Annual Report 2004

While staff costs and income developments
seem to have shown a higher
correlation recently, staff costs increased
more significantly (+2.5%
per annum in the fourth quarter of
2004) than operating expenses.
Austrian banks continued their
consolidation efforts by further reducing
the number of banking offices
and staff: Between end-1997 and December
2004, the number of banking
offices (head offices and branches)
was cut by 7.7% from 5,686 to
5,248, and the number of credit institutions
went down from 995 to
882. A similar development may be
reported for staff numbers. During
the period under review, the number
of employees 2 declined from 70,967
to 65,615 (—7.5%). However, banks
still ensured a high degree of banking
service coverage: Banking density in
Austria remained well above the
European average, and the demand
for traditional bank services diminished
as more and more customers
opted for alternative distribution
channels (especially Internet banking).
Operating business is improving
and the impact of provisioning is expected
to decrease further. Banks operating
in Austria expect profits to
amount to EUR 2.98 billion for the
year 2004, which is considerably
higher (+44%) than the actual profit
for the year 2003. Return on assets
(ROA) 3 is expected to rise to 0.46%
after climbing from 0.24% in 2002
to 0.34% in 2003. The profitability
of Austrian banks remained weak
compared with those of other EU
countries despite strong domestic
profit growth, high margins from
business activities in the CEECs and
continued consolidation efforts. This
tepid performance may be attributed
to strong competition, which resulted
in low interest margins, as well
as high staff costs (by international
standards) and the high cost of maintaining
an extensive banking offices
network.
2004 was a good year also for
other financial intermediaries. Insurance
companies, for example, considerably
expanded their total assets and
improved their profits mainly on
grounds of better financial results, a
strong performance in the Central
and Eastern European (CEE) markets
as well as tighter cost management.
TheassetsheldbyAustrianinvestment
funds enlarged by 12.9% to
EUR 125 billion between December
2003 and December 2004, with debt
securities making up the largest part
of invested capital (70%). Stocks
and equity securities accounted for
17%; the remaining capital was invested
in other assets and mutual
fund shares. With assets to the tune
of EUR 456 million, the significance
of real estate funds (which have been
in the market since end-2003) was
still low despite strong capital inflows.
The total performance (realized
yields) of all Austrian investment
2 These figures refer to actual staff capacities, i.e. excluding staff on paid paternal leave or unpaid sabbaticals.
3 Annual profits relative to total assets.
The OeNB as a Competent Partner in
Ensuring Financial Stability
Positive trends for
other financial
intermediaries
Annual Report 2004 ×
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