Comprehensive AssessmentAn Austrian Supervisors’ Perspective*)

Claus Puhr Vienna, 11 November 2014

Supervision Policy, Regulation and Strategy Division Oesterreichische Nationalbank

*) Please note that the views expressed in this presentation represent the author’s opinion and do not necessarily reflect the OeNB’s or the ESCB’s or the SSM’s position (all data used is publicly available from the EBA/ECB websites).

www.oenb.at oenb.info@oenb.at- 2 -

Comprehensive Assessment | Stress Test ScenarioThe scenario is fairly similar across countries …

Annual GDP Growth (AT) Annual GDP Growth (EA) Cum. GDP Shock1)

2013 2014 2015 2016-2

-1

0

1

2

3

4

-0.4

1.21.8 1.7

-0.7-1.4

0.0

Baseline (EA)Adverse (EA)

2013 2014 2015 2016-2

-1

0

1

2

3

4

0.3

1.5 1.8 1.7

-0.2-1.5

-0.1

Baseline (AT)Adverse (AT)

AT EA EU CESEE*-4

-2

0

2

4

6

8

-6,7 -6,6-7,0

-9,7

Baseline Adverse

AT EA EU CESEE2)

Baseline Adverse

WEO Oct. 2014 (AT) WEO Oct. 2014 (EA)

1) Deviation Baseline / Forecast vs. end-2016 under the adverse scenario2) CESEE = regional GDP-weighted average of EU member states

www.oenb.at oenb.info@oenb.at- 3 -

Comprehensive Assessment | AQR-Impact… but neither the AQR impact is similarly consistent …

Change of the NPE-Ratio1 during the Asset Quality Review

1) NPE-Ratio = Non-performing exposure divided by total exposure of those portfolios selected for the AQR 2) Average RWA-weighted change of the NPE-Ratio across all 130 SSM banks

EA mean2

111bp

ÖVAG410bp

EGB360bp

RLB-OÖ360bp

RLB-NÖW320bp

BAWAG200bp

RZB120bp

www.oenb.at oenb.info@oenb.at- 4 -

Comprehensive Assessment | Total Impact … nor the impact of the stress test (the result‘s main driver)

Change of the CET1-Ratio1 end-2013 to end-2016 (adverse scenario)

EA mean2

340bp

ÖVAG940bp

EGB360bp RLB-OÖ

350bp

RLB-NÖW570bp

BAWAG600bp

RZB260bp

1) CET1-Ratio for the purpose of the stress test defined as the CRR implementation under phase-in rules2) Average RWA-weighted change of the CET1-Ratio across all 130 SSM banks

www.oenb.at oenb.info@oenb.at- 5 -

Comprehensive Assessment | Implementation Matters How to explain the deviations across sample-banks

While individual scenarios are quite comparable, this does not hold for all risk factors Impact is generated only indirectly via scenarios The current state-of-affairs as well as the past matter

(because of econometrically-modelled relative parameter shifts) Moreover, some risk factors are treated more punitive than others

The static balance sheet assumption is quite restrictive This drives results from the extrapolation of past / obsolete costs … … to off-setting potential hits from FX-movements

The stress test is conducted as a bottom-up exercise i.e., banks calculate their own results (subject to quality assurance) We observe two kinds of bias (at least for AT banks):

small banks and/or better capitalised banks produce tougher results

www.oenb.at oenb.info@oenb.at- 6 -

Comprehensive Assessment | Interpretation MattersHow to put stress test results to good use anyhow

EU-wide stress tests provide a lot more than headline results The wealth of data is overwhelming, particularly in data-scarce Europe This allows to put some of the shortcomings in perspective And allows for a differentiated assessment of bank‘s risk bearing capacity

But be weary of stress tests‘ limitations The methodology is the methodology And consistency often trumps a more tailor-made approach In all likelihood, stress tests will neither uncover new risks, … … nor will they cover all known risks

To conclude, stress tests are one powerful supervisory tool,but they are – fortunately – far from the only tool

Annex

www.oenb.at oenb.info@oenb.at- 8 -

Comprehensive Assessment | Stress Test ScenarioA comparison with past EU-wide exercises

Cumulated GDP Shock of previous EU-wide Stress Test Scenarios(Deviation of the baseline / forecast vs. end-of-adverse-scenario GDP level, in ppt)

Source: ESRB

www.oenb.at oenb.info@oenb.at- 9 -

Comprehensive Assessment | Overall ResultsÖsterreichische Banken leicht unter Mittelwert

CET1-Ratios zum Ende des adversen Szenarios 2016

EA Mean1

8,4%

Hurdle rate2

5,5%

1) Average RWA-weighted CET1-Ratio across all 130 SSM banks at the end of the adverse scenario2) Minimum CET1-Ratio requirement at any stage under the adverse scenario (CRR phase-in definition)

www.oenb.at oenb.info@oenb.at- 10 -

Comprehensive Assessment | Detailed AT ResultsAT results are driven by tough NII, CR and B3 phase-in shocks

www.oenb.at oenb.info@oenb.at- 11 -

Comprehensive Assessment | Detailed EA ResultsEA-results (RWA-weighted) more moderated in comparison