and services

and its calculation— The euro as a secure currency— Purchasing power and prices— Handling euro banknotes and

coins— Cents� worth— The euro abroadTo provide the youngest TV viewerswith information about the euro andto help them learn about money mat-ters through play, the OeNB launcheda contest in the children�s program�Confetti TiVi� where children aged8 to 12 designed their own euro bank-note. In January 2005, three winnerswere drawn from the best entries andrewarded with attractive prizes.

The OeNB plans to continuethese public relations activitiesthroughout 2005, building on the2004 information campaign.

In addition to the measures out-lined above, the OeNB organized acomprehensive series of seminarsfor financial and business journalistsin the reporting year, which culmi-nated in a visit to the ECB when theGoverning Council held a monetarypolicy meeting. These seminars pro-vided a forum for discussing all as-pects of central banking, with a par-ticular focus on the Eurosystem�s sin-gle monetary policy.

29 press conferences and presstalks as well as 170 press releasesmade 2004 a very active year for theOeNB.

The OeNB�s website (www.oenb.at)was relaunched to consolidate andoptimize the OeNB�s information onthe Internet. During the relaunch,various e-services and the websitecontents, which had been providedsince 1995 and had been constantlyexpanding ever since, were modern-ized and (re)integrated into a state-of-the-art website. The new websitesports well-structured navigation forcontent from all of the OeNB�s busi-ness areas as well as full-text searchoptions. A powerful search engine al-lows users to search all website con-tents and PDF files for key words.The website�s consistent design wascreated in accordance with the guide-lines drawn up by the Web Accessibil-ity Initiative, an initiative promotingaccessible web design.

Moreover, the range of informa-tion and data the OeNB provideshas been expanded, restructured,and complemented by user-friendlyquery options. In addition, a numberof macroeconomic and statisticalproducts have been redesigned tobetter meet customer demand (seebox 7).

The new OeNBwebsite


The OeNB�s Information Policy —

Conveying Stability and Security

Box 7

Redesign of the OeNB�s Macroeconomic and Statistical Products

In recent years, the OeNB has redesigned a number of its print publications and has developedseveral new information products to improve customer orientation. In the course of this process,the OeNB revised its Annual Report several years ago and published the first issue of itsFinancial Stability Report in 2001. The reporting year, however, saw the greatest number ofchanges, all of which were preceded by well-targeted customer surveys.— In May 2004 the OeNB published its first issue of Monetary Policy & the Economy

(German version: Geldpolitik & Wirtschaft), a quarterly review of economic policy whichreplaced Focus on Austria (German version: Berichte und Studien). The individual studiespublished in Monetary Policy & the Economy are refereed by external experts andreleased by an editorial board. The Q2/05 issue, which is scheduled for late June 2005, willhave a special focus: 10 years of Austrian EU membership. This special topic will be dealtwith from various economic perspectives.

— In mid-2004 the new series Workshops — Proceedings of OeNB Workshops replacedthe special focus issues of Focus on Austria. The new series is published exclusively inEnglish. To date, four issues have been published on monetary and economic policy topics.

— In October 2004, the first issue of Focus on European Economic Integration was pub-lished. This new publication replaces Focus on Transition, which had up to then providedanalyses of Central and Eastern European countries (CEECs). Focus on European Eco-nomic Integration is published twice a year and is available exclusively in English.

— In September 2004 the quarterly statistical publication Statistiken — Daten & Analysen(available exclusively in German with executive summaries in English) replaced the formermonthly Statistisches Monatsheft. Unlike its predecessor, the new statistical series alsoprovides short reports and analyses, which focus on Austrian financial institutions, financialflows and external sector developments. Daily updates of the statistical series� tables (avail-able in German and English) can be viewed on the OeNB�s website under the heading�Statistics and Reporting.� Special issues on specific statistical topics complement the infor-mation provided in the statistical series. A survey conducted in early 2005 showed that usersare very satisfied with the new design of the OeNB�s statistical series, which has been inplace since September 2004.

— The OeNB�s website (www.oenb.at) offers user-friendly access to all publications listedabove. Under the �Media and Publications� heading, PDF files containing entire publicationsor individual contributions are available free of charge.

An IFES survey on the informa-tion level of SMEs, which was con-ducted in October 2004, revealedthat a mere 16% of SMEs have madepreparations for the New Basel Capi-tal Accord (Basel II) so far. For thisreason, the OeNB decided to organ-ize a Basel II information campaign.A five-step immediate action planhas already been launched: In earlyDecember 2004, the OeNB thor-oughly briefed the Austrian Membersof the European Parliament onBasel II. In cooperation with the Aus-trian Federal Economic Chamber, theOeNB also organized a nationwideroad show focusing on Basel II-re-

lated issues. During the entire roadshow, OeNB experts offered their ex-pertise to interested SMEs. Thus,Austrian SMEs had the possibility tothoroughly familiarize themselveswith Basel II in a personal setting.As an additional measure, the OeNBand the Financial Market Authority(FMA) have published best practiceguidelines to inform Austrian banksabout credit risk-minimizing techni-ques. Furthermore, OeNB expertshave compiled a Basel II informationfolder, which is mainly distributedvia commercial bank counters. Anelectronic newsletter, which continu-ally provides news on Basel II, com-

Basel II informationcampaign




pletes the OeNB�s information kit onBasel II.

Because of the high number ofcounterfeit euro banknotes, theOeNB and the Austrian BroadcastingCorporation�s radio station O‹3 de-cided to revive their joint public rela-tions campaign �MEHRscheinchen.�At the heart of this campaign was acompetition based on the serial num-bers and security features of bank-notes; winners were awarded moneyprizes. This initiative reached 84%of O‹3 listeners and familiarized themwith the security features of the eurobanknotes. All in all, 800,000 peopleparticipated in the �MEHRschein-chen� contest, which involved check-ing euro notes for the winning serialnumber and examining their securityfeatures.

The Eurotour bus first touredAustria in 2002 and 2003, providingAustrians all across the country withthe opportunity to exchange theirschillings for euro and to obtain infor-mation about money matters. As thisservice was very well received(90,000 persons visited the Eurotourbus) and as Austrian citizens� needfor information is increasing steadily,the OeNB decided to turn the Euro-tour bus into a permanent mobilebranch office. To this end, a newbus was furnished with state-of-the-art equipment. With 97 stops all overAustria, 2004 has been the most suc-cessful year for the Eurotour so far.113,000 Austrians visited the Eurotourbus, receiving information about theeuro and exchanging aroundATS 63 million for euro.

In 2004 the number of questionsaddressed to the OeNB�s informationservices (hotline and electronicquery) went up by 15% to 31,400.This marked increase is largely attrib-utable to the considerable rise in e-mail queries, whose number grew

by 2,000 to 6,800 year on year in2004. The number of electronicqueries was driven up primarily byquestions about monetary policy andcentral banking issues raised by uni-versity and Fachhochschule staff andstudents as well as business people,which are also responsible for the ris-ing complexity and increasingly de-manding nature of these inquiries.As a consequence, more time and ef-fort has gone into providing answersto hotline inquiries.

The Statistics Hotline offers com-petent advice and information on theOeNB�s financial statistics to the Aus-trian public. Like the general infor-mation hotline, the Statistics Hotlinewas in high demand in 2004; thenumber of requests grew by 17%year on year, reaching 1,800. 90%of all inquiries were answered within24 hours. The clients of the StatisticsHotline not only include expertsfrom commercial banks, law firmsas well as consulting companies andfinancial analysts, but also a growingnumber of journalists.

In September 2004 the professio-nal management of the OeNB�sMoney Museum was rewarded withthe Austrian quality seal for museums— a memorable highlight for the mu-seum�s staff.

CooperationwithO‹ 3,Eurotour bus

Humming hotlines

The OeNB�s MoneyMuseum




In 2004 the Money Museum re-corded around 10,500 visitors, 29%of whom were not with a group.58% participated in one of the 237guided group tours offered by MoneyMuseum employees.

Important additions to the MoneyMuseum in 2004 included the�Sammlung Leypold,� a remarkablecollection of coins currently on viewat the Kunsthistorisches Museum inVienna, and a Vienna Philharmonicgold bullion coin with a face valueof EUR 100,000 acquired by theOeNB with the consent of the Gen-eral Council. With its weight of31 kg and a diameter of 37 cm, theEUR 100,000 Vienna Philharmonicis the world�s largest gold coin. Thereare only 15 EUR 100,000 Vienna Phil-harmonic gold coins altogether, andthe OeNB�s Money Museum ownsthe only one in Austria.

The OeNB as a Nationaland International Forumfor DialogueOver the years, the OeNB has devel-oped into a nationally and interna-tionally recognized platform for dia-

logue. The varied events the OeNBorganizes provide economic policy-makers with a forum for the ex-change of ideas and foster economicdiscourse in general. In 2004, theOeNB hosted events on a total of288 days, welcoming around 12,000participants. The OeNB�s major con-ferences, the Economics Conferenceand the Conference on European Eco-nomic Integration, figure most promi-nently.

The OeNB�s 32nd Economics Con-ference, which took place in Viennaon May 27 and 28, 2004, again dealtwith a highly topical issue: �Growthand Stability in the EU: Perspectivesfrom the Lisbon Agenda.� All confer-ence participants agreed that to reachthe goals set forth in the Lisbonagenda, further structural reformand investment were crucial, in par-ticular in areas such as innovationand education.

The Conference on European Eco-nomic Integration (CEEI, the succes-sor to the OeNB�s East West Confer-ence) took place on November 29and 30, 2004. As indicated in the ti-tle, �South Eastern EUROPEANChallenges and Prospects,� the firstCEEI focused especially on this area,thus constituting one of the OeNB�sfirst concrete contributions to analyz-ing developments in Southeastern Eu-rope. The conference mainly concen-trated on areas of major importancefrom a central banking perspective:monetary and exchange rate policiesas well as the banking sector in South-eastern Europe, a region in whichAustrian banks have been particularlyactive.




Policymakers in particular have al-ways been important dialogue part-ners for the OeNB. At regular inter-vals, the OeNB�s Governor and ViceGovernor report to parliament, spe-cifically the finance committee of

the Austrian Nationalrat, on the cur-rent overall economic situation, onmonetary policy in the euro areaand on important financial market de-velopments.




In 2004 the OeNB again performed awide and complex range of functions.These functions are, on the one hand,defined by the OeNB�s responsibil-ities within the ESCB/Eurosystemand, on the other hand, by domesticbusiness areas. In fulfilling its tasks,the OeNB is guided by its missionstatement and strategic orientationas well as by the Eurosystem MissionStatement, which was published in2004.

All OeNB activities are informedby considerable cost consciousness.This chapter gives a detailed accountof the measures which allowed theOeNB to continuously perform its

functions efficiently and effectivelyand which strengthened its positionas a flexible, innovative and dynamicenterprise.

As the OeNB�s control and man-agement system is based on decentral-ized responsibilities in many areas,transparency is particularly impor-tant for performance. In this context,measuring performance by means ofspecific indicators was a pivotal activ-ity in 2004. The above-mentioned fac-tors, along with many others, havehelped the OeNB earn high esteemas a competent partner within theEurosystem and on the Austrian fi-nancial market.

Box 8

The OeNB�s Customer-Oriented Range of Services

The OeNB performs its functions within the framework of a uniform structure for theEurosystem:� Monetary policy decisions— Economic analysis and research— Participation of the OeNB�s governor in the Governing Council and in the General Council of

the ECB� Implementation of monetary policy decisions— Conduct of monetary policy operations with Austrian banks— Participation in Eurosystem foreign exchange interventions— Management of the OeNB�s own reserve assets and of the reserves transferred to the ECB— Conduct of minimum reserve operations and monitoring of minimum reserve holdings of

Austrian banks— Interfacing between the Eurosystem, Austrian economic agents, policymakers and the

general public� Supervisory functions and financial stability— Participation in the prudential supervision of Austrian banks and payment systems

oversight to secure financial stability— Risk analysis of financial markets and banks

� Statistics— Provision of conclusive, high-quality statistics, above all monetary, interest rate and

prudential statistics as well as external trade statistics (e.g. balance of payments andfinancial accounts)

� Cash supply— Provision of banknotes and coins to Austrian businesses and consumers and ensuring

smooth cash circulation� Payment services— Provision and promotion of reliable domestic and cross-border payment systems (ARTIS,

TARGET)� International cooperation— Cooperation within a wide range of Eurosystem, ESCB and EU bodies— International monetary policy cooperation and participation in international financial

institutions� Provision of advice to the Austrian authorities


The OeNB — An Innovative, Dynamicand Cost-Efficient Enterprise

Structures Aligned to theOeNB�s StrategyIn line with its strategy, the OeNB�sactivities continue to cover the entirerange of central banking core areas,complemented by selected fields ofactivity. The previous chapters of thisannual report have described theOeNB�s tasks in detail. This chapterwill now provide some examples ofthe OeNB�s relational and structuralcapital and explain a number of or-ganizational changes.

In the reporting year, members ofthe OeNB�s management and staffrepresented the OeNB�s interests in198 international bodies, in particularthose of the ESCB/Eurosystem, theEuropean Union (EU), the Interna-tional Monetary Fund (IMF), theBank for International Settlements(BIS) and the Organisation for Eco-nomic Co-operation and Develop-ment (OECD). Moreover, OeNBstaff participated in 95 national panelsfocusing on financial and economicpolicy.

To provide guidance in view of theincreasingly complex interconnec-tions between participating centralbanks, the Eurosystem adopted ajoint Mission Statement1 in 2004. Inessence, this Mission Statement clari-fies the Eurosystem�s objectives, val-ues and principles and lays down thebasic parameters for smooth and effi-cient cooperation. With the aim ofstrengthening the basis for a commonidentity, the Mission Statement de-scribes the roles and responsibilitiesof all Eurosystem members.

Relying on its longstanding expe-rience, the OeNB has been able toprovide valuable input to the develop-ment of a Eurosystem-wide cost ac-counting system. In this area, in par-ticular, factors like comparability

and transparency play a key role.These vital elements have provided abasis for building a harmonized andefficient network across the Eurosys-tem.

With a view to strengthening co-operation, in 2004 the OeNB againparticipated in the Central Bank Gov-ernance Network coordinated by theBIS. This cooperative venture, whichpreviously had been limited to an-swering inquiries in writing, also in-cluded specialist working meetingsin 2004. This formalized face-to-faceexchange of experience is intended topromote general workflow optimiza-tion (by defining examples of bestpractice) and working solutions.

Since the beginning of the 1990sthe OeNB has evolved into a compe-tence center for the analysis of eco-nomic developments in the Centraland Eastern European countries. In2004, the OeNB expanded the focusof its expertise to the countries ofSoutheastern Europe. This new stra-tegic orientation is appropriate to ac-commodate the ongoing European in-tegration and reflects the importancethis neighboring economic area hasfor Austria.

Another example of intensifiedcooperation and networking is the

1 See www.oenb.at or www.ecb.int.

Cooperation andnetworks


The OeNB — An Innovative,

Dynamic and Cost-Efficient Enterprise

Joint Vienna Institute (JVI), whichwas established in Vienna in 1994. Itis a multilateral training center thatsupports transition countries, in par-ticular in Central and Eastern Europeand the former Soviet Union, ontheir way to becoming market-ori-ented economies. The IMF, the Aus-trian Federal Ministry of Financeand the OeNB share the cost of theregular training courses offered atthe JVI. In 2004, the OeNB organizeda number of seminars which coveredtopics like Economic and MonetaryUnion, payment means and paymentsystems, and central bank manage-ment.

In November 2004, the OeNBsuccessfully completed the reorgan-ization of its branch offices. In thecourse of this reorganization, theoriginal framework of eight brancheswas restructured according to mar-ket-related regional aspects. Asidefrom the OeNB�s head office inVienna, which covers Eastern Austria,there are now three regional branchoffices:— Northern Austria branch office,

located in Linz, with a representa-tive office in Salzburg;

— Southern Austria branch office,located in Graz, with a represen-tative office in Klagenfurt; and

— Western Austria branch office, lo-cated in Innsbruck.

The regional model supports theOeNB�s decentralized approach tofulfilling its tasks. The tasks of theOeNB�s branch offices range frompublic relations and communicationsactivities to holding cash reserves,providing information on payment in-struments, handling cash, observingthe local economy, supporting thesupervision of financial markets andcarrying out payment transactions.

