Some Aspects of Foreign Ownership in the Austrian Banking Sector
Since the early 1990s, direct state ownership as well as the government's influence on the banking sector have been on the wane. The ownership structure of the Austrian banking system is undergoing a thorough renewal. Steps to liberalize the movement of capital and Austria's membership in the European Economic Area have fundamentally changed the conditions of access for foreign banks.
For many years private ownership in Austria's banking system was the exception rather than the norm, given the great importance of public ownership and the de facto "lack of ownership" in the credit cooperatives and the savings and loans sector. As a consequence, the question of foreign ownership of banks hardly played a role in Austria. The long-practiced policy of shutting out foreign competition, be it through regulatory barriers or through "unattractive" market conditions, exacerbated foreign banks' lack of interest in Austria's financial market. Since the beginning of the 1990s, direct state ownership as well as the government's influence on the banking sector have been on the wane. The ownership structure of the Austrian banking system is undergoing a thorough renewal. The liberalization of capital flows and Austria's participation in the European Economic Area have greatly facilitated foreign banks' access to the Austrian market. In the middle of the 1990s, foreign banks acquired substantial shares in major Austrian banks for the first time; also for the first time, foreign investors entered bids for one of the largest banks that is scheduled to be privatized. At present, some 125 foreign banks are present in the Austrian market in one form or another. Most of the largest European banks operate in Austria. The majority of foreign banks operating in Austria are based in the EU. Without doubt, the presence of foreign banks constitutes a great competitive challenge to the relatively narrow Austrian financial market. An important feature of this development is the recent acquisition of equity capital in retail banking institutions (Schoeller, BAWAG, and indirectly ÖVAG). This means that foreign influence is spreading from the formerly rather specialized business segments (the foreign and inter-bank business) to the retail market. One of the notable results of the analysis of the performance of foreign banks in Austria in the first half of the 1990s is the finding of above-average earnings. Banks in Austria where foreign capital has a majority stake have not only been able to raise their earnings since 1989, but also to widen the earnings gap vis-à-vis Austrian-dominated institutions. Moreover, foreign ownership has direct positive effects on profitability. Financial indicators for foreign-owned banks are markedly better than those for comparable Austrian-owned banks. Most striking is the strong positive effect of foreign ownership on the return to equity, which implies a more serious commitment to profit orientation and to management control by foreign owners. These results throw new light on the current discussion of the structure of ownership in the Austrian banking system. Limiting the question of ownership to the narrow categories of domestic versus foreign ownership would, however, be inappropriate; it would neglect the important issues linking the structure of ownership, bank performance, and overall financing conditions.
Aspekte ausländischen Eigentums im österreichischen Bankwesen; Some Aspects of Foreign Ownership in the Austrian Banking Sector
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