Banking Regulation 2025

AUSTRIA Trends and Developments Contributed by: Jasna Zwitter-Tehovnik and Martin Navara, DLA Piper Weiss-Tessbach

cantly from 1 January 2025, further intensifying these constraints. This sectoral systemic risk buffer requires banks to allocate additional equity for existing expo - sures, thus limiting their lending capacity. While the commercial real estate buffer is intended to address systemic risks, financing for non-profit housing has been excluded from the meas - ure, as analyses by the Austrian National Bank (OeNB) confirm that these loans do not pose systemic threats. The FSMB plans to reassess the necessity of further buffer increases in Q3 2025, once initial reporting data under CRR III becomes available. In parallel, the FMSB recommended maintaining a counter-cyclical capital buffer (AKZP) of 0% of risk-weighted assets, reflecting subdued credit growth and systemic risk conditions. In Q2 2024, Austria’s nominal GDP growth was 1.9% year- on-year, while real GDP contracted by -1.9%. The credit-to-GDP gap indicator remained at -15 percentage points, far below the critical thresh - old of 2 percentage points, justifying the contin - ued AZKP rate of 0%. Despite the low credit-to-GDP gap, the FMSB flagged risks linked to the credit cycle. Risk weights for corporate loans, which include a high proportion of commercial real estate loans, remained at historically low levels. Moreover, insolvency rates have risen above pre-pandemic levels, negatively affecting credit quality, while corporate debt levels are near historic highs. To improve cyclical risk assessment, Austria will implement a new methodology for identifying cyclical risks in 2025. This approach will inte - grate data from banking, household, corporate, macroeconomic, financial market and credit-to- GDP gap indicators, based on current research

and literature. Such proactive measures aim to strengthen forward-looking risk provisions and maintain a capital base comparable to European peers, countering the potential materialisation of cyclical risks. CRD VI effect on cross-border banking and third-country branch regulation in Austria CRD VI will significantly impact the way third- country firms provide core banking services into the EU and how third-country branches (TCBs) will be supervised. CRD VI is expected to be implemented into Austrian law by Q4 2025. Although there are some transitional provisions, third-country firms would be wise to start plan - ning now. The EU’s regulatory landscape has seen significant changes aimed at reducing risks associated with cross-border banking activi - ties and addressing potential issues in shadow banking. Key regulatory initiatives, like CRD VI, demonstrate the EU’s commitment to a more cohesive supervisory framework. Overview of CRD VI implementation and third- country requirements Under CRD VI, member states will be encour - aged to impose stricter requirements on non- EU institutions establishing a physical presence within the EU through branches. Austria’s finan - cial regulatory authority, the FMA, has interpret - ed these provisions to require TCBs to maintain minimum capital requirements and adhere to specific operational standards. This means that foreign banks seeking to oper - ate in Austria through branches rather than sub - sidiaries face stringent regulations intended to align with the EU’s prudential standards. The FMA has stipulated that such branches demon - strate effective internal controls, risk manage - ment procedures and compliance frameworks comparable to those of Austrian and EU banks.

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