Following the introduction of anew front office system in 2003 and

in view of the changing frameworkconditions, organizational and work-flow structures in the treasury do-main were optimized to ensure thatthe OeNB�s Treasury Section operatesin an economical and sustainablemanner.

As a public sector contractor, theOeNB is subject to the Federal Pro-curement Act, which prescribes a callfor tenders for procurements exceed-ing a certain threshold. In 2004, a to-tal of 26 calls for tender were carriedout, guaranteeing efficient, free andfair competition in the procurementprocess. The OeNB succeeded in re-ducing costs massively in 2004 bycontinuously optimizing efficiency.All corporate expenditure-related ac-tivity follows economic and ecologi-cal principles.

To ensure process efficiency, an e-procurement system is used to handleall orders with IT support. A pro-curement platform open to all OeNBsubsidiaries has been established toachieve synergy effects in procure-ment across the OeNB group.

By introducing an integrated envi-ronmental management system for allits offices across Austria, the OeNBhas further strengthened its leadingposition in environmental protectionamong European central banks. Withthis step, the OeNB has signaled itswillingness to go far beyond the eco-logical requirements businesses haveto meet by law.

Environmental efforts are meas-ured on the basis of ecological indica-tors for businesses, which rely on in-put-output data. These indicatorsmake it possible to regularly assessthe improvement of environmentalefforts, facilitate comparisons withother companies in the industry andthus help identify potential for long-term improvement. The following ta-ble gives a brief overview of the

Organizationalchanges

Efficient procurementstructures

Environmentalprotection based on

the principle ofsustainability




OeNB�s ecological indicator valuesand provides a comparison with otherfinancial services providers.

In 2004, the OeNB�s IT qualitymanagement system (QMS) was re-certified to the ISO 9001:2000 stand-ard. The main objective of the QMS,which was introduced in 2001, is toimplement and continuously opti-mize standardized IT processes thatcater to user needs — an approachthat guarantees the provision ofstate-of-the-art services to theOeNB�s IT customers. The long-termbenefits of the QMS include not onlyhigh-quality reproducible servicesbut also a secure and stable infrastruc-ture for the IT products the OeNBprovides. Thus, the IT Section con-tributes substantially to the high pro-ductivity of the OeNB group�s busi-ness processes.

Innovative Projects Pavethe Way for Future-Oriented Managementand Top Performance2004 saw the large-scale evaluationand documentation of OeNB proc-esses and products designed to ensurethe sustainable development of thestrongly customer-oriented product

portfolio as well as the efficient allo-cation of resources. All of the OeNB�sproducts were evaluated and exam-ined for optimization potential. Onthe basis of these assessments, de-tailed process analyses were carriedout.

In 2004, the OeNB devotedaround 11% of its staff resources toprojects which are intended to bringabout sustainable long-term changesin the OeNB�s internal structuresand thus to optimize customer orien-tation. Some of the most impor-tant related projects are describedbelow.

To further optimize cost, an inter-nal cost allocation project identifiedthose internal support services forwhich precise internal cost allocationis economically feasible.

In line with an agreement withthe ECB, the OeNB has taken respon-sibility for the IT maintenance andfurther development of the Counter-feit Monitoring System, a restricted-access ESCB-wide database providinginformation on counterfeit eurobanknotes and coins. This agreement,under which the OeNB is remuner-ated for its services, is a pilot projectwithin the ESCB which may serve as a

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model for future cooperation and thedivision of responsibilities in IT-re-lated matters.

In 2004 the OeNB�s IT-related ac-tivities centered around the imple-mentation of the new reporting sys-tem for the balance of payments sta-tistics. By the end of the reportingyear, the system�s key componentshad been completed and tested. An-other central activity was the organi-zation of an information campaigntargeted at reporting agents in the fi-nancial sector. The campaign com-prised a road show, which toured allof Austria�s provinces, and several spe-cial lectures organized together withvarious interest groups. In December2004 the Balance-of-Payments Re-porting Regulation ZABIL 1/2004of the Oesterreichische National-bank2 was published. It provides a de-tailed description of reporting re-quirements in the financial sector.

The TOPAS/TOPIT project, de-signed to transform the OeNB intoa partner for risk analysis and thesupervision of financial stability, wassuccessfully completed on schedulein late 2004. In the course of thisproject, which had been launched inJanuary 2002, the OeNB�s analysesof the banking sector and of individ-ual banks were generally overhauled;moreover, the applied methods andtechnical aspects were updated. Asan important step, primary data man-agement was reformed to incorpo-rate state-of-the-art features. Meas-ured against other central banks�and supervisory authorities� results,the OeNB�s new models of bankinganalysis have proved very successfulby international standards. The IT-re-lated preparations for the New Basel

Capital Accord (Basel II) consisted ofthe expansion of the processing sys-tems for banking statistics, the MajorLoans Register and the existing bank-ing analysis tools.

The introduction of operationalrisk management at the OeNB(ORION) and the ensuing close co-operation between the responsibleOeNB divisions reduced potentialrisks by improving contingency man-agement at the interfaces betweenthe various divisions. Furthermore,the OeNB for the first time con-ducted a LAN failure test under liveconditions in 2004. The annual busi-ness continuity test, which ensuresthat the infrastructure needed to con-duct business is available, was alsocompleted successfully.

By publishing the prototype ofwhat is to become an annual Intellec-tual Capital Report, the OeNB hasonce more reaffirmed its leading po-sition in the field of transparent cor-porate governance. The report isideally suited to communicating in-formation on the OeNB�s intellectualcapital and thus promotes the OeNB�spolicy of actively providing compre-hensive facts to the general public.

In line with the OeNB�s missionstatement and strategic orientation,the first Intellectual Capital Reportdefined knowledge goals with respectto human, structural, relational andinnovation capital. The report out-lined the underlying Intellectual Cap-ital Report model, the OeNB�sknowledge goals and ways of measur-ing their attainment by defining suit-able indicators. The Intellectual Cap-ital Report is an innovative productwhich will serve as a controlling toolin the future.

2 See www.oenb.at under the �Statistics and Reporting� heading.

Balance ofpayments — the newreporting system for

Austria�s externaltrade statistics

Progress withIT-related prepara-

tions for Basel II

Operationalrisk management at

the OeNB

2003 IntellectualCapital Report — theprototype for a newannual publication




Sound ExpertKnowledge — A MajorSuccess FactorThe OeNB�s staff members make adecisive contribution to fulfilling Aus-tria�s demanding tasks within theESCB/Eurosystem and to copingwith a business environment that ischanging at an ever greater pace. Ad-justed for employees on secondmentor leave (such as maternity and paren-tal leave), the average number of staffworking in the OeNB�s core businessareas (expressed in full-time equiva-lents) came to 957.3 in 2004. 37.3%of OeNB staff held university de-grees, which represented a year-on-year rise by five percentage points.

As an enterprise that strongly re-lies on the expertise of its employees,the OeNB places particular emphasison the training and education of itsstaff. In training its new staff mem-bers, the OeNB increasingly resortedto e-learning methods in 2004. E-learning allows new employees to fa-miliarize themselves with the OeNB�sand ESCB�s main tasks on an individ-ual, unscheduled basis. In 2004 morethan 65% of OeNB staff membersparticipated in at least one educa-tional activity. Knowledge exchangewithin the OeNB as well as betweenthe OeNB and the ECB or otherNCBs is additionally promotedthrough job rotation programs. Inthe reporting year, 46 staff memberstook advantage of job rotations tolearn more about other functionsand institutions. The number of jobrotations thus went up by 31% yearon year.

Through its participation in theSteering Committee for training activ-ities in the ESCB/Eurosystem, theOeNB�s Personnel Division is activelyinvolved in preparing projects forjoint human resources developmentmeasures. Within the ESCB/Eurosys-

tem training activities in specificfields are, for example, being har-monized: International seminars fornew staff members and managers aswell as for language training were or-ganized under this heading in 2004.The OeNB is involved in both theplanning and implementation of theseeducational measures. In addition tothe training opportunities outlinedabove, the OeNB and the DeutscheBundesbank organized specialistseminars on Basel II-related topicsin Vienna, which were open to all25 NCBs within the ESCB.

The exchange of know-howamong the individual NCBs is of cru-cial importance within the ESCB.Thus, in 2004, the OeNB�s PersonnelDivision pioneered a meeting withcentral bank representatives fromAustria�s neighbors (the Czech Re-public, Hungary, Slovakia and Slove-nia) to intensify relations in the fieldof human resources management.

The OeNB is an equal opportu-nity employer and lays great storeby a healthy work-life balance. Inthe reporting year the percentage ofwomen in total headcount was 40%.Among the many measures taken toimprove the compatibility of workand family, the various part-timeschemes (50% to 80%) the OeNB of-fers stand out in particular. Moreover,




OeNB employees on parental leavehave the possibility to opt for a 20%or 30% part-time solution. The con-siderable share of part-time employ-ees in total headcount (7.5%) demon-strates that this measure meets with ahigh degree of approval among staff.

OeNB ShowsCommitment toResearch, Science andCultureAs the OeNB takes a strong inter-est in securing the future of Austrianscience and research, it has providedAustrian researchers with consider-able funds for almost 40 years. In1966, the OeNB set up the Anniver-sary Fund for the Promotion of Scien-tific Research and Teaching (Anniver-sary Fund) to mark the 150th anniver-sary of its establishment. Since then,the Anniversary Fund has providedapproximately EUR 653 million offinancial support for close to 8,300projects of basic and applied re-search, making it an indispensable pil-lar of Austrian research promotion.Therefore, the Anniversary Fund willcontinue to provide direct supportfor Austrian researchers in additionto the recently established NationalFoundation for Research, Technologyand Development (National Founda-tion). Research promotion is part of

our social responsibility — a responsi-bility which becomes more importantthe more Austrian universities have toprove their international competitive-ness.

The National Foundation guaran-tees the sustainable, strategic long-term financing of Austrian researchinitiatives independently of govern-ment budgets. Its efforts are particu-larly targeted at financing interdisci-plinary research projects which arelikely to generate long-term benefits.The provision of sustainable fundingfor such initiatives is to help visiblyposition Austrian excellence in re-search in the international arena. Inthe reporting year, the OeNB pro-vided a total of EUR 75 million ofsupport to the National Foundation.

In 2004, the OeNB made directgrants to the tune of someEUR 11.6 million for 207 researchprojects in economics, medicine (clin-ical research), social sciences and thehumanities, with an emphasis on rein-forcing the promotion of economicscience projects. The OeNB Anniver-sary Fund provides a forum in whichcutting-edge economics and humanmedicine project results are fre-quently presented to an expert audi-ence. In addition to the initiativesoutlined above, the OeNB providedconsiderable basic funding to threeeconomic research institutes — the In-stitute for Advanced Studies (IHS),the Austrian Institute of EconomicResearch (WIFO) and The Vienna In-stitute for International EconomicStudies (WIIW) — and supportedthe third research year of the AustrianAcademy of Sciences� Institute of Mo-lecular Biotechnology (IMBA).

Like many other Austrian busi-nesses, the OeNB puts a particularemphasis on promoting cultural activ-ities. Its collection of valuable oldstring instruments currently com-

Almost 40 years ofresearch promotion

Special culturalpromotion and art

collections




prises 34 instruments, which are onloan to rising Austrian violin starsand Austrian chamber music ensem-bles and orchestras. The OeNB seesit as its duty to make the collection,which ranks among Europe�s finest,accessible to the general public. Tothis end, the OeNB once again organ-ized a �Stradivari & Co� event at theRadioKulturhaus in cooperation withthe Austrian Broadcasting Corpora-tion (ORF).

In the late 1980s the OeNB,which has always shown a strong com-mitment to the arts, started to build acollection of Austrian paintings stem-ming from the period between WorldWar I and World War II. This periodwas chosen deliberately, as its art

could hardly gain a foothold in muse-ums and among its contemporaries inthe face of the overpowering popular-ity of Viennese Art Nouveau. In thepast 20 years the OeNB has boughtmore than 70 museum-quality paint-ings by 44 Austrian artists from thisperiod, uniting them in an extensivecollection which provides a represen-tative cross-section of Austrian art be-tween 1918 and 1938. Moreover, theOeNB maintains a collection of Aus-trian figurative sculptures and paint-ings stemming from the second halfof the 20th century.

Through its cultural activities, theOeNB helps keep Austrian art in thecountry to preserve this heritage forAustria and for future generations.




ˆ

Financial Statements

of the Oesterreichische Nationalbank

for the Year 2004

Assets

December 31, 2004 December 31, 2003

EUR EUR

1 Gold and gold receivables 3,179,012,958.74 3,372,242,953.48

2 Claims on non-euro area residentsdenominated in foreign currency 5,589,745,328.36 6,535,718,790.902.1 Receivables from the IMF 722,997,433.49 1,003,176,673.282.2 Balances with banks and security investments,

external loans and other external assets 4,866,747,894.87 5,532,542,117.62

3 Claims on euro area residentsdenominated in foreign currency 746,608,748.13 876,766,003.17

4 Claims on non-euro area residentsdenominated in euro 617,603,102.40 827,413,460.354.1 Balances with banks, security investments and loans 617,603,102.40 827,413,460.354.2 Claims arising from the credit facility under ERM II � �

5 Lending to euro area credit institutions relatedto monetary policy operations denominated in euro 8,853,559,167.� 2,896,906,773.�5.1 Main refinancing operations 8,029,000,000.� 2,414,278,263.�5.2 Longer-term refinancing operations 824,559,167.� 482,628,510.�5.3 Fine-tuning reverse operations � �5.4 Structural reverse operations � �5.5 Marginal lending facility � �5.6 Credits related to margin calls � �

6 Other claims on euro area credit institutionsdenominated in euro 136,214.40 108,785.47

7 Securities of euro area residents denominated in euro 3,085,653,396.16 1,862,961,571.09

8 General government debt denominated in euro 362,922,577.16 368,843,680.31

9 Intra-Eurosystem claims 4,148,728,298.24 2,829,032,357.679.1 Participating interest in the ECB 116,475,959.82 117,970,000.�9.2 Claims equivalent to the transfer of foreign reserves 1,157,451,203.42 1,179,700,000.�9.3 Claims related to promissory notes backing the issuance

of ECB debt certificates1 x x9.4 Net claims related to the allocation of euro banknotes

within the Eurosystem 2,874,801,135.� �9.5 Other claims within the Eurosystem (net) � 1,531,362,357.67

10 Items in course of settlement 90,938,617.90 88,458,230.92

11 Other assets 8,908,155,713.87 9,614,454,782.0511.1 Coins of euro area 210,722,512.58 265,217,658.8511.2 Tangible and intangible fixed assets 163,644,100.60 158,410,572.9011.3 Other financial assets 7,176,598,738.76 7,843,816,244.2911.4 Off-balance-sheet instruments� revaluation differences 6,792,217.76 9,282,874.5711.5 Accruals and prepaid expenditure 294,596,508.26 300,090,443.6611.6 Sundry 1,055,801,635.91 1,037,636,987.78

35,583,064,122.36 29,272,907,388.41

1 Only an ECB balance sheet item.

Balance Sheetas at December 31, 2004


Liabilities

December 31, 2004 December 31, 2003

EUR EUR

1 Banknotes in circulation 13,416,143,605.� 11,691,232,000.�

2 Liabilities to euro area credit institutions relatedto monetary policy operations denominated in euro 4,000,043,265.50 4,255,393,088.812.1 Current accounts (covering the minimum reserve system) 3,993,473,265.50 4,254,943,088.812.2 Deposit facility 6,570,000.� 450,000.�2.3 Fixed-term deposits � �2.4 Fine-tuning reverse operations � �2.5 Deposits related to margin calls � �

3 Other liabilities to euro area credit institutionsdenominated in euro � �

4 Debt certificates issued1 x x

5 Liabilities to other euro area residentsdenominated in euro 7,626,156.01 18,485,317.365.1 General government 6,903,198.34 16,669,332.605.2 Other liabilities 722,957.67 1,815,984.76

6 Liabilities to non-euro area residentsdenominated in euro 6,292,924.74 2,377,747.85

7 Liabilities to euro area residentsdenominated in foreign currency 47,360.94 76,491,601.88

8 Liabilities to non-euro area residentsdenominated in foreign currency 156,255.63 372,099,005.078.1 Deposits, balances and other liabilities 156,255.63 372,099,005.078.2 Liabilities arising from the credit facility under ERM II � �

