Transcript Nowotny - Bank of Greece

Crisis Management – General Reflections and
the Austrian Experience
Ewald Nowotny
Governor of the Oesterreichische Nationalbank
Athens, May 27, 2009
www.oenb.at
Outline
• The crisis in a nutshell
• The reaction of Austrian economic policy
• The crisis in Central, Eastern and Southeastern Europe (CESEE)
• The crisis in CESEE from the perspective of Austrian banks
www.oenb.at
-2-
[email protected]
The crisis in a nutshell
www.oenb.at
-3-
[email protected]
Initial conditions and trigger of the crisis
Initial conditions
• High saving levels and low interest rates  “search for yield”
• Securitization of assets + underregulation of financial markets
 complex, hard-to-value assets and increasing interconnection
of financial institutions around the globe
• Leveraging increases vulnerability of MFIs
Trigger
• Problems on U.S. subprime market caused initial losses
www.oenb.at
-4-
[email protected]
Amplification and contagion
• Financing problems of MFIs in short-term money markets
 “Fire sales” of assets
 Decrease of asset prices (esp. of complex, hard-to-value papers)
 Decline of equity
• Need to improve capital ratio  deleveraging by selling assets and/or
reducing lending
• Feedback loop between financial and real sectors of the economy
• Global deleveraging  large-scale capital outflows from emerging
economies
www.oenb.at
-5-
[email protected]
Needs for policy action
Financial institutions
•
•
•
•
Decline of equity
Decline in confidence
Collapse of interbank market
Toxic assets
 Need to recapitalize financial institutions
 Deposit insurance to prevent bank runs
 Measures to restore liquidity
 Framework for valuing and disposing of
toxic assets
Nonfinancial sector
•
Contagion of real economy
 Fiscal and monetary policy measures to
dampen economic downturn
Emerging economies
•
Capital outflows,
capital account pressures
www.oenb.at
 Financial support
-6-
[email protected]
The reaction of Austrian economic policy
www.oenb.at
-7-
[email protected]
The Austrian banking support package
Capital measures: EUR 15 billion to strengthen capital base of Austrian banks
Agreed capital measures amount to EUR 6.9 billion (paid out: EUR 4.7 billion):
 HGAA: EUR 900 million participation capital
 Erste Group: EUR 2.7 billion participation capital (+ hybrid capital)
 RZB: EUR 1.75 billion participation capital
 VBAG: EUR 1 billion participation capital
 BAWAG: EUR 0.55 billion participation capital (+ EUR 0.4 billion asset guarantees)
Liquidity measures: EUR 65 billion for clearing bank and bond guarantees
 Bank bonds issued under state guarantee amount to EUR 15.65 billion
 Austrian clearing bank allotted a total amount of about EUR 6 billion
Deposit insurance: deposit guarantee raised by EUR 10 billion
Guarantees for nonfinancial corporations: EUR 10 billion
www.oenb.at
-8-
[email protected]
The Austrian bank stabilization package – international comparison
Bank stabilization packages in Europe
in % of GDP
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
ed
en
la
et
he
r
N
Sw
nd
s
ia
en
ov
Sl
st
ria
Au
nd
Fi
n
la
K
U
er
m
an
y
G
nc
e
Fr
a
l
ga
rtu
Po
Sp
ai
n
G
re
ec
e
0%
Source: OeNB.
www.oenb.at
-9-
[email protected]
The role of fiscal policy in times of crisis
• Scope of crisis requires discretionary fiscal policy measures
– Traditional monetary policy hits the zero lower bound
– Automatic stabilizers help, but are not large enough
– Output gap expected to remain negative for a longer period
 Implementation lag of discretionary fiscal policy less problematic
– Threat of hysteresis effects (increase in NAIRU) via reduction in human capital
• Potential for larger multipliers
– Low capacity utilization
– High number of liquidity-constrained households/firms
www.oenb.at
- 10 -
[email protected]
The Austrian fiscal stimulus package
Estimated Growth and Employment Effects of Economic Stimulus and T ax Reform Measures
Measures
Volume
Employment1
GDP
in EUR million
in persons
in % of baseline solution
2009
2010
2009
2010
2009
2010
Consumption-stimulating measures
of which: tax reform
4.360
2.910
4.310
3.060
9.312
5.508
17.840
11.718
0,57
0,33
0,89
0,60
Investment incentives and export facilitation
1.395
1.385
590
1.079
0,05
0,07
Investment in infrastructure
580
745
2.698
6.299
0,16
0,33
Job support measures1
275
275
-
-
0,04
0,06
6.610
6.715
12.600
25.218
0,82
1,36
4.095
4.758
T otal
of which: relevant for deficit
Source: Austrian Finance Ministry, OeNB.
The job support effects of short-term working rules and of the job support initiatives cannot be quantified at present.
