Austria's bank restructuring costly but manageable, IMF says
VIENNA, Sept 10
VIENNA, Sept 10 (Reuters) - The International Monetary Fund advised Austria on Tuesday to get a tighter grip on public finances and speed the restructuring of its troubled banks, a task that it said would be expensive but manageable.
Vienna has fully or partially nationalised three lenders since the financial crisis blew up in 2008, in part a consequence of the banking system's heavy exposure to riskier emerging European markets.
Under a plan approved earlier this month by the European Commission, taxpayers face a hit of up to 5.4 billion euros ($7.2 billion) in fresh capital by 2017 for one of the trio, Hypo Alpe Adria.
Recommending that other big Austrian banks should also strengthen their capital buffers, the IMF said restructuring the sector would have "further significant, though manageable, fiscal costs".
The comments, in the Fund's annual review of the Austrian economy, were published less than three weeks before parliamentary elections.
The Fund said a faster disposal of the banking sector's underperforming assets would help keep the extra costs in check.
Austrian Finance Minister Maria Fekter has said Hypo's woes would not blow the country off course from its goal of balancing the budget by 2016.
Economists say the new government will have its work cut out to absorb another hit from Hypo while continuing to cut state debt and deficits, though public finances should get a boost as Austria's export-dependent economy starts to recover.
The IMF forecast gross domestic product would expand 0.4 percent in 2013 and 1.6 percent in 2014 after 0.9 percent growth in 2012, saying it expected investments and private consumption to pick up.
It reiterated it saw a potential risk in the banking system's exposure to central, eastern and southeastern Europe, where Bank Austria, Raiffeisen Bank International and Erste Group are the biggest lenders.
The banking system "appears resilient to adverse scenarios on the whole" because capitalisation, funding and liquidity conditions have improved and foreign subsidiaries have reduced their reliance on parent bank funding, the IMF said.
However, bank asset quality was still deteriorating in several countries in the region and depressed credit demand is hurting profitability.
The IMF stressed the need for better financial oversight, risk management and governance, especially for small to mid-sized banks, to prevent a recurrence of past problems.
For a table of forecasts for Austrian GDP growth, please double-click on
($1 = 0.7546 euros) (Reporting by Michael Shields; Editing by John Stonestreet)