9 Counterpart of Special Drawing Rightsallocated by the IMF 204,039,682.� 210,915,010.�

10 Intra-Eurosystem liabilities 9,000,500,379.24 3,063,716,155.�10.1 Liabilities equivalent to the transfer of foreign reserves1 x x10.2 Liabilities related to promissory notes backing

the issuance of ECB debt certificates � �10.3 Net liabilities related to allocation of euro banknotes

within the Eurosystem � 3,063,716,155.�10.4 Other liabilities within the Eurosystem (net) 9,000,500,379.24 �

11 Items in course of settlement � 7,326,392.62

12 Other liabilities 597,408,380.49 785,886,706.5212.1 Off-balance sheet instruments� revaluation differences 907,327.70 4,108,930.5612.2 Accruals and income collected in advance 20,271,797.34 33,281,888.7112.3 Sundry 576,229,255.45 748,495,887.25

13 Provisions 2,280,637,317.78 2,159,747,078.41

14 Revaluation accounts 1,935,987,262.97 2,369,447,875.54

15 Capital and reserves 4,104,427,565.58 4,212,581,524.2815.1 Capital 12,000,000.� 12,000,000,�15.2 Reserves 4,092,427,565.58 4,200,581,524.28

16 Profit for the year 29,753,966.48 47,207,885.07(of which profit brought forward in 2003: EUR 177,761.25)

35,583,064,122.36 29,272,907,388.41

1 Only an ECB balance sheet item.

Balance Sheet


Financial year 2004 Financial year 2003

EUR EUR

1.1 Interest income 691,121,580.37 737,663,078.36

1.2 Interest expense —242,510,370.53 —270,576,156.83

1 Net interest income 448,611,209.84 467,086,921.53

2.1 Realized gains/losses arisingfrom financial operations 264,521,726.71 317,282,184.04

2.2 Writedowns on financial assetsand positions —263,543,394.87 —698,963,294.91

2.3 Transfer to/from provisions forforeign exchange and price risks 214,178,897.52 726,445,196.43

2 Net result of financialoperations, writedownsand risk provisions 215,157,229.36 344,764,085.56

3.1 Fees and commissions income 3,304,450.43 2,398,562.96

3.2 Fees and commissions expense —2,316,197.10 —2,148,589.65

3 Net income from feesand commissions 988,253.33 249,973.31

4 Income from equity shares andparticipating interests 21,096,009.05 100,663,842.13

5 Net result of poolingof monetary income —30,871,847.36 11,119,729.18

6.1 Income from the release of reservesGeneral reserve fund � 955,000,000.�Freely disposable reserve fund � 545,000,000.�

1,500,000,000.�Expense in connection withthe appropriation to theOeNB Anniversary Fundfor the endowment of theNational Foundation forResearch, Technology andDevelopment � —1,500,000,000.� �

6.2 Other income — other 7,506,145.76 8,120,102.87

6 Other income 7,506,145.76 8,120,102.87

Total net income 662,486,999.98 932,004,654.58

7 Staff cost —98,034,796.58 —98,084,228.08

8 Administrative expenses —89,901,715.55 —94,048,735.46

9 Depreciation of tangibleand intangible fixed assets —16,181,905.35 —13,902,434.67

10 Banknote production services —7,157,705.06 —11,314,432.50

11 Other expenses —393,203.54 —2,077,190.19

Total expenses —211,669,326.08 —219,427,020.90

450,817,673.90 712,577,633.68

12 Corporate income tax —153,278,009.13 —242,276,395.45

297,539,664.77 470,301,238.23

13 Central government�s share of profit —267,785,698.29 —423,271,114.41

14.1 Net income 29,753,966.48 47,030,123.82

14.2 Profit brought forward � 177,761.25

14 Profit for the year 29,753,966.48 47,207,885.07

Profit and Loss Accountfor the Year 2004


General Notes to theFinancial Statements

Accounting Fundamentalsand Legal Framework

The Oesterreichische Nationalbank(OeNB) is committed (pursuant toArticle 67 paragraph 2 of the FederalAct on the Oesterreichische Natio-nalbank 1984 as amended and as pro-mulgated in Federal Law Gazette INo. 55/2002 — Nationalbank Act)to prepare its balance sheet and itsprofit and loss account in conformitywith the policies established by theGoverning Council of the EuropeanCentral Bank (ECB) under Ar-ticle 26.4 of the Statute of the Euro-pean System of Central Banks and ofthe European Central Bank (Statuteof the ESCB). These policies are laiddown in an accounting guideline thatthe Governing Council adopted on5 December 2002.1 The OeNB�s fi-nancial statements for the year 2004were prepared fully in line with theprovisions set forth in the accountingguideline. In cases not covered by thisguideline, the generally acceptedaccounting principles referred to inArticle 67 paragraph 2 second sen-tence of the Nationalbank Act wereapplied. The other Nationalbank Actprovisions that govern the OeNB�sfinancial statements (Articles 67through 69 and Article 72 paragraph1 of the Nationalbank Act) remainedunchanged from the previous year.

When the Austrian Fair Value Act2

went into force on January 1, 2004, theCommercial Code was amended toinclude Article 237a, which containsinstructions on the disclosure of fairvalue information about financial as-sets, i.e. on the recognition and meas-

urement of financial assets and liabil-ities in financial statements. The in-structions were taken into account inthe compilation of these financial state-ments.

In accordance with Article 67paragraph 3 of the NationalbankAct, the OeNB continued to beexempt in 2004 from preparing con-solidated financial statements as re-quired under Article 244 et seq. ofthe Commercial Code.

The financial statements for theyear 2004 were prepared in the for-mat laid down by the GoverningCouncil of the ECB.

Accounting PoliciesThe financial statements of the OeNBare prepared in conformity with thepolicies governing the accountingand reporting operations of the Euro-system, which follow accountingprinciples harmonized by Commun-ity law and generally accepted inter-national standards. The key policyprovisions are summarized below:— economic reality and transparency— prudence— recognition of post-balance sheet

events— materiality— going-concern basis— accruals principle— consistency and comparabilityTransactions in financial assets andliabilities are reflected in the ac-counts on the basis of the date onwhich they were settled.

Foreign currency transactionswhose exchange rate is not fixedagainst the accounting currency wererecorded at the euro exchange rateprevailing on the day of the trans-action.

1 Guideline of the European Central Bank of 5 December 2002 on the legal framework for accounting andfinancial reporting in the European System of Central Banks (ECB/2002/10).

2 (Fair Value-Bewertungsgesetz), Federal Law Gazette I No. 118/2003.

Notes to theFinancial Statements 2004


At year-end, both financial assetsand liabilities were revalued at cur-rent market prices/rates. This appliesequally to on-balance sheet and off-balance sheet transactions. The reval-uation of forward rate agreementstook place on the basis of the LondonInterbank Offered Rate (LIBOR)curve of the respective currency.The arbitrage pricing principle isused to value gold interest rate swapsand gold forward interest rate swaps.To this end, the products are splitinto the components (the LIBORcurve, gold swap rates and gold for-ward rates) that are traded on inter-national exchanges.

The revaluation took place on acurrency-by-currency basis for for-eign exchange positions and on acode-by-code basis for securities.Securities held as permanent invest-ment (financial fixed assets) whichare shown under other financial assetswere valued at cost.

Gains and losses realized in thecourse of transactions were taken tothe profit and loss account. For gold,foreign currency instruments andsecurities, the average cost methodwas used in accordance with the dailynetting procedure for purchases andsales. As a rule, the realized gain orloss was calculated by juxtaposingthe sales price of each transactionwith the average acquisition cost ofall purchases made during the day.

In the case of net sales, the calcu-lation of the realized gain or loss wasbased on the average cost of therespective holding for the precedingday.

Unrealized revaluation gains werenot taken to the profit and lossaccount, but transferred to a revalua-tion account on the liabilities side ofthe balance sheet. Unrealized losseswere recognized in the profit andloss account when they exceeded

previous revaluation gains registeredin the corresponding revaluationaccount; they may not be reversedagainst new unrealized gains in sub-sequent years. Furthermore, theOeNB�s management determinedthat unrealized foreign currencylosses that must be expensed wereto be covered by the release of an off-setting amount from the reserve fundfor exchange risks accumulated in therun-up to 1999. Unrealized lossesin any one security, currency or ingold holdings were not netted withunrealized gains in other securities,currencies or gold, since netting isprohibited under the ECB�s account-ing guideline.

The average acquisition cost andthe value of each currency positionwere calculated on the basis of thesum total of the holdings in any onecurrency or gold, including bothasset and liability positions and bothon-balance sheet and off-balancesheet positions. Own funds investedin foreign exchange assets are re-corded in a separate currency posi-tion.

In compliance with Article 69paragraph 4 of the Nationalbank Act,which stipulates that a reserve fundfor exchange risks be set up or re-leased on the basis of the risk assess-ment of the nondomestic assets, thevalue-at-risk (VaR) method was usedto calculate the currency risk. VaRis defined as the maximum loss of agold or foreign currency portfoliowith a given currency diversificationat a certain level of confidence(97.5%) and for a given holdingperiod (one year). The potential losscalculated under this approach is tobe offset against the reserve fund forexchange risks, the revaluation ac-counts, the reserve for nondomesticand price risks and the provision forexchange rate risks.



Future market developments,especially interest and exchange ratemovements, may entail considerablefluctuations of the income accruingto the OeNB, the other EurosystemNCBs and the ECB as a result of theharmonized accounting rules withwhich they have had to comply sinceJanuary 1, 1999.

Premiums or discounts arising onsecurities issued or purchased werecalculated and presented as part ofinterest income and amortized overthe remaining life of the securities.

Participating interests were val-ued on the basis of the net asset valueof the respective company (equitymethod).

Tangible and intangible fixed assetswere valued at cost less depreciation.Depreciation was calculated on astraight-line basis, from the quarterafter acquisition throughout theexpected economic lifetime of theassets according to the followingformula:— computers, related hardware and

software, and motor vehicles:4 years

— equipment, furniture and plant inbuilding: 10 years

— buildings: 25 yearsFixed assets costing less than EUR10,000 were written off in the yearof purchase.



Realized Gains andLosses and RevaluationDifferences and TheirTreatment in theFinancial Statements ofDecember 31, 2004

Risk ManagementFinancial and operational risk in-curred in connection with centralbanking activities have a crucial im-pact on the financial result of anentity and on its ability to continueas a going concern. The OeNB�s riskmanagement is based on bindingrules, risks are determined by meansof recognized procedures, and riskcontrol is guaranteed through contin-uous monitoring. Moreover, there areregular reporting procedures.

Financial RisksFinancial risk covers a range of collat-eral-related risks, basically market,credit and liquidity risk. Reserveasset and risk management principlesare laid down in a rule book adoptedby the OeNB�s Governing Board. Theinvestment of reserve assets is gov-erned by a benchmarking systemand subject to defined limits and

durations. Moreover, the OeNB holdsseparately managed investment port-folios for different asset types andcurrencies. Regular reports are madeto an investment committee and tothe Governing Board of the OeNB.The Governing Board must authorizediversification options to include newtypes of investment.

Market RiskMarket risk is the risk of exposurearising from movements in markets,in particular exchange rate andinterest rate changes, as determinedby generally recognized value-at-risk(VaR) calculation models. Exchangerate risk is controlled through a dualbenchmarking system, namely strate-gic and tactical benchmarks. The stra-tegic benchmarks, which are adoptedby the Governing Board of theOeNB, as a rule for one-year periods,also define the upper exposure limits.

Realizedgains

Realizedlosses

Unrealizedlosses

Change inrevaluationaccounts(posted to the profit and loss account)

EUR million EUR million EUR million EUR million

Gold 84.551 — — —114.023Foreign currencyholdings for own account 59.842 6.535 254.1791 —3.129own funds 0.521 0.034 — +1.028

Securitiesholdings for own account 116.037 29.743 7.579 —42.642own funds 8.933 0.008 0.582 —7.410

IMF euro holdings 29.859 — — —Participating interests — — 0.992 —4.790Off-balance sheet instruments 8.651 7.552 0.211 —2.490

Total 308.394 43.872 263.543 —173.456

1 This amount did not have an impact on profit because the loss was offset against the reserve for nondomestic and price risks.



The strategic measures are comple-mented by tactical benchmarks,which are defined at the regularmeetings of the responsible invest-ment committee for shorter periodsto reflect short-term market devel-opments and the like. Interest raterisk is managed on the basis of dura-tion targets or limits.

Credit RiskCredit risk is the risk of incurring aloss due to the failure of a counter-party. Here, risk management relieson a credit risk limit system whichdocuments current credit risk limitsand actual exposure. Credit riskreports reflecting this information aswell as information derived frommonitoring developments in financialmarkets are discussed thoroughly atregular investment committee meet-ings and are reviewed at annual inter-vals by the Governing Board.

Liquidity RiskLiquidity risk is the risk arising froma counterparty�s inability to meet itsfinancial obligations in time or in fullor the risk that the OeNB may not

dispose of sufficient funds to meetits obligations. To avoid this risk,the OeNB selects counterparties witha high credit standing and strictlyapplies the established limits, witha particular emphasis on securityand liquidity. These principles takeprecedence over profitability consid-erations.

Operational riskOperational risk is the risk of incur-ring losses due to defects, inadequateprocedures or systems, human erroror unforeseen events affecting opera-tions. The OeNB has set up adequaterisk controls, as laid down in its riskmanagement handbook ORION —Handbuch Risiko- und Krisenmanage-ment (ORION stands for Operatio-nales Risikomanagement in derOesterreichischen Nationalbank —operational risk management at theOesterreichische Nationalbank). Val-uation takes into account the impactof various risk scenarios on theOeNB�s reputation, costs and anylosses. Risk valuation is an ongoingprocess, and reports are submittedto management every half year.



Financial risk and financial provi-sions comprised the following itemson December 31, 2004:

Capital movements

For details of the various changes,please refer to the notes to the re-spective balance sheet items.

Risk Risk assessment Financial provisions

EUR million EUR million

Gold risk VaR 509 5091 revaluation account

Exchange rate risk VaR 1,548 537 reserve fund for exchange risks40 revaluation accounts

931 reserve for nondomestic andprice risks

40 provisions for foreign exchange risks

1,548 1,548Risk of interest rate change and reserve for nondomestic andpro rata Eurosystem risk VaR 1,042 1,042 price risks

Total 3,099 3,099

1 Holdings on the revaluation accounts come to EUR 743 million.

Movements in Capital Accounts in 2004

Dec. 31, 2003 Increase Decrease Dec. 31, 2004


Capital 12.000 — — 12.000

ReservesGeneral reserve fund 477.683 — 477.683 —Reserve for nondomestic and price risks 1,622.000 351.263 — 1,973.263Reserve for retained earnings — 2.226 — 2.226Earmarked capital funded with net interest incomefrom ERP loans 569.399 16.040 — 585.439

OeNB Anniversary Fund for the Promotionof Scientific Research and TeachingInitial OeNB Anniversary Fund 31.500 — — 31.500OeNB Anniversary Fund National Foundationendowment 1,500.000 — — 1,500.000

4,200.582 369.529 477.683 4,092.428Profit for the year 47.208 — 17.454 29.754

Total 4,259.790 369.529 495.137 4,134.182

Revaluation accountsReserve fund for exchange risks 851.190 — 313.841 537.349Initial valuation reserve 281.441 — 0.290 281.151Eurosystem revaluation accounts 1,236.817 55.165 174.495 1,117.487

Total 2,369.448 55.165 488.626 1,935.987



Development of theOeNB�s CurrencyPositions in the FinancialYear 2004

Notes to theBalance Sheet

Assets1 Gold and gold receivables

Closing balance Dec. 31, 2004 EUR 3,179.013 millionClosing balance Dec. 31, 2003 EUR 3,372.243 million

Change —EUR 193.230 million—5.7%

This item comprises the OeNB�sholdings of physical and nonphysicalgold, which amounted to 307 tonson December 31, 2004. At a marketvalue of EUR 321.562 per fine ounce(i.e. EUR 10,338.46 per kg of finegold), the OeNB�s gold holdings wereworth EUR 3,179.013 million at thebalance sheet date.