Note: Simulation with the OeNB's macro model (AQM). Volumes are annual totals (reflecting increases over the 2007 budget), effects on
1
www.oenb.at
- 11 -
[email protected]
The crisis in Central Eastern and
Southeastern Europe (CESEE)
www.oenb.at
- 12 -
[email protected]
CESEE output expected to shrink in 2009
GDP forecast
at constant prices, year-on-year percentage change
11
Austria
Euro area Slovakia
Czech Rep. Poland
Hungary Bulgaria
Romania Croatia
Ukraine
Russia
9
7.1
6.4
7
6.0
5.6
4.8
5
3.2
3
2.4
1.5
0.8
1
0.7
-0.1
-1
0.8
0.3
0.5
-0.1
-3
-4.0
-0.1
-0.3
-2.6
1.5
1.0
0.0
-1.4
-5
2.1
1.8
-1.6
-2.7
-3.0
-4.0
-3.8
-4.0
-6.3
-7
-8.0
-9
2008
2009f
2010f
Source: European Commission (Spring Forecast), May 2009. For Ukraine: IMF (World Economic Outlook), April 2009.
www.oenb.at
- 13 -
[email protected]
High share of foreign currency credit in some CESEE and CIS
countries constitutes a major risk …
O utstanding total credit to households
end-of-period stock as percentage of GDP; points: share of foreign currency (FC) credit in total credit to households
40
Slovakia
Czech Rep
Poland
Hungary
Bulgaria
Romania
Croatia
Ukraine
100
Russia
90
35
81
80
30
72
70
67
67
25
60
59
53
20
50
40
39
15
29
27
10
30
29
20
18
5
0
12 10
9
1
2003
3
2008
5
1
0
2003
2008
0
2003
Domestic LC credit to households
2008
2003
2008
2003
2008
2003
Domestic FC credit to households
2008
2003
2008
2003
2008
2003
2008
Share of FC credit in total credit to households (rhs)
Source: ECB, Eurostat, National central banks, National statistical offices, OeNB. Note: Foreign currency credit includes both foreign currency-denominated and foreign currency-linked
credit.
www.oenb.at
- 14 -
[email protected]
... in case of sudden exchange rate depreciations
N ational currencies and the euro
Euro per national currency unit, change in percent
40
Czech Rep
Poland
Hungary
Bulgaria
Romania
30
Ukraine
Russia
25.7
17.5
20
10.5
10
Croatia
6.1
11.9
10.5
8.4
6.7
6.2
2.8
2.7
-0.1
0.0 0.0 0.0 0.0
4.2
3.8
1.6 2.7
0.7
0.1
0
-3.5
-4.9
-3.6
-10
-20
-13.1
-16.2
-17.1
-21.1
-22.0
-30
-31.0
-34.6
-40
31 Dec 2004 to 29 June 2007
29 June 2007 to 12 Sept 2008
12 Sept 2008 to 17 Feb 2009
17 Feb 2009 to 29 April 2009
Source: Thomson Financial, OeNB.
www.oenb.at
- 15 -
[email protected]
Huge current account deficits in some CESEE and CIS countries
Current and capital account balance and its components
four quarter rolling sum in % of 4q rolling sum of GDP; points for total current and capital account balance (i.e. sum of subbalances)
20
Slovakia
Czech Rep
Poland
Hungary
Bulgaria
Romania
Croatia
Ukraine
Russia
10
6.0
0
-2.3
-4.4
-5.4
-7.0
-7.4
-9.3
-10
-11.9
-20
-24.5
-30
-40
Q 4/08
Q 4/08
Q 4/08
Q 4/08
Q 4/08
Q 4/08
Q 4/08
Q 4/08
Q 4/08
Trade balance
Services balance
Income balance
Transfer balance
Capital account balance
Current & capital acc. balance
Source: Eurostat, National central banks, OeNB.
www.oenb.at
- 16 -
[email protected]
Crisis leads to high write-downs in emerging markets
Estimated write-downs for banks in emerging
markets
(by country of origin, in billion USD)
 IMF estimates for Eastern Europe
Latin
America, 181
Asia, 270
 Include local banks
 Include foreign owned subsidiaries
 Direct cross border credits are not
considered!
 Write downs for banks in emerging
markets 796 billion USD
 Eastern Europe: 185 billion USD
Eastern
Europe, 185
Middle
East/Africa,
160
Source: IMF.
www.oenb.at
- 17 -
[email protected]
International response to the crisis – timeline of events with a focus on CESEE
Nov 08
Oct 08
End of Oct 08
EU and IMF agree on
USD 25 bn support package
for Hungary.
Feb 09
21 Feb 09:
IMF provides EUR 7.5
bn funding to Latvia.
23 Feb 09:
World Bank president
demands support for
CESEE.
www.oenb.at
Beginning of Nov 08:
IMF provides loan of
USD 16.5 bn to
Ukraine.
Dec 08
Dec 08:
IMF agrees on
USD 2.5 bn
funding for
Belarus.
Dec 09:
The European
Commission
raises its current
account support to
EUR 25 bn
Mar 09
Jan 09
Jan 09:
Banks from Austria, Germany,
Belgium, France, Italy and Greece
call for an action plan for CESEE.
