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09.02.2010

Bank Austria provides an additional EUR 1 billion for municipalities

  • Demographic developments, unfavourable cost trends and recession are the greatest challenges for Austria's municipalities
  • As market leader, Bank Austria puts together a comprehensive package of measures for the municipalities:
    ○ Lending initiative with favourable conditions by anticipating planned mortgage bond issue; focus on infrastructure and services of general interest
    ○ New analysis tool supports the municipalities in medium-term financial planning

With a total investment volume of roughly EUR 2.3 billion in 2008 and around 74,000 jobs, Austria's municipalities are an important economic factor. They are responsible for over half of all gross capital investments made by the various government entities. During the crisis in 2009, the investments made by the municipalities may have decreased slightly. Despite this, they remain the leading source of economic stimulus, because their measures tend to be particularly effective in generating employment.

"Demographic developments, an unfavourable cost trend and the recession have limited the municipalities' room to manoeuvre," said Helmut Bernkopf, Bank Austria's director for Corporates & Investment Banking, analysing the current situation. "It is now particularly important that investments go towards jobs and infrastructure in order to boost the economy. The municipalities have traditionally played a key role in this. As the market leader in the municipal sector, we are taking our responsibility seriously in this difficult situation and are increasing our financing volume by EUR 1 billion for investments in infrastructure and services of general interest. In addition, we are expanding our comprehensive range of advisory services with a focus on medium-term financial planning for municipalities."

A billion for infrastructure and advisory initiative to help municipalities overcome the crisis
"We intend to send a clear signal with our additional 'infrastructure billion': We are not a fair-weather bank. We are aware of our customers' challenges and stand by them during turbulent times," stated Bernkopf. The refinancing for the lending initiative is based on a public cover fund that received a AAA rating from Moody's. Thanks to UniCredit Group's access to refinancing, which is reflected not least in its issuing potential, Bank Austria is anticipating the planned mortgage bond issue and is already offering customers from the municipal sector these more favourable conditions now. The purpose of the infrastructure billion is to fund everything from nursing homes and hospitals to transport routes and places of cultural interest, and can also be made use of in the form of project financing or PPPs.

At the same time, Bank Austria is launching an advisory initiative for the municipal sector. "In light of the tight public budget, I see potential especially in project structures for larger financing volumes and in expenditure control through interest rate hedging," said Bernkopf. In addition, Bank Austria will expand the range covered by the "KDZ Practical Planner" together with its expert partner, the Centre for Public Administration Research (KDZ), and will develop a "municipal infrastructure and project planner". "We aim to develop municipal accounting more in the direction of medium-term financial planning," said Bank Austria director Helmut Bernkopf. Over the past three years, both institutions have already implemented analysis and planning tools for creditworthiness and risk assessment, various allocations, childcare and nursing homes. These are currently being used by around 200 KDZ members and Bank Austria customers.

Municipalities: Transfers and staff expenditures rising, earnings falling
In its current scenario calculation, the KDZ estimates that the municipalities will require financing amounting to EUR 1 billion by 2012. This estimate is based on the realistic assumption that transfers to the provinces will rise by 10 per cent annually until then. "The development of municipal finances will be influenced mainly by socio-demographic factors and the ongoing tense economic situation. Considerable increases in transfers to the provinces and growing staff expenditures will be accompanied by falling earnings, which are the most important source of income for the municipalities," said Peter Biwald, managing director of the KDZ, summing up the current situation. Current expenses are increasing more rapidly than current receipts, and earnings are only expected to post slight gains again starting in 2011.

"In a comparison of the last ten years, municipal investments – for the municipalities excluding Vienna – reached their peak at EUR 2.6 billion in 1999, and hit their lowest point of EUR 2.1 billion in 2006," said Biwald. The development of municipal investments must also be viewed in light of the outsourcing and regrouping of municipal tasks. Costs and financing for municipal tasks performed by private companies or public enterprises assigned to the private sector are now only partially accounted for in municipal budgets. Of the municipal investments in 2008, EUR 2 billion were allotted to the acquisition of real property, EUR 200 million to the acquisition of movable property and EUR 100 million to the acquisition of securities and participating interests. With roughly 74,000 employees, the municipalities employed around 300 people more in 2008 than in the previous year. However, this is an 8.1 per cent decline in comparison to 2001 – also as a result of the regrouping of tasks and the optimisation of structures and processes.

Market leader Bank Austria has been supporting the municipal sector for 20 years
Bank Austria has been supporting the municipal sector for 20 years. It created its special Public Sector unit to serve this customer group in 2005. With a transaction volume of EUR 14.6 billion, financing totalling EUR 7 billion and some 3,500 customers, Bank Austria is now the undisputed market leader in this segment on the basis of individual institutions.

Enquiries: Bank Austria Press Office Austria
 Tiemon Kiesenhofer, tel. +43 (0) 50505 ext. 52819;
 E-mail: tiemon.kiesenhofer@unicreditgroup.at

 KDZ – Centre for Public Administration
 Public Relations
 Michaela Bareis, tel. +43 (0)1 892 34 92 ext. 18;
 E-mail: bareis@kdz.or.at

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