The valuation on December 31,2004, resulted in unrealized valuationlosses of EUR 114.023 million.

In 2004, 10 tons of gold were soldto the Bank for International Settle-ments (BIS) at EUR 107.454 million.The sales were effected within theframework of the Joint Statementon Gold concluded by 14 centralbanks (including the OeNB) and theECB in March 2004. The price gainsof EUR 84.551 million realized onthe sales were disclosed under item2.1 Realized gains/losses arising fromfinancial operations of the profit andloss account.

The Joint Statement on Goldprovides for annual sales over aperiod of five years under a con-certed program; annual sales are notto exceed 500 tons and total salesover the five-year period are limitedto 2,500 tons. Moreover, gold leas-ings and the use of gold futures andoptions will not be increased overthe period.

Net Currency Position (including gold)

Dec. 31, 2003 Dec. 31, 2004 Change

EUR million EUR million EUR million %

Gold and gold receivables 3,372.243 3,179.013 —193.230 —5.7Claims on non-euro area residentsdenominated in foreign currency1 7,905.320 7,129.312 —776.008 —9.8Claims on euro area residentsdenominated in foreign currency 876.766 746.609 —130.157 —14.8Other assets 20.309 22.932 +2.623 +12.9

less:Liabilities to euro area residents denominatedin foreign currency 76.492 0.047 —76.445 —99.9Liabilities to non-euro area residents denominatedin foreign currency 372.099 0.156 —371.943 —99.9Counterpart of Special Drawing Rights allocatedby the IMF 210.915 204.040 —6.875 —3.3Off-balance sheet instruments� revaluationdifferences 4.109 0.712 —3.397 —82.7Other liabilities 0.063 — —0.063 —100.0Revaluation accounts2 74.912 59.326 —15.586 —20.8

Total 11,436.048 10,813.585 —622.463 —5.4

1 Excluding the share of the IMF quota which was not drawn, expressed in euro.2 Resulting from the change in net unrealized exchange rate gains on foreign currency-denominated securities on December 31, 2003, and December 31,2004.



2 Claims on non-euro area residentsdenominated in foreign currency

Closing balance Dec. 31, 2004 EUR million 5,589.745Closing balance Dec. 31, 2003 EUR million 6,535.718

Change —EUR million 945.973—14.5%

These claims consist of receiv-ables from the International Mone-tary Fund (IMF) and claims denomi-nated in foreign currency againstnon-euro area countries, i.e. coun-terparties resident outside the euroarea.

Subitem 2.1 Receivables from theIMF comprises the following accounts:

Drawings of Special DrawingRights (SDRs) on behalf of IMFmembers and the revaluation of euroholdings by the IMF as well as trans-fers by the IMF boosted receivablesfrom the IMF by a total of EUR85.604 million. Conversely, repay-ments by members reduced the re-ceivables from the IMF by a total ofEUR 255.569 million. Revaluationlosses (—EUR 72.748 million) re-duced these claims, whereas realizedexchange rate gains and book valuereconciliation (+EUR 0.852 million)enlarged them.

The IMF remunerates participa-tions in the IMF at a rate of remuner-ation that is updated weekly. In 2004,this rate hovered between 1.57% and2.24% per annum, mirroring theprevailing SDR rate.

The holdings of Special DrawingRights3 were recognized in the bal-ance sheet at EUR 117.494 millionon December 31, 2004, which isequivalent to SDR 103 million. Thenet reduction in 2004 of holdings byEUR 26.155 million resulted fromthe sale of SDRs equivalent to EUR72.478 million and the purchase of

Dec. 31, 2003 Dec. 31, 2004 Change


Total claims (Austrian quota)equivalent to SDR 1,872.3 million1 2,205.568 2,133.673 —71.895 —3.3

less:Balances at the disposal of the IMF 1,369.601 1,539.566 +169.965 +12.4

Receivables from the IMF 835.967 594.107 —241.860 —28.9Holdings of SDRs 143.649 117.494 —26.155 —18.2Other claims against the IMF 23.560 11.396 —12.164 —51.6

Total 1,003.176 722.997 —280.179 —27.9

1 Pursuant to federal law as promulgated in Federal Law Gazette No. 309/1971, the OeNB assumed the entire Austrian quota at the IMF on its ownaccount on behalf of the Republic of Austria.

3 Pursuant to federal law as promulgated in Federal Law Gazette No. 440/1969, the OeNB is entitled toparticipate in the SDR system on its own account on behalf of the Republic of Austria and to enter theSDRs purchased or allocated gratuitously on the asset side of the balance sheet as cover for the total circulation.



SDRs equivalent to EUR 38.831 mil-lion. Interest credited, above allremunerations of the participationin the IMF, boosted holdings byEUR 11.368 million.

No purchases arising from desig-nations by the IMF were effected in2004. Principally, the OeNB contin-ues to be obliged under the IMF�sstatutes to provide currency ondemand in exchange for SDRs. Mem-bers designated by the IMF may useSDRs up to the point at which theOeNB�s holdings of SDRs are threetimes as high as its net cumulative al-location. The OeNB�s net cumulativeallocation amounted to SDR 179.045million on December 31, 2004.

Other claims against the IMF com-prise the OeNB�s other contributionsto loans under special borrowingarrangements. In the financial state-ments for 2004, this item relatesexclusively to claims arising fromcontributions (SDR 10 million) tothe Poverty Reduction and GrowthFacility (PRGF). The PRGF is a spe-cial initiative designed to supportthe IMF�s objectives by granting thepoorest countries credits at highlyconcessional terms in order to fi-nance economic programs targetedat fostering economic growth andensuring a strong, sustainable recov-ery of the balance of payments.



Subitem 2.2 Balances with banksand security investments, external loansand other external assets covers the fol-lowing accounts:

Balances with banks outside theeuro area include foreign currencydeposits on correspondent accounts,deposits with agreed maturity andovernight funds. Securities relate toinstruments issued by non-euro arearesidents. As a rule, operations arecarried out only with financiallysound counterparties.

3 Claims on euro area residentsdenominated in foreign currency

Claims on euro area residents denomi-nated in foreign currency are as fol-lows:

Dec. 31, 2003 Dec. 31, 2004 Change


Balances with banks 1,212.263 861.379 —350.884 —28.9Securities 4,315.000 4,000.386 —314.614 —7.3Other external assets 5.279 4.983 —0.296 —5.6

Total 5,532.542 4,866.748 —665.794 —12.0

Dec. 31, 2003 Dec. 31, 2004 Change


Balances with banks 365.854 286.195 —79.659 —21.8Securities 510.912 460.414 —50.498 —9.9

Total 876.766 746.609 —130.157 —14.8



4 Claims on non-euro area residentsdenominated in euro

This item includes all euro-denomi-nated investments and accounts withcounterparties which are not euroarea residents.

On December 31, 2003, andDecember 31, 2004, the subitemsof this balance sheet item closed asfollows:

5 Lending to euro area creditinstitutions related to monetarypolicy operations denominatedin euro

This balance sheet item representsthe liquidity-providing transactionsexecuted by the OeNB.

The principal components of thisitem are:

Dec. 31, 2003 Dec. 31, 2004 Change


Securities 764.209 373.613 —390.596 —51.1Other investments 63.204 243.990 +180.786 +286.0

Total 827.413 617.603 —209.810 —25.4

Dec. 31, 2003 Dec. 31, 2004 Change


5.1 Main refinancing operations 2,414.278 8,029.000 +5,614.722 +232.65.2 Longer-term refinancing operations 482.628 824.559 +341.931 +70.85.3 Fine-tuning reverse operations — — — —5.4 Structural reverse operations — — — —5.5 Marginal lending facility — — — —5.6 Credits related to margin calls — — — —

Total 2,896.906 8,853.559 +5,956.653 +205.6



5.1 Main refinancing operationsMain refinancing operations are regu-lar liquidity-providing reverse trans-actions that were executed by theNCBs with a weekly frequency anda maturity of two weeks in the formof standard (variable rate) tenderoperations. The ECB GoverningCouncil�s decision of December 1,2003,4 resulted in a reduction of thematurity of the main refinancingoperation from two weeks to oneweek from March 8, 2004. All coun-terparties which fulfill the generaleligibility criteria may submit bidswithin a timeframe of 24 hours fromthe tender announcement.

The main refinancing operationsare the most important open marketoperations conducted by the Euro-system, playing a pivotal role in sig-naling the stance of monetary policy.They provide the bulk of liquidity tothe financial sector.

5.2 Longer-term refinancing operationsLonger-term refinancing operations areregular liquidity-providing reversetransactions with a monthly fre-quency and a maturity of threemonths. They are aimed at providingcounterparties with additional lon-ger-term refinancing and are exe-cuted through standard tenders bythe NCBs. All longer-term refinancingoperations conducted in 2004 werecarried out in the form of variablerate tenders.

5.3 Fine-tuning reverse operationsFine-tuning reverse operations are exe-cuted on an ad hoc basis with a viewto managing the liquidity situationin the market and steering interestrates, in particular to smooth the ef-fects on interest rates caused by un-

expected liquidity fluctuations in themarket. The choice of instrumentsand procedures depends on the typeof transaction and the underlying mo-tives. Fine-tuning operations are nor-mally executed by the NCBs throughquick tenders or through bilateralprocedures. It is up to the GoverningCouncil of the ECB to empower theECB to conduct fine-tuning opera-tions itself under exceptional circum-stances.

In 2004, no such operations wereconducted.

5.4 Structural reverse operationsThe ECB may use structural reverse op-erations to adjust the structural posi-tion of the Eurosystem vis-a‘-vis thefinancial sector.

In 2004, no such operations werecarried out.

5.5 Marginal lending facilityCounterparties may use the marginallending facility to obtain overnightliquidity from NCBs at a prespecifiedinterest rate against eligible assets.The facility is intended to satisfycounterparties� temporary liquidityneeds. Under normal circumstances,the interest rate on the facility pro-vides a ceiling for the overnight inter-est rate.

The marginal lending facility wasaccessed repeatedly in 2004.

5.6 Credits related to margin callsCredits related to margin calls arisewhen the value of underlying assetsregarding credit extended to creditinstitutions increases beyond collat-eral requirements, obligating the cen-tral bank to provide counterpartieswith additional credit to offset thevalue in excess of requirements. If

4 Guideline of the European Central Bank of 1 December 2003 amending Guideline ECB/2000/7 on monetarypolicy instruments and procedures of the Eurosystem (ECB/2003/16).



such credit is provided not by thereturn of securities but rather by anentry on an account, a claim on thecounterparty is recorded in this sub-item.

No claims were recorded underthis item in 2004.

6 Other claims on euro area creditinstitutions denominated in euro

Closing balance Dec. 31, 2004 EUR 0.136 millionClosing balance Dec. 31, 2003 EUR 0.109 million

Change +EUR 0.027 million+25.2%

This item comprises claims oneuro area credit institutions not re-lated to monetary policy operations.

7 Securities of euro area residentsdenominated in euro


Change +EUR 1,222.692 million+65.6%

This item covers all marketablesecurities (including securities stem-ming from before EMU) denomi-nated in constituent currencies ofthe euro that are not used in mone-tary policy operations and that arenot part of investment portfolios ear-marked for specific purposes.

The annual change is mainly dueto additions resulting from net sales.

8 General government debtdenominated in euro



This balance sheet item subsumesthe claim on the Austrian FederalTreasury from silver commemorativecoins issued before 1989, based onthe 1988 Coinage Act as promulgated

in Federal Law Gazette No. 425/1996.

In theory, the maximum federalliability is the sum total of all silvercommemorative coins issued before1989, minus any coins returned toand paid for by the central govern-ment, minus any coins directlywithdrawn by Mu‹nze O‹ sterreichAktiengesellschaft. Repayment ofthe maximum federal liability ofEUR 1,229.573 million is effectedby annual installments of EUR5.814 million out of the central gov-ernment�s share of the OeNB�s profit.The proceeds from metal recovery,including the interest on the invest-ment of these proceeds by Mu‹nzeO‹ sterreich Aktiengesellschaft, aredesignated for repayment by thecontractual deadline (every year onDecember 15). Any amount out-standing on December 31, 2040, willhave to be repaid in the five followingyears (2041 to 2045) in five equalinstallments.

The net increase in this claimresulted from returns of silver com-memorative coins to the central gov-ernment in the course of 2004 witha total face value of EUR 12.725million less redemptions made outof the central government�s share inthe OeNB�s profit for the year 2003plus the proceeds from metal recov-ery, which together totaled EUR18.646 million.

9 Intra-Eurosystem claims



This balance sheet item consists ofthe claims arising from the OeNB�sshare of the ECB�s capital and theclaims equivalent to the transfer offoreign reserves to the ECB. Further-



more, this item shows TARGET bal-ances and other (net) claims withinthe Eurosystem.

Subitem 9.3 Claims related topromissory notes backing the issuanceof ECB debt certificates in this ac-counting scheme does not apply tothe OeNB; it is exclusively an ECBbalance sheet item.

Intra-Eurosystem claims consistedof the following subitems on Decem-ber 31, 2003, and December 31,2004:

Dec. 31, 2003 Dec. 31, 2004 Change


9.1 Participating interest in the ECB 117.970 116.476 —1.494 —1.39.2 Claims equivalent to the transfer of

foreign reserves 1,179.700 1,157.451 —22.249 —1.99.3 Claims related to promissory notes backing

the issuance of ECB debt certificates x x x x9.4 Net claims related to the allocation of

euro banknotes within the Eurosystem — 2,874.801 +2,874.801 —9.5 Other claims within the Eurosystem (net) 1,531.362 — —1,531.362 —100.0

Total 2,829.032 4,148.728 +1,319.696 +46.6



9.1 Participating interest in the ECBThis subitem shows the share that theOeNB holds in the capital of the ECB.Pursuant to Article 28 of the ESCBStatute, the ESCB national centralbanks are the sole subscribers to thecapital of the ECB. Subscriptionsdepend on shares which are fixed inaccordance with Article 29.3 of theESCB Statute and which must beadjusted every five years. The firstsuch adjustment following the estab-lishment of the ECB took effect on

January 1, 2004. On May 1, 2004,a second change of the ECB�s capitalkey followed as a result of the acces-sion of ten Member States. Based onthe Council Decision of 15 July 2003on the statistical data to be used forthe determination of the key for sub-scription of the capital of the Euro-pean Central Bank (2003/517/EC),the capital keys of the NCBs were ad-justed as follows on January 1, 2004,and May 1, 2004, by means of trans-fers among the NCBs:

Percentage Shares of the Capital of the ECB

January 1, 1999to

December 31, 2003

January 1, 2004to

April 30, 2004

sinceMay 1, 2004

% % %

Nationale Bank van Belgie‹/Banque Nationale de Belgique 2.8658 2.8297 2.5502Deutsche Bundesbank 24.4935 23.4040 21.1364Bank of Greece 2.0564 2.1614 1.8974Banco de Espan�a 8.8935 8.7801 7.7758Banque de France 16.8337 16.5175 14.8712Central Bank and Financial Services Authority of Ireland 0.8496 1.0254 0.9219Banca d�Italia 14.8950 14.5726 13.0516Banque centrale du Luxembourg 0.1492 0.1708 0.1568De Nederlandsche Bank 4.2780 4.4323 3.9955Oesterreichische Nationalbank 2.3594 2.3019 2.0800Banco de Portugal 1.9232 2.0129 1.7653Suomen Pankki — Finlands Bank 1.3970 1.4298 1.2887

Share of the Eurosystem central banks 80.9943 79.6384 71.4908

Ceska« na«rodnı« banka 0.0000 0.0000 1.4584Danmarks Nationalbank 1.6709 1.7216 1.5663Eesti Pank 0.0000 0.0000 0.1784Central Bank of Cyprus 0.0000 0.0000 0.1300Latvijas Banka 0.0000 0.0000 0.2978Lietuvos bankas 0.0000 0.0000 0.4425Magyar Nemzeti Bank 0.0000 0.0000 1.3884Central Bank of Malta/Bank Cœ entrali ta� Malta 0.0000 0.0000 0.0647Narodowy Bank Polski 0.0000 0.0000 5.1380Banka Slovenije 0.0000 0.0000 0.3345Na«rodna« banka Slovenska 0.0000 0.0000 0.7147Sveriges Riksbank 2.6537 2.6636 2.4133Bank of England 14.6811 15.9764 14.3822

Share of the remaining ESCB central banks 19.0057 20.3616 28.5092

Total 100.0000 100.0000 100.0000



Consequently, on January 1,2004, the share that the OeNB heldin the subscribed capital of the ECB— EUR 5 billion in total — decreasedfrom 2.3594% to 2.3019% and assetsubitem 9.1 Participating interest inthe ECB decreased by EUR 2.875 mil-lion to EUR 115.095 million.

