* Central bank not keen on aid repayments - sources
* Finance ministry says decision up to banks if supervisors
* Erste Group Bank to comment with Q3 results
(Adds quotes and background)
By Michael Shields
VIENNA, Oct 5 Austrian banks are set to keep
state capital they secured during the financial crisis longer
than first planned to ensure they have the strength to withstand
shocks spawned by Europe's debt crisis, financial and
supervisory sources said.
No new crisis cases along the lines of Belgian-French lender
Dexia have emerged in Austria, where officials are
keeping a close eye on nationalised bank Hypo Alpe Adria
and EU stress test flunker Oesterreichische
Volksbanken AG OTVVp.VI.
But the safety-first mentality may hold up Erste Group
Bank's attempt to repay 1.2 billion euros ($1.59
billion) in non-voting state participation capital this year.
"It is still being discussed but unofficially the line is
that the Austrian National Bank is not very happy about that,"
one supervisory official said on Wednesday, when asked about
possible repayments of state aid by banks.
In Erste's case, "the final conclusion would be that it
would be no problem to pay it back in normal times but we are
not in normal times. That is the problem at the moment," the
Two more sources confirmed this. All spoke on condition of
anonymity because the discussions were confidential.
The central bank declined comment.
"We will comment on this when we present our Q3 figures" on
Oct. 28, an Erste spokesman said.
A finance ministry spokesman said banks had to decide for
themselves when to repay state aid that the government had made
available to help them shore up their balance sheets.
"We are not pushing anyone to repay or pushing anyone to
keep it longer...however the supervisory authorities have to
check off that repayment does not cause any problems," he said.
Officials say privately the broader issue was whether it was
a good idea to have banks repay expensive but useful state
capital at a time when it has hard for them to raise fresh
equity on markets at reasonable terms.
Shares in Austria's two largest banks extended gains, with
Raiffeisen Bank International up 8.4 percent and Erste
Bank up 4.9 percent by 1445 GMT.
AVOIDING WORST CASES
The worst case would be for banks to repay aid only to
require assistance again in a few months should the debt crisis
blow up and plunge the financial system into turmoil.
"This is what we want to avoid," the first source said.
That is also why Volksbanken, Austria's fourth-biggest bank,
probably will not repay a 300 million euro tranche of state aid
this year for fear it will weaken the lender, financial and
supervisory sources had said last week.
Regulators have often noted that Austrian banks are
undercapitalised versus peers operating in central and eastern
Europe and repeatedly stressed the need for them to build up
their balance sheets.
But Austrian banks' exposure to Greece, Ireland and Portugal
is manageable and Austria's state debt is rated AAA, giving
domestic banks a handy refinancing tool.
The Austrian banking sector had a combined 6 billion euros
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.
Central bankers said in June the potential fallout of a
Greek state debt default would have only a limited impact on
Austrian banks, at least directly, and was unlikely to make any
Austrian lender need recapitalisation.
Raiffeisen Bank International AG has made clear it
is in no rush to repay 1.75 billion euros in non-voting capital
it secured during the financial crisis.
RBI said in August it may sell fresh shares within the next
year but sees scant prospects for this now with stock prices at
such depressed levels.
Hypo Alpe Adria has been asking for more time to raise about
1.5 billion euros in extra capital recommended by the central
bank and FMA market watchdog.
Hypo, nationalised in 2009 to avoid a collapse that could
have shaken central and eastern Europe, faces a March 2012
deadline to raise the extra capital.
($1 = 0.753 Euros)
(Editing by David Cowell)