* Top banks' core tier 1 ratio 7.4 pct in 2012 -stress tests
* Austrian National Bank urges banks to boost capital ratios
* Sees little direct impact from any Greek debt default
* International environment poses "formidable challenge"
(Adds comments from news conference)
By Michael Shields
VIENNA, June 21 Austrian banks are better placed
to withstand renewed market turmoil than they were a year ago,
the Austrian National Bank said on Tuesday, playing down the
potential impact of any Greek debt default.
"Austrian banks' exposure in euro area countries subject to
to higher risk is comparatively low...and has continued to
decline in the past year," Executive Director Andreas Ittner
said in a statement on the semi-annual report.
"The ongoing uncertainties about the international
environment, however, continue to pose a formidable challenge to
the domestic banking sector," the report said.
The Austrian banking sector had a combined 6 billion euros
($8.6 billion) in overall exposure to Greece, Ireland and
Portugal at the end of 2010. The top six banks accounted for
around 4.5 billion euros of that, much of it held on their bank
books, officials said.
Ittner declined to discuss in detail the potential fallout
of a Greek sovereign debt default, saying only: "The impact on
Austrian banks would be limited as a first-round effect."
Philip Reading, head of the bank's financial market
stability department, said the central bank did not think a
default would make any Austrian lender need recapitalisation.
Market uproar could, however, boost demand for liquidity,
and the central bank was in talks with banks that its internal
stress tests showed could be most in need, he said.
Its latest stress tests -- which it called "largely
harmonised" with European Union tests -- showed the top six
banks' aggregate core tier one capital ratio would reach 7.4
percent at the end of 2012 under a stress scenario.
That excludes non-state participation capital that will not
count as core tier one capital in future. It compares with a
baseline scenario of 9.5 percent by the end of 2012 and 8.5
percent at the end of 2010.
The central bank had in the past used tier one ratios for
its in-house stress tests, but has switched to core tier one
calculations based on the stricter definition put forward by
Ittner said talks were under way with banks about developing
business models that had sufficient risk cushions but still
fostered economic growth, adding it was too soon to discuss
levels of extra capital that key banks may have to hold.
The central bank said Austrian banks' capital base could be
strengthened further given the higher capitalisation of
comparable global banking groups, and noted some banks will have
to repay state capital they got during the financial crisis.
"For this reason, banks should use their higher
profitability primarily to bolster their capital ratios."
Austrian banks' consolidated tier one ratio hit a low in the
third quarter of 2008 but improved by 2.7 percentage points
since then to 10 percent at the end of last year, it said.
Austria's top six banks are Unicredit's Bank
Austria, Raiffeisen Bank International , Erste Group
Bank , Oesterreichische Volksbanken OTVVp.VI, BAWAG
P.S.K. and nationalised lender Hypo Group Alpe Adria.
The report did not break out individual banks' performance
in stress tests.
(Reporting by Michael Shields; editing by Patrick Graham)
($1 = 0.698 Euros)