In accordance with Article 49.3of the Statute of the ESCB, whichwas added to the Statute by theTreaty of Accession, the ECB�s sub-scribed capital is automatically in-creased when a new member joinsthe EU and its NCB joins the ESCB.The increase is determined by multi-plying the prevailing amount of thesubscribed capital (i.e. EUR 5 bil-lion) by the ratio, within the ex-panded capital key, between theweighting of the entering NCB(s)and the weighting of those NCBs that

are already members of the ESCB.Therefore, on May 1, 2004, the sub-scribed capital of the ECB was in-creased to EUR 5.565 billion. Conse-quently, on May 1, 2004, the sharethat the OeNB held in the increasedsubscribed capital of the ECB —EUR 5.565 billion in total — de-creased from 2.3019% to 2.0800%and asset subitem 9.1 Participatinginterest in the ECB increased byEUR 0.650 million to EUR 115.745million.

As a result of the aforementionedcapital key changes, the relativeshares of NCBs in the accumulatednet profits of the ECB (also referredto as net equity) as at December 31,2003, and April 31, 2004, changed.Subitem 9.1 Participating interest inthe ECB also reflects the net increaseof the OeNB�s share in this respect.



9.2 Claims equivalent to the transferof foreign reserves

These represent the OeNB�s claimsarising from the transfer of foreignreserve assets to the ECB. The claimsare denominated in euro at a valuefixed at the time of their transfer.They are remunerated at the latestavailable marginal rate for the Euro-system�s main refinancing operations,adjusted to reflect a zero return onthe gold component.

The adjustments to the capital keyweightings of the ECB on January 1,2004, and May 1, 2004, also resultedin the adjustment of the claim of theOeNB with respect to the foreign re-serve assets transferred to the ECB.Reflecting its reduced capital keyshare, the OeNB�s euro-denominatedclaim decreased by EUR 28.750million to EUR 1,150.950 millionon January 1, 2004, and increasedby EUR 6.501 million to EUR1,157.451 million on May 1, 2004.

9.4 Net claims related to the allocationof euro banknotes within theEurosystem

Intra-Eurosystem balances on eurobanknotes in circulation net theOeNB�s liabilities resulting from theshare of the total value of euro bank-notes put into circulation allocatedto the balance sheet of the ECB withits claim resulting from the allocationof euro banknotes in circulationwithin the Eurosystem (this alloca-tion procedure is referred to as theCapital Share Mechanism — CSM).On December 31, 2004, these balan-ces resulted in a net claim of EUR2,874.801 million stemming fromthe adjustments of euro banknotes

in circulation. In the previous year,this item had been recognized as anet liability under subitem 10.3 Netliabilities related to the allocation ofeuro banknotes within the Eurosystem.

9.5 Other claims within the Eurosystem(net)

This item shows net claims arisingfrom balances of TARGET accountsand other (net) claims within theEurosystem, provided that theseitems closed the reporting year withnet claims. As the balance recordedon December 31, 2004, was a netliability, it is represented under liabil-ity item 10.4 Other liabilities withinthe Eurosystem (net).

January 1, 1999to

December 31, 2003

January 1, 2004to

April 30, 2004

sinceMay 1, 2004

EUR EUR EUR

Nationale Bank van Belgie‹/Banque Nationale de Belgique 1,432,900,000 1,414,850,000 1,419,101,951Deutsche Bundesbank 12,246,750,000 11,702,000,000 11,761,707,508Bank of Greece 1,028,200,000 1,080,700,000 1,055,840,343Banco de Espan�a 4,446,750,000 4,390,050,000 4,326,975,513Banque de France 8,416,850,000 8,258,750,000 8,275,330,931Central Bank and Financial Services Authority of Ireland 424,800,000 512,700,000 513,006,858Banca d�Italia 7,447,500,000 7,286,300,000 7,262,783,715Banque centrale du Luxembourg 74,600,000 85,400,000 87,254,014De Nederlandsche Bank 2,139,000,000 2,216,150,000 2,223,363,598Oesterreichische Nationalbank 1,179,700,000 1,150,950,000 1,157,451,203Banco de Portugal 961,600,000 1,006,450,000 982,331,062Suomen Pankki — Finlands Bank 698,500,000 714,900,000 717,118,926

Total 40,497,150,000 39,819,200,000 39,782,265,622



10 Items in course of settlementThis claim results from 2004 net floatitems settled at the beginning of Jan-uary 2005.

11 Other assetsOther assets comprise the followingsubitems:

11.1 Coins of euro areaThis item represents the OeNB�sstock of fit coins issued by euro areacountries.

11.2 Tangible and intangible fixed assetsTangible and intangible fixed assetscomprise OeNB premises and equip-ment (including machinery, computerhardware and motor vehicles) tangi-ble real assets and intangible fixedassets.

Premises developed as follows:

Purchases in 2004 mainly relateto capitalized costs of work in themain building and the OeNB�s north-ern office building.

Dec. 31, 2003 Dec. 31, 2004 Change


11.1 Coins of euro area 265.218 210.723 —54.495 —20.511.2 Tangible and intangible fixed assets 158.411 163.644 +5.233 +3.311.3 Other financial assets 7,843.816 7,176.599 —667.217 —8.511.4 Off-balance sheet instruments� revaluation

differences 9.283 6.792 —2.491 —26.811.5 Accruals and prepaid expenditure 300.090 294.596 —5.494 —1,811.6 Sundry 1,037.637 1,055.802 +18.165 +1.8

Total 9,614.455 8,908.156 —706.299 —7.3

EUR million

Cost incurred until Dec. 31, 2003 116.5611

Purchases in 2004 8.205Sales in 2004 —Accumulated depreciation 24.066Book value on Dec. 31, 2004 100.700Book value on Dec. 31, 2003 96.752Annual depreciation in 2004 4.257

1 Premises acquired prior to December 31,1956, were booked at the costrecorded in the schilling opening balance sheet (Federal Law GazetteNo 190/1954).



Equipment developed as follows:

Tangible real assets worth EUR36.096 million represent the OeNB�scollection of antique string instru-ments, which it started to acquirein 1989, and coins purchased forthe Money Museum�s Coin Collec-tion (EUR 0.481 million). The coinpurchases include a 1,000 fine ouncegold bullion Vienna Philharmoniccoin acquired from Mu‹nze O‹ ster-

reich Aktiengesellschaft. Mu‹nze O‹ s-terreich Aktiengesellschaft minted15 of these coins to commemoratethe 15th anniversary of the first issueof the Vienna Philharmonic gold bul-lion coin.

On December 31, 2004, theOeNB�s collection of valuable instru-ments encompassed 26 violins, 5 vio-loncellos and 3 violas. These instru-ments are on loan to musiciansdeemed worthy of special support.

Intangible fixed assets (residencerights) developed as follows:

EUR million

Cost incurred until Dec. 31, 2003 0.720Purchases in 2004 —Sales in 2004 —Accumulated depreciation 0.077Book value on Dec. 31, 2004 0.643Book value on Dec. 31, 2003 0.658Annual depreciation in 2004 0.015

EUR million

Cost incurred until Dec. 31, 2003 96.596Purchases in 2004 10.112Sales in 2004 (at cost) 23.0721

Accumulated depreciation 57.431Book value on Dec. 31, 2004 26.205Book value on Dec. 31, 2003 28.081Annual depreciation in 2004 11.910

1 The balance between the book value of the sales and the underlyinghistorical costs is EUR 0.078 million.



11.3 Other financial assetsOther financial assets comprise thefollowing accounts:

Of the OeNB�s securities port-folio, EUR 1,592.591 million repre-sented investments of the pensionreserve, another EUR 1,342.658million reflect investments of theOeNB Anniversary Fund for the Pro-motion of Scientific Research andTeaching (of which EUR 1,295.761million were earmarked as an endow-ment for the National Foundation forResearch, Technology and Develop-ment, also referred to in brief asthe National Foundation). Moreover,the securities portfolio related tocapital and reserves, i.e. the OeNB�sown funds management, came toEUR 3,085.203 million.5 Revalua-tions of the portfolios resulted inunrealized valuation gains of EUR92.196 million and unrealized pricelosses of EUR 0.596 million as wellas unrealized foreign currency gainsof EUR 1.836 million.

Of the participating interests, EUR511.750 million formed part of theown funds portfolio and EUR

302.605 million formed part of theinvestment portfolio relating to in-vestments of the pension reserve.

Other investments include invest-ments of the pension reserve (EUR73.297 million), investments topromote the National Foundation(EUR 222.902 million), investmentsof the initial OeNB Anniversary Fund(i.e. excluding the National Founda-tion; EUR 8.262 million) and theown funds portfolio (EUR 37.331million) and consisted mainly of over-night funds.

Participating interests developed asfollows:

EUR million

Net asset value on Dec. 31, 2003 818.481Purchases in 2004 0.419Sales in 2004 (at book value) 01

Annual depreciation in 2004 0.992Revalutation in 2004 —3.553Net asset value on Dec. 31, 2004 814.355

1 The balance between the book value of the sales and the underlyinghistorical costs is EUR 0.008 million.

Dec. 31, 2003 Dec. 31, 2004 Change


Securities 6,555.781 6,020.453 —535.328 —8.2Participating interests 818.481 814.355 —4.126 —0.5Other investments 469.554 341.791 —127.763 —27.2

Total 7,843.816 7,176.599 —667.217 —8.5

5 The own funds of the OeNB shown under liabilities include its capital, the general reserve fund, the freelydisposable reserve fund, the reserve for nondomestic and price risks, earmarked ERP capital funded with netinterest income from loans, the reserve fund for exchange risks and general provisions, above all provisionsfor exchange rate risks and provisions for general banking risks.



11.6 SundrySundry assets comprise the followingaccounts:

According to Article 3.2 of theERP Fund Act, the ceiling of theOeNB�s financing commitment cor-responds to the sum by which thefederal debt was written down ini-tially (EUR 341.955 million) plus in-terest accrued (EUR 585.439 millionon December 31, 2004). The ERPloan portfolio managed by the OeNBthus totaled EUR 927.394 million onDecember 31, 2004. The provisionsgoverning the extension of loans

from this portfolio are laid down inArticle 83 of the Nationalbank Act.

The residual terms of advances onsalaries generally exceed one year. Alladvance payments are secured by lifeinsurance plans.

Other claims came to EUR 26.575million at December 31, 2004, andmainly comprised advances, accountsreceivable and claims arising fromday-to-day business.

Dec. 31, 2003 Dec. 31, 2004 Change

EUR million EUR million EUR million

Claims arising from ERP loans to companies 645.023 649.991 +4.968OeKB overnight account for ERP lending 266.068 277.216 +11.148

ERP loan portfolio managed by the OeNB 911.091 927.207 +16.116

Schilling coins 86.805 88.566 +1.761Shareholder loans 7.616 6.720 —0.896Advances on salaries 6.459 6.734 +0.275Other claims 25.666 26.575 +0.909

Total 1,037.637 1,055.802 +18.165



Liabilities1 Banknotes in circulation

Closing balance Dec. 31, 2004 EUR million 13,416.143Closing balance Dec. 31, 2003 EUR million 11,691.232

Change +EUR million 1,724.911+14.8%

This item consists of the OeNB�sshare of the euro banknotes in circu-lation in the entire Eurosystem calcu-lated by applying the banknote alloca-tion key6; it developed as follows:

6 This key has come to 2.6765% for the OeNB since May 1, 2004. It is calculated on the basis of the OeNB�sshare of the paid-up capital of the ECB, of which 92% are used as a calculation basis.

Dec. 31, 2003 Dec. 31, 2004 Change


Total value of euro banknotes in circulation 14,754.948 10,541.342 —4,213.606less:Liability resulting from the share allocatedto the balance sheet of the ECB (8%) —1,016.6291 —1,166.7122 —150.083Liability or claim resulting from allocationof euro banknotes within the Eurosystem (CSM) —2,047.0871 4,041.5132 +6,088.600

Value of euro banknotes actually put into circulation 11,691.232 13,416.143 +1,724.911

1 In 2003 this amount was shown under Intra-Eurosystem liabilities item 10.3.2 In 2004 this amount was shown under Intra-Eurosystem claims item 9.4.

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The table below shows the annualaverage figures of banknotes in circu-lation during the past five years:

Banknotes incirculation,

annual average1

Change

EUR million EUR million %

2000 12,851 +756 +6.32001 12,519 —332 —2.62002 8,887 —3,632 —29.02003 9,913 +1,026 +11.52004 11,751 +1,838 +18.5

1 The values for 2000 and 2001 represent schilling banknotes in circula-tion. In 2002 the figures cover both euro banknote circulation liabilitiesand schilling banknotes in circulation. From 2003, the figures refer exclu-sively to euro banknote circulation liabilities.

2 Liabilities to euro areacredit institutions related tomonetary policy operationsdenominated in euro

This item consists of the followingaccounts:

2.1 Current accounts (covering theminimum reserve system)

This subitem contains primarilycredit institutions� accounts that areused to hold minimum reserves.

Banks� minimum reserve balanceshave been remunerated on a dailybasis since January 1, 1999, at theprevailing interest rate for the Euro-system�s main refinancing operations.

Following a consultation of euroarea credit institutions, the Govern-ing Council of the ECB7 decided to

change the reserve maintenance pe-riod in 2004. Accordingly, the main-tenance period now starts on the set-tlement day of the main refinancingoperation following the meeting ofthe Governing Council at which themonthly assessment of the monetarystance is prescheduled. To facilitatethe transition to the new system,the first transition reserve mainte-nance period lasted until March 9,2004.

Dec. 31, 2003 Dec. 31, 2004 Change


2.1 Current accounts(covering the minimum reserve system) 4,254.943 3,993.473 —261.470 —6.1

2.2 Deposit facility 0.450 6.570 +6.120 —2.3 Fixed-term deposits — — — —2.4 Fine-tuning reverse operations — — — —2.5 Deposits related to margin calls — — — —

Total 4,255.393 4,000.043 —255.350 —6.0

7 Regulation (EC) No 1745/2003 of the European Central Bank of 12 September 2003 on the application ofminimum reserves (ECB/2003/9).



2.2 Deposit facilityThe deposit facility refers to overnightdeposits placed with the OeNB byAustrian banks that access the Euro-system�s liquidity-absorbing standingfacility at the prespecified rate. In2004, the volume of such transac-tions averaged EUR 18.319 million.

5 Liabilities to other euro arearesidents denominated in euro



This item comprises general gov-ernment deposits of EUR 6.903 mil-lion and current account deposits ofcredit institutions that are not subjectto minimum reserve requirementsand of nonbanks.

6 Liabilities to non-euro arearesidents denominated in euro


Change +EUR 3.915 million+164.7%

This item contains euro-denomi-nated liabilities to non-Eurosystemcentral banks and monetary institu-tions.

9 Counterpart of Special DrawingRights allocated by the IMF



This item represents the counter-part in euro of the SDR 179 millionallocated gratuitously to the OeNB,measured at current market values

on the balance sheet date. The OeNBwas allocated SDRs in six install-ments from 1970 to 1972 and from1979 to 1981, always on January 1.

10 Intra-Eurosystem liabilities



In the financial statements for2004, this item shows the netliabilities arising from balances ofTARGET accounts with the 11 otherEurosystem central banks as well asthe remaining 3 ESCB central banks(the Bank of England, Sveriges Riks-bank and Danmarks Nationalbank)on the one hand and with the ECBon the other hand. Moreover, thisitem covers the net result at year-end of the difference between mone-tary income to be pooled and distrib-uted, the balances arising from theredistribution of ECB seignorage in-come as well as the balances arisingfrom the correspondent accounts8 ofindividual NCBs.

The individual bilateral end-of-day balances of the OeNB with theother NCBs are netted by novatingthem to the ECB.

The ECB remunerates the net bal-ance at the prevailing interest rate forthe Eurosystem�s main refinancingoperations.

