Chambers Europe 2019
Practice Overview – Banking & Finance
Contributed by Fellner Wratzfeld & Partners
In the following overview, we shall provide a brief summary of current trends and activities in the Austrian loan market, touch upon the evolving banking and finance techniques, and outline some recent legal and regulatory developments concerning banking and finance in Austria. Finally, we shall address recent and upcoming changes in the legislation and the case law that might have an effect on banks and financial institutions.
As in many other European jurisdictions, the 2008 financial crisis has had a significant impact on local loan markets. The regulatory framework (in particular, the determination of risk-weighted assets and own funds) has substantially influenced the overall strategy of banks, which increasingly aim at de-leveraging their balance sheets (in particular, by way of disposal of non-core assets).
Most recently, the discussions in the financial market with regards to the handling of “negative interest rates” have caused several banks to implement a “zero floor” (i.e., minimum interest rate at 0%) in (existing) loan agreements which in the retail segment triggered law suits of the Austrian Consumer Protection Association. The Austrian Supreme Court decided in several decisions regarding consumer loans that it is permissible to floor the interest rate at zero since a borrower may not expect the creditor to pay (negative) interest to the borrower. The Supreme Court also stated that the creditor may not charge the borrower the full margin when the agreed reference interest rate is negative. Hence, the interest rate to be paid by the borrower may (depending on the development of the reference interest rate) drop below the margin or even to zero. However, these decisions regarding consumer loans are not likely to apply mutatis mutandis to corporate borrowers.
Traditionally, the Austrian lending market is dominated by credit institutions licensed in Austria. Alternative credit providers, such as insurance companies, are not regularly seen as original lenders in transactions, but rather rely on acquiring existing exposure from credit institutions which handle the origination. The Austrian marketplace (Vienna Stock Exchange) has not developed a high yield market as active as it is the case in other jurisdictions. Predominantly, new issues of bonds admitted to trading on the Vienna Stock Exchange comprise issuance programmes of credit institutions (and their real estate financing segment, frequently organised as separate legal entities called “Wohnbaubanken”). Other than that, there is a limited number of mid-cap issuers and numerous foreign issuers, largely aiming at admission of their instruments to the (non-regulated) third market. There is, nevertheless, a solid share of classic corporate bonds largely issued by listed blue chip companies but not constituting a true alternative to bank loans for the larger market. Overall, debt financing of Austrian companies remains largely in the hands of traditional Austrian and international credit institutions.
Austria is a strongly regulated banking market which requires a banking licence both for commercial lending as well as for commercial acquisition of receivables (factoring). Factoring is exempt from the licence requirement if effected for the purpose of securitisation by means of a special purpose vehicle (i.e. company specialising in acquiring loan exposure and transferring it to its financing providers, frequently in form of bond issues). Limited exceptions apply in the context of small-category financing such as crowd funding which has been regulated only recently. The law provides for exceptions from the banking licence and the capital markets prospectus requirement if the financing does not exceed certain thresholds. In addition, the Austrian regulator has developed a practice in which certain very limited alternative structures to classic loan agreements (subordinated loans, sale-and-leaseback structures, etc.) enjoy the same exemption from the banking licence and capital markets prospectus requirement.
With a few exceptions (such as the application of banking secrecy), the Austrian banking regulation does not apply to certain entities providing banking-related services pertaining to their original and permitted operations. These entities include insurance companies, pension funds, non-profit organisations, societies, certain non-EU securities firms as well as alternative investment funds. In practice, however, these exceptions have not led to significant competition for banks. Rather, in specific areas (e.g. where insurance companies wish to act as lenders for investment purposes), credit institutions are involved for purposes of origination and pass on loan portfolios.
Recent legal developments affecting the Austrian loan market largely relate to the retail segment (consumer loans). The year 2018 brought several notable Austrian Supreme Court decisions regarding clauses used by banks in their general terms and conditions with consumers. The Supreme Court curtailed the banks’ practice to presume a client who did not object to an announced amendment of terms to have consented to the proposed amendment. General terms and conditions that provide for such presumption must specifically limit the scope of amendments that the bank may propose in this way. Critics have pointed out that this case law might be at odds with the rights granted by the Payment Services Directive I. The Supreme Court applied the same restrictive arguments to the amendment of bank charges and to subsequent imposition of new charges agreed on in general terms and conditions. The banks must now specifically limit the scope and the duration of such amendments in advance, otherwise the clause may be challenged as void.
A different trend has manifested in a recent decision by the Austrian Constitutional Court. In late 2017, the Austrian legislator passed a provision obliging payment service providers to indemnify consumers for any fees charged upon withdrawing cash from ATMs operated by a third party provider. Although most cash withdrawals still remain free of charge in Austria, this legislation targeted fees charged by a particular third-party provider operating ATMs in Austria’s less densely populated areas. An outrage within the local banking industry followed. The Constitutional Court finally stroke down the provision as unconstitutional. Henceforth, banks no longer have to indemnify customers for fees charged for withdrawals from ATMs operated by a third party provider; if they wish to charge fees for withdrawals from their own ATMs, they must obtain customer’s explicit consent.
Further legislative amendments concerned the implementation of the EBA/ESMA Guidelines to assess the suitability of members of management bodies and key function holders (Fit & Proper Guidelines) affecting the composition of banks’ supervisory boards and management boards. The legislator has also created the possibility to obtain a binding (pre-clearing) opinion from the Financial Markets Authority on planned measures that fall within the competence of the Austrian regulator. For the first half of 2019, the government announced a structural financial market reform, bundling the competence for conducting on-site and off-site supervision within the Financial Markets Authority, leaving the central bank with its responsibility for macroprudential supervision and analysis. Banking supervision shall henceforth be combined in a single institution at national level (one-stop shop). Finally, it is worthwhile mentioning that deposit insurance has been consolidated in two funds (instead of five). The primary fund, Einlagensicherung AUSTRIA GmbH, was launched in January 2019 and administers funds amounting to about EUR500 million.