16 Jan 09
IMF approves EUR 402.5 mn
Stand-by-Arrangement for Serbia.
26 Jan 09
IMF starts talks about a new Standby-Arrangement for Turkey.
Apr 09
Mar 09:
World Bank, EBRD and EIB plan
to lend EUR 24.5 bn to CEE
1 Mar 09:
EU rejects Hungarian proposal
for a EUR 180 bn CEE package,
25 Mar 09:
IMF SBA disbursement of USD
2.35 bn for Hungary,
IMF approves USD 17.5 bn loan to
Romania.
26 Mar 09:
Serbia signs an SBA over USD 3
bn with the IMF.
2 Apr 09:
IMF funds increased to USD 500 bn
and additional Special Drawing Rights
of USD 250 bn as a consequence of
the G20 meeting.
14 Apr 09:
Poland seeks USD 20.5 bn and
flexible credit line from the IMF.
17 Apr 09:
IMF credit to Ukraine could be
resumed with a new instalment of USD
2.8 bn.
- 18 -
May 09
5 May 09:
European Council
increases current
account support to EUR
50 bn
[email protected]
The crisis in CESEE from the perspective of
Austrian banks
www.oenb.at
- 19 -
[email protected]
Austrian banks’ exposure to CESEE and CIS markets is high…
CESEE-Exposure of EU-15 banks
EUR 988 bn
Other
13%
• Austrian banks dominate lending to new Member
States, but not to SEE and CIS
Austria
€ 199; 20%
• EU banks’ lending to CESEE decreased by 4.4% in
the fourth quarter of 2008
Sweden
8%
Netherlands
8%
• The decline in Western banks’ exposure to CESEE
corresponds to developments in other emerging
markets
Germany
16%
Belgium
10%
France
11%
Italy
15%
Source: BIS, 2008Q04 (provisional data); in bn EUR resp. in %.
www.oenb.at
- 20 -
[email protected]
… but exposure is broadly diversified across countries …
Exposurevon
of Austrian
banks to CESEE
Exponierung
AT Banken
in CESEE
• CESEE is a heterogeneous region
and the exposure of Austrian banks in bn EUR
is broadly diversified
45
40
• Total exposure of Austrian banks
to CESEE: EUR 199 billion
[incl. UnicreditBA and HGAA:
~ EUR 293 billion]
35
30
25
20
• Austrian banks’ exposure is
broadly diversified but focused on
new EU Member States (¾ of
exposure)
15
10
5
0
CZ RO SK HU HR RU PL UA SI RS BG BA AL TR BY Rest
• About 20% of EU-15 banks’ total
exposure to CESEE
www.oenb.at
EA
EU
SEE
CIS
Not allocated
Quelle: BIZ, 2008Q04.
- 21 -
[email protected]
… and subsidiaries in CESEE have a solid local funding basis
Deposit Gap in 2008Q 4
Loan-to-deposit ratio of nonbanks in %
< 100,
< 150,
NMS2007
24%
150 =<
Average CESEE subsidiary: 117% LDR
SEE
14%
NMS2004
6%
CIS
56%
CIS: 172% LDR
NMS-04: 102% LDR
Refinancing of CESEE subsidiaries
100%
80%
60%
NMS-07: 130% LDR
40%
SEE: 114% LDR
20%
0%
NMS-2004
Source: OeNB, unconsolidated figures, Q4 2008.
www.oenb.at
- 22 -
NMS-2007
Deposits of nonbanks
Equity
Subordinated debt
Claims on nonbanks
SEE
CIS
Deposits of banks
Liabilities evidenced by paper
Other liabilities
[email protected]
Austrian banks continue to support subsidiaries in CESEE
• Questionnaire sent to five major banks
shows that net position increased further
in 2008
• Austrian banks intend to keep their net
position in most CESEE markets
stable/increasing
• Efforts aiming at macroeconomic
stabilization have to complement bank
liquidity provision
Q uarterly Growth Rates
of N et Exposure to CESEE Subsidiaries
12 in pp
10.3
10
8
7.8
7.7
2008Q3
2008Q4
6
4
3.0
2
0
2008Q1
www.oenb.at
- 23 -
2008Q2
[email protected]
Summary
• Crisis called for fast and coordinated policy reaction
• Austrian bank stabilization package guarantees functioning of the
Austrian banking sector
• Fiscal package in Austria helps dampen adverse impact on real
economy
• Impact of crisis on CESEE region is heterogeneous
• Financial support to CESEE provided by international institutions
helps stabilize the region
• Exposure is high, but diversified; local funding base of Austrian
banks in CESEE is solid
• In line with their strategic objectives, Austrian banks continue to
support subsidiaries in CESEE
www.oenb.at
- 24 -
[email protected]
Crisis Management – General Reflections and
the Austrian Experience
Ewald Nowotny
Governor of the Oesterreichische Nationalbank
Athens, May 27, 2009
www.oenb.at