On December 31, 2003, this itemconsisted exclusively of net liabilitiesrelated to the allocation of euro bank-notes within the Eurosystem.

8 The correspondent accounts may be used for a limited number of transactions in case of temporary disruptions ofTARGET.



11 Items in course of settlement

Closing balance Dec. 31, 2004 —Closing balance Dec. 31, 2003 EUR 7.326 million


This item comprises float amountspending settlement after the accountshave been closed for the year.

12 Other liabilitiesOther liabilities are broken down asfollows:

12.1 Off-balance sheet instruments�revaluation differences

The off-balance sheet instruments� reval-uation differences subsume the revalua-tion losses arising on off-balance sheetpositions, which are posted to theprofit and loss account, and book valuereconciliation.

12.3 SundryThis subitem is composed of the fol-lowing accounts:

Pursuant to Article 69 para-graph 3 of the Nationalbank Act,the central government�s share of profit

corresponds to 90% of the profit forthe year after tax.

Dec. 31, 2003 Dec. 31, 2004 Change


12.1 Off-balance sheet instruments� revaluationdifferences 4.109 0.907 —3.202 —77.9

12.2 Accruals and income collected in advance 33.282 20.272 —13.010 —39.112.3 Sundry 748.496 576.229 —172.267 —23.0

Total 785.887 597.408 —188.479 —24,0

Dec. 31, 2003 Dec. 31, 2004 Change


Central government�s share of profit(without dividends) 423.271 267.786 —155.485 —36.7Liability from schilling banknotes in circulationwith an exchange deadline 239.296 232.028 —7.268 —3.0Earmarked funds of the OeNB Anniversary FundInitial OeNB Anniversary Fund 23.632 22.915 —0.717 —3.0OeNB Anniversary Fund National Foundationendowment 48.073 43.614 —4.459 —9.3

Other 14.224 9.886 —4.338 —30.5

Total 748.496 576.229 —172.267 —23.0



According to the General Meet-ing�s decision, EUR 12.579 millionof the profit for the year 2003 were ap-portioned to the OeNB�s AnniversaryFund for the Promotion of ScientificResearch and Teaching. Adjusted forthe return on investment for 2004and repayments made, the initialfunding of the OeNB AnniversaryFund thus came to EUR 39.816million. Of these funds, EUR16.901 million were paid out in2004; EUR 21.364 million of the re-maining undisbursed funds of EUR22.915 million have been pledged.

In 2004, the General Council decidedto allocate an additional EUR 12.494million to fund 208 projects and EUR3.580 million to fund three institutes.This means that since funds were firstpledged as financial assistance in1966, a total EUR 652.938 millionhas been paid out.

The EUR 43.614 million theOeNB Anniversary Fund pledgedfor the National Foundation are prorata income from earmarked assetsfor 2004; payment to the NationalFoundation is made the day after theGeneral Meeting.



13 Provisions

Under the OeNB�s initial retirementplan, the OeNB assumes full liabilityto provide retirement benefits to theemployees with contracts concludedup to April 30, 1998. To cover thisliability, the OeNB is obligated bylaw to establish a pension reservecorresponding to the actuarial pre-sent value of its pension liabilities.

Following a change in the retire-ment plan, staff recruited afterMay 1, 1998, stands to receive a statepension supplemented by an occupa-tional pension from an externallymanaged pension fund. For this sup-plementary pension, the OeNB tookout a contract effective May 1, 1999,which also applies retroactively toemployees taken on in the 12 monthsfrom May 1, 1998. With the OeNB�sdirect liability to pay retirement ben-efits now limited to staff recruitedbefore May 1, 1998, the pensionreserve set up to secure this liabilityhas become a closed system. TheOeNB taps this pension reserve topay out retirement benefits.

Pension benefits as covered bythe pension reserve augmented byEUR 2.481 million or 2.8% to EUR90.939 million in 2004. This includesthe remuneration of 15 retired boardmembers or their dependents (total-ing EUR 4.043 million; 2003: EUR3.966 million).

The income on investment relat-ing to the pension reserve was trans-ferred to the pension reserve whenthe financial statements for 2004were prepared. The pension reserveis shown at its actuarial present value.The pension reserve on Decem-ber 31, 2004, was calculated accord-ing to actuarial principles; the dis-count rate of 3.50% per annum isthe same as that applied in 2003.

Provisions for severance pay-ments and anniversary bonuses arecalculated according to actuarialprinciples; again, the discount rateof 3.50% per annum is the same asthat applied in 2003.

No provisions for pending law-suits were made, as none are ex-pected to have a material impact.

Dec. 31,2003

Transferfrom

Transferto

Dec. 31,2004


Pension reserve 1,828.650 —90.939 +141.289 1,879.000

Personnel provisionsSeverance payments 45.586 —3.408 +1.639 43.817Anniversary bonuses 10.347 —0.890 +0.593 10.050Residual leave entitlements 9.430 —0.002 +0.064 9.492Sabbatical — — +0.038 0.038

Provisions forSchilling banknotes without an exchange deadline 259.829 —25.598 — 234.231Exchange rate risks — — +40.000 40.000Retained monetary income — — +39.569 39.569Corporate income tax — — +10.278 10.278Conclusion of the renovation work on theOeNB�s main building and northern office building — — +5.088 5.088Accounts payable 1.885 —1.832 +1.260 1.313Premises management 1.461 —0.061 +0.038 1.438Accounts payable to subsidiaries 1.330 —1.330 +5.195 5.195Other 1.229 —1.059 +0.958 1.128

Total 2,159.747 —125.119 +246.009 2,280.637



14 Revaluation accountsThis item consists of the followingaccounts:

Revaluation on the revaluationaccounts is effected on a currency-by-currency and code-by-code basis.The above amounts reflect the valua-tion gains established in the valuationof assets as at December 31, 2004.Those gains are realizable only inthe context of future transactions inthe respective category or can beused only to reverse revaluationlosses that may arise in future years.The revaluation gains in each cur-rency cover the risks associated withnondomestic assets (as establishedwith the VaR method).

In line with requirements, the in-itial valuation gains recorded in theopening balance sheet of January 1,1999, were partly realized during2004 in the course of sales of under-lying assets.

Article 69 paragraph 1 of theNationalbank Act obliges the OeNBto maintain a reserve fund coveringexchange risks which may arise onnondomestic assets. The reserve fundfor exchange risks posted in the finan-cial statements for 2004 contains ex-change gains accrued in the run-up to1999 totaling EUR 537.349 million.On the one hand, the annual changereflects the realization of exchangerate gains resulting from the sale ofunderlying assets. On the other hand,the fund is used to cover unrealizedexchange losses that must be ex-pensed, as well as any exchange risks(as calculated with the VaR approach)that are not offset by the balanceson the revaluation accounts. As fromJanuary 1, 1999, no further alloca-tions to this fund have been per-mitted.

Dec. 31, 2003 Dec. 31, 2004 Change


Eurosystem revaluation accountsGold 857.402 743.380 —114.022Foreign currency 41.690 39.588 —2.102Securities 149.090 151.928 +2.838Participating interests 179.352 175.799 —3.553Off-balance sheet instruments 9.283 6.792 —2.491

Subtotal 1,236.817 1,117.487 —119.330

Unrealized valuation gainsfrom January 1, 1999 (initial valuation)

Securities 1.713 1.423 —0.290Participating interests 279.728 279.728 —

Subtotal 281.441 281.151 —0.290

Reserve fund for exchange risks(funded up to the end of 1998) 851.190 537.349 —313.841

Total 2,369.448 1,935.987 —433.461



15 Capital and reservesA summary of the OeNB�s reservesshows the following developments:

EUR 477.683 million were reap-propriated from the general reservefund to the reserve for nondomesticand price risks in recognition of therisen risk ascertained by means ofrisk assessment procedures on De-cember 31, 2004. The section RiskManagement above contains more in-formation on the OeNB�s risk man-agement principles.

Since 2003, the capital of theOeNB�s Anniversary Fund for thePromotion of Scientific Researchand Teaching (EUR 1,531.500 mil-lion) has consisted of its initial fund-ing (EUR 31.500 million) and of anendowment created in 2003 to sup-port innovation (EUR 1,500.000million earmarked for the NationalFoundation).

The initial funding of EUR31.500 million consists of EUR7.267 million apportioned from thenet income for the year 1965 in April1966 and EUR 24.233 million allo-cated from the profit for the year2002 in May 2003.

The endowment of EUR1,500.000 million for the NationalFoundation was established in 2003by earmarking funds reappropriatedfrom the freely disposable reservefund (EUR 545.000 million) andfrom the general reserve fund (EUR955.000 million).

Earmarked ERP capital fundedwith net interest income from loansserves to cover losses on the ERPloan portfolio managed by the OeNB.

Other financial liabilities(off-balance sheet positions)Apart from the items recognized inthe balance sheet, the following fi-nancial liabilities and financial deriva-tives were stated off the balance sheeton December 31, 2004:— contingent liabilities to the IMF

under the New Arrangements toBorrow totaling EUR 464.957million;

— obligation under the IMF�s statutesto provide currency on demand toparticipants using SDRs up to thepoint atwhich theOeNB�s holdingsof SDRs are three times as high asits net cumulative allocation ofEUR 494.624 million;

— obligation to make a supplemen-tary contribution of EUR 34.188million (equivalent to SDR 30million) to the OeNB�s stake inthe capital of the Bank for Inter-national Settlements (BIS) inBasel consisting of 8,000 sharesof SDR 5,000 each;

— liabilities of EUR 18.773 millionfrom foreign currency invest-ments effected in the OeNB�sname for third account;

Dec. 31, 2003 Dec. 31, 2004 Change


General reserve fund 477.683 — —477.683 —100.0Reserve for nondomestic and price risks 1,622.000 1,973.263 +351.263 +21.7Reserve for retained earnings — 2.226 +2.226 —Earmarked capital funded with net interest incomefrom ERP loans 569.399 585.439 +16.040 +2.8OeNB Anniversary Fund for the Promotion ofScientific Research and Teaching 1,531.500 1,531.500 — —

Total 4,200.582 4,092.428 —108.154 —2.6



— repayment obligations to theamount of EUR 15.188 millionarising from pension contribu-tions paid by OeNB staff mem-bers payable on termination ofemployment contracts;

— contingent liability equivalent tothe OeNB�s share of EUR1,040.000 million of the maxi-mum of EUR 50 billion of addi-tional foreign reserve assets ofthe euro area NCBs on whichthe ECB is entitled to call; and

— contingent liability equivalent tothe OeNB�s share of EUR104.000 million of the EUR 5 bil-lion by which the ECB may in-crease its paid-up capital.

Holdings of derivatives were as fol-lows on December 31, 2004:

Underlyingvalue

Market valuegains losses


Forward rateagreementsPurchases 14.683 0.005 0Sales 22.025 0.002 0.017

Bond futuresSales 65.000 — 0.194

Interest rateswapsSales 174.930 6.089 —

The market values represent thevaluation of December 31, 2004,with gains entered in the revaluationaccounts (liability item 14) and lossesentered in the profit and loss accountas writedowns on financial assets andpositions (item 2.2).

Moreover, foreign currency andsecurity options were traded in2004, all of which matured prior toDecember 31, 2004. The result ofthese transactions was taken to item 1Net interest income of the profit andloss account.



Notes to theProfit and Loss Account

2003 2004 Change1


1 Net interest income 467.087 448.611 —18.476 —4.02 Net result of financial operations,

writedowns and risk provisions 344.764 215.157 —129.607 —37.63 Net expense/income from fees and commissions 0.250 0.988 +0.738 +295.34 Income from equity shares and participating interests 100.664 21.096 —79.568 —79.05 Net result of pooling of monetary income 11.120 —30.872 —41.992 —377.66 Other income 8.120 7.507 —0.613 —7.6

Total net income 932.005 662.487 —269.518 —28.9

7 Staff costs —98.084 —98.035 —0.049 —0.18 Administration expenses —94.049 —89.902 —4.147 —4.49 Depreciation of tangible and intangible fixed assets —13.903 —16.182 +2.279 +16.410 Banknote production services —11.314 —7.157 —4.157 —36.711 Other expenses —2.077 —0.393 —1.684 —81.1

Total expenses —219.427 —211.669 —7.758 —3.5

Operating profit 712.578 450.818 —261.760 —36.7

12 Corporate income tax —242.276 —153.278 —88.998 —36.7

470.302 297.540 —172.762 —36.713 Central government�s share of profit —423.271 —267.786 —155.485 —36.714.1 Net income 47.031 29.754 —17.277 —36.714.2 Profit brought forward 0.177 — —0.177 —100.0

14 Profit for the year 47.208 29.754 —17.454 37.0

1 Absolute increase (+) or decrease (—) in the respective income or expense item.



1 Net interest incomeNet interest income represents the bal-ance of interest income and interestexpense. The reduction in interestincome in 2004 resulted partly froma sharp reduction in the own fundsportfolio following the release ofreserves at the end of 2003 and partlyto the decline in interest rates from2003.

Net interest income from assetsand liabilities denominated in foreigncurrency totaled EUR 256.658 mil-lion (—EUR 68.052 million), thatfrom euro-denominated assets andliabilities came to EUR 123.176 mil-lion (—EUR 18.020 million). Mone-tary policy refinancing operationsyielded EUR 115.473 million(+EUR 21.450 million), and theECB remunerated the transfer offoreign reserves with EUR 20.121million (—EUR 3.407 million).Income on intra-Eurosystem balancesarising from the allocation of eurobanknotes within the Eurosystemcame to EUR 32.212 million

(+EUR 106.688 million). Con-versely, EUR 88.296 million (—EUR7.947 million) were required to re-munerate minimum reserves. Inter-est expenses of EUR 85.637 million(—EUR 93.947 million) resultedfrom TARGET liabilities.

2 Net result of financialoperations, writedowns andrisk provisions

Realized gains or losses from day-to-day financial operations resultedfrom — receivable or payable — differ-ences between the acquisition costand the market value of gold, foreigncurrency, securities or other trans-actions. Among other things, thesegains include price gains from the saleof 10 tons of gold.

Net realized gains contracted byEUR 52.760 million (—16.6%) toEUR 264.522 million. EUR168.204 million (—EUR 84.068 mil-lion) stem from gold and foreigncurrency operations, EUR 95.219million (+EUR 28.547 million) fromsecurities transactions.

The writedowns on financial assetsand positions largely reflect the de-cline in market prices of balancesheet items as at December 31,2004, below the average cost of therespective currencies or securities.Foreign currency writedowns cameto EUR 254.179 million (—EUR429.428 million), securities write-downs to EUR 8.161 million(—EUR 5.337 million) and write-downs on derivatives to EUR 0.211million (—EUR 0.314 million).

The item transfer to/from provi-sions for foreign exchange rate and pricerisks resulted from transfers from thereserve fund for exchange risks thatthe OeNB funded up to the end of1998 with a view to covering unreal-ized foreign currency losses of EUR254.179 million. Thus, in compli-

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ance with Article 69 paragraph 1 ofthe Nationalbank Act, these lossesdid not have an impact on profit.However, in view of the risk assess-ment of nondomestic assets, a provi-sion for exchange rate risks of EUR40.000 million was made.

4 Income from equity sharesand participating interests

This item records dividend paymentsof EUR 18.000 million made byMu‹nze O‹ sterreich Aktiengesellschaftand of EUR 2.171 million made bythe BIS for 2003. The distributionof profit by AUSTRIA CARD-Plastik-karten und Ausweissysteme Gesell-schaft m.b.H. resulted in income ofEUR 0.366 million. Moreover, thisitem reflects a repayment of EUR0.559 million of part of the OeNB�spaid-up capital in the ECB�s capitalon December 31, 2003, resultingfrom the decrease in the weightingin the ECB capital key on January 1,2004. Also included under this itemis the distribution of the ECB�s sei-gniorage income on its 8% share ofeuro banknotes in circulation.9 In2004, the ECB�s income on eurobanknotes in circulation was fully re-tained by the ECB in accordance witha decision of the Governing Councilon December 16, 2004, and in viewof the ECB result.

