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Austrian Subsidiaries’ Profitability in the Czech Republic and Slovakia – CESEE Margins with an Austrian Risk Profile

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Listed:
  • Stefan Kavan

    (Oesterreichische Nationalbank)

  • Daniela Widhalm

Abstract

The Czech Republic and Slovakia belong to the small and increasingly concentrated group of countries in Central, Eastern and Southeastern Europe (CESEE) whose banking markets have continued to generate substantial profits for Austrian banks also after the outbreak of the financial crisis in 2008. This short study sheds light on why Austrian subsidiaries have been able to maintain their profitability in these two countries especially when compared to those in other CESEE countries. We find that the strong quality of their asset portfolios is the main contributing factor; also, the Czech and Slovak markets now offer net interest margins well above Austrian levels, while the credit risk level is close to that in Austria. By contrast, several other CESEE markets have recorded worsening credit quality and, consequently, dwindling returns. Despite some downside risks related to the low interest rate environment, the openness of the Czech and Slovak economies and a potential intensification in competition, it seems that, from a current perspective, Czech and Slovak subsidiaries can be considered the most stable earnings generators in Austrian banks’ international portfolio.

Suggested Citation

  • Stefan Kavan & Daniela Widhalm, 2014. "Austrian Subsidiaries’ Profitability in the Czech Republic and Slovakia – CESEE Margins with an Austrian Risk Profile," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 28, pages 59-68.
    • Handle: RePEc:onb:oenbfs:y:2014:i:28:b:2
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    File URL: https://www.oenb.at/dam/jcr:a48a30f4-9751-4529-817e-ad2d81c6b5a6/fsr_28_special_topics_02.pdf
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    References listed on IDEAS

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    1. Stephan Barisitz & Mathias Lahnsteiner & Daniela Widhalm & Tina Wittenberger, 2014. "Macrofinancial Developments in Ukraine, Russia and Turkey from an Austrian Financial Stability Perspective," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 27, pages 64-73.
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    Cited by:

    1. Martin Feldkircher & Michael Sigmund, 2017. "Comparing market power at home and abroad: evidence from Austrian banks and their subsidiaries in CESEE," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q3/17, pages 59-77.
    2. Stefan Kavan & Florian Martin, 0. "The profitability of Austrian banks’ subsidiaries in Croatia, Hungary and Romania and how the financial crisis affected their business models," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 29, pages 58-71.
    3. Gernot Ebner & Eleonora Endlich & Andreas Greiner & Manuel Gruber & Günther Hobl & Stefan Kavan & Martin Ohms & Vanessa Redak & Alexandra Schober-Rhomberg & Paul Stockert & Daniela Widhalm & Tina Witt, 2016. "The profitability of Austrian banking subsidiaries in CESEE: driving forces, current challenges and opportunities," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 32, pages 64-79.
    4. Manuel Gruber & Stefan Kavan & Paul Stockert, 2017. "What drives Austrian banking subsidiaries’ return on equity in CESEE and how does it compare to their cost of equity?," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 33, pages 78-87.

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    More about this item

    Keywords

    Banking sector; Austrian banks; financial stability; profitability; risks; Czech Republic; Slovakia;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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