5 Net result of poolingof monetary income

Article 32 of the Statute of theESCB10 defines monetary income asthe income accruing to the NCBs inthe performance of the Eurosystem�smonetary policy function. The

amount of each NCB�s monetary in-come is determined by measuringthe actual annual income that derivesfrom the earmarkable assets heldagainst its liability base. Such assetsshall be earmarked and the incomederived from these assets shall be re-distributed among the euro areaNCBs in accordance with guidelinesto be established by the GoverningCouncil of the ECB (Article 32.2 ofthe ESCB Statute).

The amount of income the NCBsactually pay into the pool for redis-tribution is influenced by the coststhat they incur in connection withthe liquidity-absorbing monetary pol-icy operations and by the remunera-tion of reserves under the Eurosys-tem�s minimum reserve system, be-cause any interest that the NCBs payon banks� minimum reserve depositsreduces the amounts they contributeto the pool of monetary income.

The monetary income pooled bythe Eurosystem is to be allocatedamong NCBs in according to the sub-scribed capital key. The differencebetween the monetary incomepooled by the OeNB amounting toEUR 230.471 million and reallocatedto the OeNB amounting to EUR239.200 million is the net result aris-ing from the calculation of monetaryincome, EUR 8.729 million. TheOeNB�s share in monetary incomeretained to cover the loss incurredby the ECB in 2004 reduced thisnet result by EUR 39.601 million,so the net result of pooling of monetaryincome represents an expense of EUR30.872 million.

9 Decision of the European Central Bank of 21 November 2002 on the distribution of the income of the EuropeanCentral Bank on euro banknotes in circulation to the national central banks of the participating Member States(ECB/2002/9).

10 Decision of the European Central Bank of 6 December 2001 on the allocation of monetary income of thenational central banks of participating Member States from the financial year 2002 (ECB/2001/16).



7 Staff costsSalaries, severance payments and theemployer�s social security contribu-tions and other statutory or contrac-tual social charges fall under theheading staff costs. These costs werereduced by recoveries of salaries andemployees� pension contributions.

As of January 1, 1997, the pen-sion contributions of employees whohad joined the OeNB after March31, 1993, and who qualify for anOeNB pension were raised from 5%of their total basic pay to 10.25% oftheir basic salaries up to the earningscap on social security. A rate of 2%applies to income above the earningscap.

Salaries net of pension contribu-tions collected from staff membersgrew by EUR 1.002 million or1.2% to EUR 83.819 million. Thisincrease is attributable primarily tothe salary increase negotiated forthe banking sector. The OeNB�s out-lays were reduced by recoveries ofsalaries totaling EUR 8.675 millionfor staff members on secondment tosubsidiaries and foreign institutions.

Adjusted for employees on sec-ondment or leave such as maternityand parental leave, the average num-ber of staff employed in the OeNB�score business areas (expressed infull-time equivalents, FTEs) came to957.3 (2003: 952.2). The overallaverage number of OeNB staff mem-bers (in FTEs) declined from 1,179.3in 2003 to 1,161.8 on average in2004, a decline by 17.5 FTEs or1.5%.

The four members of the Govern-ing Board received emoluments11 in-cluding remuneration in kind (privateuse of company cars, subsidies to in-surance) totaling EUR 1.030 million

(2003: EUR 0.957 million). Theemoluments of Governor Liebschercame to EUR 0.274 million, ofVice Governor Duchatczek to EUR0.260 million, of Executive DirectorZo‹llner to EUR 0.253 million and ofExecutive Director Christl to EUR0.243 million.

The emoluments of President andVice President amounted to EUR0.106 million, and EUR 0.035 mil-lion represented back pay for 2003(2003: EUR 0.031 million).

Statutory or contractual socialcharges totaling EUR 12.778 million(+EUR 0.380 million) contain mu-nicipal tax payments of EUR 2.535million, social security contributionsof EUR 6.375 million and contribu-tions of EUR 3.782 million to theFamily Burden Equalization Fund.

10 Banknote productionservices

Expenses for banknote productionservices resulted from the purchaseof euro banknotes from the OeBS.

12 Corporate income taxA corporate income tax rate of 34%was applied to the taxable income ac-cording to Article 72 of the National-bank Act and in line with Article 22paragraph 1 of the Corporate IncomeTax Act.

13 Central government�sshare of profit

Under Article 69 paragraph 3 of theNationalbank Act, the central govern-ment�s share of profit is 90% of thenet income for the year after tax, asin the previous years, and amountsto EUR 267.786 million (2003:EUR 423.271 million).

11 Limits apply under the Federal Constitutional Law Limiting the Emoluments of Public Officials.




Governor Klaus LiebscherVice Governor Wolfgang DuchatczekExecutive Director Peter Zo‹llnerExecutive Director Josef Christl

General Council (Generalrat)

President Herbert SchimetschekVice President Manfred FreyAugust AstlChristian Domany (from May 13, 2004)Bernhard FeldererLorenz R. Fritz (until August 13, 2004)Philip Go‹th (from August 1, 2004)Elisabeth Gu‹rtler-Mauthner (from September 9, 2004)Herbert KoflerGeorg Kovarik (from September 9, 2004)Richard Leutner (until July 1, 2004)Johann MarihartWerner MuhmGerhard RandaWalter RothensteinerKarl Werner Ru‹sch (until July 31, 2004)R. Engelbert Wenckheim (until May 13, 2004)Johann Zwettler

In accordance with Article 22 paragraph 5 of the Nationalbank Act, the fol-lowing representatives of the Staff Council participated in discussions onpersonnel, social and welfare matters: Thomas Reindl and Martina Gerharter.

Vienna, March 30, 2005



Report of the Auditors

We have audited the financial statements of the Oesterreichische Nationalbankfor the year ending December 31, 2004, in accordance with generally ac-cepted Austrian auditing standards as recommended by the reports, guidelinesand opinions of the Institut O‹ sterreichischer Wirtschaftspru‹fer.

We have found that the accounting records and the financial statements ofthe Oesterreichische Nationalbank for the year ending December 31, 2004,are presented in accordance with the provisions of the Federal Act on theOesterreichische Nationalbank 1984 as amended. The financial statementswere prepared in conformity with the accounting policies defined by theGoverning Council of the European Central Bank, as set forth in the Guidelineof the European Central Bank of 5 December 2002 on the legal frameworkfor accounting and reporting in the European System of Central Banks(ECB/2002/10), in conformity with Article 26.4 of the Protocol on theStatute of the European System of Central Banks and the European CentralBank. In our opinion the accounts provide a true and fair picture of theOeNB�s financial position and the results of its operations. The annual reportcomplies with the provisions of Article 68 paragraph 1 and paragraph 3 of theFederal Act on the Oesterreichische Nationalbank 1984 as amended and aspromulgated in Federal Law Gazette I No. 55/2002 and corresponds withthe financial statements.

Vienna, March 30, 2005

Pipin HenzlCertified Public Accountant

Peter WolfCertified Public Accountant



Profit for the Yearand Proposed Profit Appropriation

With the statutory allocation of EUR 267.786 million (2003: EUR 423.271million) of the OeNB�s profit to the central government having been madein conformity with Article 69 paragraph 3 of the Nationalbank Act (item13 of the profit and loss account), the balance sheet and the profit and lossaccount show a

Profit for 2004 of EUR 29,753,966.48.

On March 30, 2005, the Governing Board endorsed the following profit appropriation proposalto the General Council:

to pay a 10% dividendon the OeNB�s capital stock of EUR 12 million EUR 1,200,000.�

to allocate to the Leopold MuseumPrivate Foundation EUR 4,391,619.37

to allocate to the OeNB Anniversary Fundfor the Promotion of Scientific Researchand Teaching:funds earmarked for promotionby the OeNB EUR 12,579,460.15

funds earmarked for theNational Foundation for Research,Technology and Development EUR 11,582,886.96 EUR 24,162,347.11

EUR 29,753,966.48



ˆ

Report of the General Council

(Generalrat)

on the Annual Report

and the Financial Statements for 2004

The General Council (Generalrat)fulfilled the duties incumbent on itpursuant to the Nationalbank Act1984 by holding its regular meetings,by convening its subcommittees andby obtaining the information re-quired.

The Governing Board (Direkto-rium) periodically reported to theGeneral Council on the Bank�s oper-ations and their current state, onthe conditions on the money, capitaland foreign exchange markets, onimportant matters which arose inthe course of business, on all devel-opments of importance for an ap-praisal of the monetary situation, onthe arrangements made for supervis-ing the OeNB�s financial conduct andon any other significant dispositionsand events affecting its operations.

The Financial Statements for theyear 2004 were given an unqualifiedauditors� opinion after examinationby the auditors elected by theGeneral Meeting of May 13, 2004,

the certified public accounts PipinHenzl and Peter Wolf, on the basisof the books and records of theOesterreichische Nationalbank aswell as the information and evidenceprovided by the Governing Board.

In its meeting of April 14, 2005,the General Council approved theAnnual Report of the GoverningBoard and the Financial Statementsfor the business year 2004. TheGeneral Council submits the AnnualReport and moves that the GeneralMeeting approve the FinancialStatements of the OesterreichischeNationalbank for the year 2004 anddischarge the General Council andthe Governing Board from responsi-bility for management during thepreceding business year. Moreover,the General Council requests thatthe General Meeting approve theallocation of the profit for the yearin accordance with the proposal madein the notes to the Financial State-ments 2004 (page 117).


ˆ

Notes

ACH automated clearing houseAPSS Austrian Payment Systems Services (APSS) GmbHARTIS Austrian Real Time Interbank Settlement

(the Austrian RTGS system)A-SIT Secure Information Technology Center — AustriaASVG Allgemeines Sozialversicherungsgesetz — General

Social Security ActA-Trust A-Trust Gesellschaft fu‹r Sicherheitssysteme im

elektronischen Datenverkehr GmbHATM automated teller machineATX Austrian Traded IndexBCBS Basel Committee on Banking Supervision (BIS)BIC Bank Identifier CodeBIS Bank for International SettlementsBOP balance of paymentsBSC Banking Supervision Committee (ESCB)CACs collective action clausesCEBS Committee of European Banking Supervisors (EU)CEE Central and Eastern EuropeCEECs Central and Eastern European countriesCESR Committee of European Securities RegulatorsCIS Commonwealth of Independent StatesCPI consumer price indexEBA Euro Banking AssociationEBRD European Bank for Reconstruction and

DevelopmentEC European CommunityECB European Central BankEcofin Council of Economics and Finance Ministers (EU)EDP excessive deficit procedure (EU)EEA European Economic AreaEFC Economic and Financial Committee (EU)EFTA European Free Trade AssociationEIB European Investment BankEMS European Monetary SystemEMU Economic and Monetary UnionEONIA Euro OverNight Index AverageERM II Exchange Rate Mechanism II (EU)ERP European Recovery ProgramESA European System of AccountsESAF Enhanced Structural Adjustment Facility (IMF)ESCB European System of Central BanksESRI Economic and Social Research InstituteEU European UnionEURIBOR Euro Interbank Offered RateEurostat Statistical Office of the European CommunitiesFATF Financial Action Task Force on Money LaunderingFed Federal Reserve SystemFFF Forschungsfo‹rderungsfonds fu‹r die Gewerbliche

Wirtschaft — Austrian Industrial ResearchPromotion Fund

FMA Financial Market Authority (for Austria)FOMC Federal Open Market Committee (U.S.A.)FSAP Financial Sector Assessment Program (IMF)FWF Fonds zur Fo‹rderung der wirtschaftlichen

Forschung — Austrian Science FundGAB General Arrangements to BorrowGATS General Agreement on Trade in ServicesGDP gross domestic productGNP gross national productGSA GELDSERVICE AUSTRIA Logistik fu‹r Wert-

gestionierung und Transportkoordination GmbH(Austrian cash services company)

HICP Harmonized Index of Consumer PricesIBAN International Bank Account NumberIBRD International Bank for Reconstruction and

DevelopmentIDB Inter-American Development BankIFES Institut fu‹r empirische Sozialforschung

(Institute for Empirical Social Research, Vienna)ifo ifo Institute for Economic Research, MunichIGC Intergovernmental Conference (EU)

IHS Institut fu‹r Ho‹here Studien und WissenschaftlicheForschung — Institute for Advanced Studies, Vienna

IIF Institute of International FinanceIIP international investment positionIMF International Monetary FundIRB internal ratings-basedISO International Organization for StandardizationIWI Industriewissenschaftliches Institut — Austrian

Institute for Industrial ResearchIT information technologyJVI Joint Vienna InstituteLIBOR London Interbank Offered RateM3 broad monetary aggregate M3MLR Major Loans RegisterMFI monetary financial institutionMRO main refinancing operationMoU memorandum of understandingNCB national central bankO‹ BB O‹ sterreichische Bundesbahnen — Austrian Federal

RailwaysOeBS Oesterreichische Banknoten- und Sicherheitsdruck

GmbH — Austrian Banknote and Security PrintingWorks

OECD Organisation for Economic Co-operation andDevelopment

OeKB Oesterreichische Kontrollbank (Austria�s mainfinancial and information service provider for theexport industry and the capital market)

OeNB Oesterreichische Nationalbank (Austria�s centralbank)

OPEC Organization of the Petroleum Exporting CountriesORF O‹ sterreichischer Rundfunk — Austrian Broadcasting

CorporationO‹ BFA Austrian Federal Financing AgencyO‹ NACE Austrian Statistical Classification of Economic

ActivitiesPEACH pan-European automated clearing housePISA Programme for International Student Assessment

(OECD)POS point of salePRGF Poverty Reduction and Growth Facility (IMF)R&D research and developmentRTGS Real-Time Gross SettlementSDR Special Drawing Right (IMF)SDRM Sovereign Debt Restructuring Mechanism (IMF)SEPA Single Euro Payments AreaSPF Survey of Professional ForecastersSTEP2 Straight-Through Euro Processing system offered by

the Euro Banking AssociationSTP straight-through processingSTUZZA Studiengesellschaft fu‹r Zusammenarbeit im

Zahlungsverkehr (STUZZA) G.m.b.H. —Austrian Research Association for Payment Cooperation

SWIFT Society for Worldwide Interbank FinancialTelecommunication

TARGET Trans-European Automated Real-time Grosssettlement Express Transfer

Treaty refers to the Treaty establishing the EuropeanCommunity

UNCTAD United Nations Conference on Trade andDevelopment

UNO United Nations OrganizationVaR Value at RiskWBI Wiener Bo‹rse IndexWEF World Economic ForumWIFO O‹ sterreichisches Institut fu‹r Wirtschaftsforschung —

Austrian Institute of Economic ResearchWIIW Wiener Institut fu‹r internationale Wirtschaftsvergleiche —

The Vienna Institute for International Economic StudiesWKO Wirtschaftskammer O‹ sterreich — Austrian Federal

Economic ChamberWTO World Trade Organization


Abbreviations

x = No data can be indicated technical reasons. . = Data not available at the reporting date0 = The numerical value is zero or smaller than half of the unit indicated— = The numerical value is zero (applicable to the Financial Statements)

Discrepancies may arise from rounding.


Legend

ARTIS: Austrian Real Time Interbank Settlement. The real-time grosssettlement (RTGS) system for euro payments developed and operated bythe Oesterreichische Nationalbank (OeNB) that forms the Austrian compo-nent of the EU-wide large-value euro payment system TARGET run by theEuropean System of Central Banks (ESCB). Since January 4, 1999, ARTISusers have been able to channel intra-EU payments through a single accountat the OeNB.

BIC: Bank Identifier Code. Eight-digit code devised by SWIFT, the inter-national messaging system for cross-border payments, that unambiguouslyidentifies participants of payment systems. It is composed of the followingthree subcodes: (1) the bank code (first 4 digits), (2) the country code (next2 digits), and (3) the location code (last 2 digits). NABAATWW is, forinstance, the BIC of the Oesterreichische Nationalbank.

Budget balance: general government net lending/net borrowing, i.e. thebalancing item of the financial account as defined in ESA 1995 (the EuropeanSystem of Accounts), which represents either a financial surplus (net lending)or a financial deficit (net borrowing). Austria�s general government sectorcomprises the central government (including various nonprofit organizations),state government and local government as well as social security funds. Thebudget balance may be broken down into a cyclical component and a struc-tural, cyclically adjusted component.

Capital adequacy: the minimum amount of own funds that banks musthold relative to their assets to cover their exposure to risk. The capitaladequacy framework (Basel I, Basel II) of the Basel Committee on BankingSupervision (BCBS) prescribes a capital ratio of 8%.

Clearing: the process of reconciling and netting payment orders in a netsettlement system.

Confidence indicator: also referred to as sentiment indicator. Measurereflecting businesses� or the public�s assessment of the economic situation,which serves to e.g. identify cyclical turning points at an early stage.

Convergence criteria: five requirements that are laid down in theMaastricht Treaty and that an EU Member State must fulfill to qualify for par-ticipation in Stage Three of Economic and Monetary Union (EMU), i.e. forthe introduction of the euro: (1) an inflation rate not more than 1.5 percent-age points above that of the three best-performing Member States in terms ofprice stability, (2) a long-term interest rate not more than 2 percentage pointsabove that of the three best-performing Member States, (3) a governmentdeficit which does not exceed 3% of GDP, (4) a ratio of public debt toGDP which does not exceed 60%, unless the ratio is sufficiently diminishingand approaching the reference value at a satisfactory pace, and (5) currencyvariations within the normal fluctuation margins of the Exchange RateMechanism II (ERM II) for at least two years and no devaluation against thecurrency of any other Member State.

Glossary


Core inflation: inflation measure that excludes changes in selected compo-nents from the underlying basket of goods and services. Energy and food arefactored out most frequently, given their volatile price development.

Credit risk: the risk of changes in customer creditworthiness affecting abank�s assets.

Excessive deficit procedure: mechanism defined in Article 104 of theTreaty and Protocol No 20 on the excessive deficit procedure that requiresEU Member States to maintain budgetary discipline; the Stability and GrowthPact substantially extended and accelerated the excessive deficit procedure(EDP). It defines criteria for a budgetary position to be considered as anexcessive deficit and sets out the steps to be taken when a Member Statehas not fulfilled the budget balance or government debt criteria. In line withthe conclusions of the European Council of March 22 and 23, 2005, the EDP isscheduled to be amended in the course of 2005.

Exchange Rate Mechanism II (ERM II): exchange rate arrangementthat provides the framework for exchange rate policy cooperation betweenthe euro area countries and the EU Member States not participating in StageThree of Economic and Monetary Union (EMU). It specifies fluctuation bands(up to a maximum of –15%) for the key interest rates of a currency against theeuro. Participation in ERM II for at least two years without severe tensions andwithout a devaluation against the currency of another Member State is one ofthe criteria a country has to fulfill to qualify for Stage Three of EMU.

IBAN: International Bank Account Number. Internationally agreed standardto identify a customer�s account at a financial institution; designed to replacethe combination e.g. of an account number and the financial institution�srouting/transit code (Bankleitzahl) in Austria. The IBAN was developed bythe International Organization for Standardization (ISO) and the EuropeanCommittee for Banking Standards (ECBS) to assist error-free and smoothprocessing of cross-border transactions. It is made up of the ISO country code,check digits, a bank code and an account number.

Imported inflation: sustained rise in the general price level attributableexclusively to inflationary pressures abroad.

Institutional analysis: thorough analysis of monetary developments in theeuro area based on information derived from many different statisticalsources, such as MFI balance sheet statistics, balance of payments data andfinancial accounts data, which is carried out as part of the second pillar ofthe monetary policy strategy of the European Central Bank (ECB).

Lamfalussy process: concept developed at the EU level by the Committeeof Wise Men, chaired by Baron Alexandre Lamfalussy, on the regulation ofEuropean securities markets. In December 2002, the EU Council decidedto extend this approach to the entire financial sector. The four-level regulatoryapproach aims at accelerating the legislative process of the EU, increasing

Glossary


regulatory cooperation and convergence, and improving implementation andenforcement. Essentially, the approach consists in a subdivision into broadframework principles to be adopted in a codecision procedure by the Counciland the European Parliament and technical implementation measures to beissued by the European Commission.

Macroprudential: refers to the thorough analysis at the systemic level ofbanking and financial stability as well as to supervision at the macro level asopposed to (microprudential) analysis and supervision of individual banks.

Market risk: the risk of financial market fluctuations (e.g. changes in inter-est rates, stock prices or exchange rates) affecting a bank�s assets and liabilities.

Money-holding sector: nonbanks resident in a monetary union asopposed to banks, which are collectively defined as the money-issuing sector.The objective of analyzing the transactions of nonfinancial economic agents isto identify the determinants of money demand (money demand theory).

Off-site analysis: qualitative and quantitative evaluation of the (riskmanagement and balance sheet) data banks report to the OesterreichischeNationalbank and the Financial Market Authority (FMA) using a set ofdifferent methods. The purpose of off-site analysis is to detect problematicdevelopments and initiate countermeasures as early as possible. See also on-site inspection.

On-site inspection: thorough examination of individual banks, duringwhich supervisors largely work on the premises of a given bank. Creditinstitutions are subject to review in particular relevant business areas so thatsupervisors can add to the data reported by banks firsthand information inas much detail as is required to assess the need for supervisory action. See alsooff-site analysis.

Operational risk: the risk of bank losses resulting from inadequate internalcontrols (misconduct or human error, breakdown of internal processes or sys-tems) or from external events.

Payment system: any set of payment instruments, banking procedures andinterbank transfer systems that ensure the circulation of money.

PEACH: Pan-European Automated Clearing House. Infrastructure for cross-border credit transfers advanced by European banks under the SEPA initiativefor European retail payment services, which is to be as (cost) efficient asnational automated clearing houses (ACHs). Tailored to the requirements ofcustomers of national payment services, a PEACH must offer cost-efficient,effective, swift and secure payment processing, i.e. it should supportstraight-through processing (STP). STEP2 is the first and, to date, onlyPEACH.

Glossary


Primary balance: government net borrowing or net lending excludinginterest payments (as defined by ESA 1995) on consolidated governmentliabilities.

Rating: assessment of the creditworthiness of an enterprise against standar-dized qualitative and quantitative criteria. Ratings are used to determine adebtor�s probability of default.

Repatriation of capital: return of resident investors� foreign investmentcapital into the home country, which entails the dissolution of external assets,e.g. through the sale of foreign securities or the withdrawal of cash holdingsabroad.

Retail payments: low-value or customer payments as opposed to large-value or interbank payments.

Return on assets: ratio of net profit after taxes to total assets.

Securitization: form of transferring risk from loans or other liabilities byconverting them into tradable securities issued by corporations specificallyset up to this effect (so-called special purpose entities). Repayment of thesesecurities is contingent on the redemption of the purchased debt instrument(traditional securitization).

SEPA: Single Euro Payments Area. Initiative launched by the European bank-ing industry in spring 2002 to establish standards for payment services inEurope.

Stability and Growth Pact: framework which is based on two EU regula-tions issued in 1997 and is intended to serve as a means of safeguarding soundgovernment finances in Stage Three of Economic and Monetary Union (EMU)in order to strengthen the conditions for price stability. Over the mediumterm, the Stability and Growth Pact requires Member States to post a budgetclose to balance or in surplus.

Stability programs: the euro area countries� annual medium-term govern-ment plans and assumptions for the development of key economic and, inparticular, budget variables in line with the requirements of the Stabilityand Growth Pact. Countries not participating in the euro area must submitannual convergence programs under the provisions of the Stability and GrowthPact.

Glossary


STEP2: the first and, to date, only PEACH for intra-EU credit transfers,which started operation in April 2003 and had some 90 direct and around1,350 indirect participants at year-end 2004. With this system, the EuroBanking Association (EBA) offers credit institutions a technical infrastructurefor cost-efficient and swift processing of transactions that meet specificrequirements. Transactions must, for instance, be in euro, and both theInternational Bank Account Number (IBAN) and Bank Identifier Code(BIC) must be correctly indicated on the payment order. The OesterreichischeNationalbank has been providing access to STEP2 since November 3, 2003.

Stress test: analysis of the impact of drastic, yet plausible stress scenarios interms of credit and market risk on the adequacy of a bank�s capital.

TARGET: Trans-European Automated Real-time Gross settlement ExpressTransfer. A real-time gross settlement (RTGS) system that processes large-value euro payments in real time, which consists of the 15 national RTGSsystems of the EU-15, the ECB payment mechanism (EPM) and the Interlink-ing system connecting the individual TARGET components. The ARTISsystem operated by the Oesterreichische Nationalbank is the Austrian RTGSsystem connected to TARGET.

TARGET2: next generation of the TARGET system scheduled to start oper-ation in January 2007. A Single Shared Platform (SSP) to be built by the Deut-sche Bundesbank, the Banque de France and the Banca d�Italia will be at theheart of TARGET2, which will offer extended, standardized functionalityacross Europe at harmonized prices.

Tax-to-GDP ratio: the sum of direct, indirect and capital taxes as well associal security contributions (excluding imputed contributions) as a percent-age of GDP at market prices.

Terms of trade: ratio of a country�s export prices to import prices in asingle currency.

Treaty: refers to the Treaty establishing the European Community and thesubsequent amendments. The Treaty was signed in Rome (�Treaty of Rome�),entered into force on January 1, 1958, and created the European EconomicCommunity (EEC). It was amended by the Treaty on European Union (�Maas-tricht Treaty�), which took effect on November 1, 1993, and established theEuropean Union (EU). The Stability and Growth Pact (�Treaty of Amster-dam,� May 1, 1999) amended both the Treaty establishing the EuropeanCommunity and the Treaty on European Union; the most recent amendment— the �Treaty of Nice� — entered into force on February 1, 2003.

Twin deficit: a general government deficit coinciding with a currentaccount deficit.

Glossary


For further details on the following publications see www.oenb.at

Statistiken — Daten & Analysen quarterlyThis publication contains reports and analyses focusing on Austrian financialinstitutions, cross-border transactions and positions as well as financial flows.The contributions are in German, with executive summaries of the analyses inEnglish. The statistical part covers tables and explanatory notes on a widerange of macroeconomic, financial and monetary indicators. The tablesincluding additional information and data are also available on the OeNB�swebsite in both German and English. This series also includes special issueson selected statistics topics that will be published at irregular intervals.

Monetary Policy & the Economy quarterly

This quarterly publication, issued both in German and English, offers analysesof cyclical developments, medium-term macroeconomic forecasts and studieson central banking and economic policy topics. This publication alsosummarizes the findings of macroeconomic workshops and conferencesorganized by the OeNB.

Financial Stability Report semiannual

The Financial Stability Report, issued both in German and English, containsfirst, a regular analysis of Austrian and international developments with animpact on financial stability and second, studies designed to provide in-depthinsights into specific topics related to financial market stability.

Focus on European Economic Integration seminannual

Focus on European Economic Integration, the successor publication to the Focuson Transition (published up to issue 2/2003), contains a wide range of materialon Central and Eastern European countries (CEECs), beginning with a topicaleconomic analysis of selected CEECs. The main part of the publicationcomprises studies, on occasion several studies focusing on a special topic.The final section provides information about the OeNB�s CEEC-relatedactivities and conferences as well as a statistical annex.

Annual Report annual

The Annual Report of the OeNB provides a broad review of Austrian monetarypolicy, economic conditions, new developments on the financial markets ingeneral and the financial market supervision in particular, the changingresponsibilities of the OeNB and the role of the OeNB as an internationalpartner in cooperation and dialogue. It also contains the financial statementsof the OeNB.

Economics Conference (Conference Proceedings) annual

The Economics Conference hosted by the OeNB represents an important inter-national platform for exchanging views on monetary and economic policy aswell as financial market issues. It convenes central bank representatives,economic policy decision makers, financial market players, academics andresearchers. The conference proceedings comprise papers of conferenceparticipants, most of them in English.

Periodical Publicationsof the Oesterreichische Nationalbank


The Austrian Financial Markets annualThe publication The Austrian Financial Markets provides easy access to contin-uously updated information on the Austrian capital markets to the inter-national investment community. The brochure is jointly edited by the OeNBand the Oesterreichische Kontrollbank AG (OeKB).

Proceedings of OeNB Workshops recurrent

The proceeding of OeNB Workshops were introduced in 2004 and typicallycomprise papers presented at OeNB workshops at which national and inter-national experts, including economists, researchers, politicians and journal-ists, discuss monetary and economic policy issues. Workshop proceedingsare available in English only.

Working Papers recurrent

The Working Paper series of the OeNB is designed to disseminate and provide aplatform for discussing findings of OeNB economists or outside contributorson topics which are of special interest to the OeNB. To ensure the high qualityof their content, the contributions are subjected to an international refereeingprocess. The opinions are strictly those of the authors and in no way committhe OeNB.

Conference on European Economic Integration(Conference Proceedings) annual

(formerly East-West Conference)This series, published by a renowned international publishing house, reflectspresentations made at the OeNB�s annual central banking conference onCentral, Eastern and Southeastern European issues and the ongoing EUenlargement process.

For further details see ceec.oenb.at

Newsletter of the Economic Analysisand Research Section quarterly

The English-language Newsletter of the Economic Analysis and Research Section isonly published on the Internet and informs an international readership aboutselected findings, research topics and activities of the Economic Analysis andResearch Section of the OeNB. This publication addresses colleagues fromother central banks or international institutions, economic policy researchers,decision makers and anyone with an interest in macroeconomics. Further-more, the Newsletter offers information on publications, studies or workingpapers as well as events (conferences, lectures and workshops).

For further details see hvw-newsletter.oenb.at

Periodical Publications

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Postal address Telephone TelexHead OfficeOtto-Wagner-Platz 3 PO Box 61 (+43-1) 404 20-0 (1) 114669 natbk

AT 1090 Vienna AT 1011 Vienna Fax: (+43-1) 404 20-2398 (1) 114778 natbk

Internet: www.oenb.at

Branch OfficesWestern Austria Branch Office

Innsbruck (+43-512) 594 73-0

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Southern Austria Branch Office

Graz PO Box 8 (+43-316) 81 81 81-0

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Klagenfurt PO Box 526 (+43-463) 576 88-0

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Northern Austria Branch Office

Linz PO Box 346 (+43-732) 65 26 11-0

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Representative OfficesOesterreichische Nationalbank (+44-20) 7623-6446

London Representative Office Fax: (+44-20) 7623-6447

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Oesterreichische Nationalbank (+1-212) 888-2334 (212) 422509 natb ny

New York Representative Office (+1-212) 888-2335

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Permanent Pepresentation of Austria to the EU (+32-2) 285 48-41, 42, 43

Avenue de Cortenbergh 30 Fax: (+32-2) 285 48 48

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Permanent Pepresentation of Austria to the OECD (+33-1) 53 92 23-39

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Addressesof the Oesterreichische Nationalbank


The Annual Report of the OeNB provides a broad review of Austrianmonetary policy, economic conditions, new developments on thefinancial markets in general and the financial market supervision inparticular, the changing responsibilities of the OeNB and the role ofthe OeNB as an international partner in cooperation and dialogue. Italso contains the financial statements of the OeNB.

CoordinationManfred Fluch

ContributionsManfred Fluch, Doris Haider, Hannes Hermanky, Oliver Huber, Georg Hubmer, Martin Taborsky, Manfred Zipko

Editorial processingAlexander Dallinger

TranslationsJennifer Gredler, Ingrid Haussteiner, Rena Mu‹hldorf, Irene Popenberger, Inge Schuch, Susanne Steinacher

Technical productionPeter Buchegger (design)Walter Grosser (layout, typesetting)OeNB Printing Office (printing and production)

PhotographsECB, OeNB, Foto Knoll

InquiriesOesterreichische Nationalbank, Secretariat of the Governing Board and Public RelationsPostal address: PO Box 61, AT 1011 ViennaPhone: (+43-1) 404 20-6666Fax: (+43-1) 404 20-6698E-mail: [email protected]

Orders/address managementOesterreichische Nationalbank, Documentation Management and Communications ServicesPostal address: PO Box 61, AT 1011 ViennaPhone: (+43-1) 404 20-2345Fax: (+43-1) 404 20-2398E-mail: [email protected]

ImprintPublisher and editor:Oesterreichische NationalbankOtto-Wagner-Platz 3, AT 1090 ViennaGu‹nther Thonabauer, Secretariat of the Governing Board and Public RelationsInternet: www.oenb.atPrinted by: Oesterreichische Nationalbank, AT 1090 Vienna' Oesterreichische Nationalbank, 2005All rights reserved.May be reproduced for noncommercial and educational purposes with appropriate credit.

DVR 0031577

Vienna, 2005

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