Effects of the COVID-19 pandemic on credit institutions

In times of crisis, banks form part of the critical infrastructure and represent a cornerstone for coping with the economic consequences of the COVID-19 pandemic. In order to ensure this function, the European supervisory and regulatory authorities have defined certain measures, which are briefly described below.

In times of crisis, banks rank among the critical infrastructure and must be able to maintain their operations to the greatest extent possible. On a national level, they are exempt from the prescribed prohibitions of entry (§ 2 No. 13 Regulation concerning provisional measures to prevent the spread of COVID-19; VO betreffend vorläufige Maßnahmen zur Verhinderung der Verbreitung von COVID-19)), but the virus also poses great challenges for all financial market participants. Banks, the Austrian Financial Market Authority (Finanzmarktaufsicht, FMA) and the Austrian National Bank (Österreichische Nationalbank, OeNB) have largely switched over to home offices. The only exception to this is the greatly reduced branch operations of credit institutions.

Supervisory Measures

Maintaining the liquidity of credit institutions as well as the supply of credit to entrepreneurs and households are top priorities of national and European banking supervisory authorities. To this end, regulatory leeway should be used to the greatest extent possible.


The European Central Bank (ECB) and, in line with this, the FMA will consider postponing on-site inspections (presence checks) and extending the deadlines for the implementation of remedial measures (findings). The FMA will continue ongoing audits “off-site” to the extent possible.

Stress Test

On 12 March 2020, the European Banking Authority (EBA) announced that EU-wide stress tests would be postponed until 2021 to allow banks to focus on the existing priorities.

Capital Level

The ECB, as the banking supervisor of highly systemically important banks, announced further measures in a statement on 12 March 2020. According to these measures, credit institutions are temporarily allowed to use the flexibility of capital and liquidity buffers. The temporary shortfall of the framework conditions of the Pillar-2-Guidance (P2G), the capital conservation buffer (CCB) and the liquidity coverage ratio (LCR) is tolerated. Furthermore, banks may use capital instruments that do not qualify as Common Equity Tier 1 (CET1) capital, for example additional Tier 1 or Tier 2 instruments, in order to meet the Pillar-2-Requirements (P2R). This brings forward a measure that was originally intended to come into force in January 2021 as part of the last revision of the Capital Requirements Directive (CRDV).

The liquidity coverage ratio (LCR) was designed to provide credit institutions with sufficient unencumbered, first-class liquid assets and to be able to cover their liquidity requirements during a liquidity stress scenario in times of crisis. The liquidity coverage ratio rose to 145.96% in the fourth quarter of 2019 (compared to 145.08% in the third quarter). Banks should now use the buffer even if it falls below the required minimum of 100% (LCR).

In addition, on 16 April 2020 the ECB announced a temporary reduction in capital requirements for market risk. With this decision, the ECB is reacting to the exceptionally high volatility of the financial markets since the outbreak of the coronavirus.

Non-performing Loans

The ECB also recommends supervisory flexibility in the treatment of non-performing loans (NPLs), in particular to allow credit institutions to take full advantage of guarantees and moratoria (see below) established by public authorities in response to the current emergency.

Refinancing Costs

In a further step, the ECB announced on 12 March 2020 that it would relax the conditions for targeted longer-term refinancing operations (TLTRO III). These relaxations are intended to facilitate in particular the granting of loans to persons affected by the outbreak of the COVID-19 pandemic, such as small and medium-sized enterprises and households.

The global credit limit will be increased from 30% to 50% of eligible credits. Banks may therefore borrow up to 50% of their outstanding Eligible Loans under TLTRO-III on February 28, 2019, less outstanding loans taken out under TLTRO-II and funds already raised under TLTRO-III. The limitation of borrowing in individual transactions to a maximum of 10% of the eligible loans will be completely abolished. In addition, there is now the possibility of voluntary early repayment, after a term of one year (starting September 2021). These changes were made by the EU Council on 12 March in the wake of the Corona crisis and came into force on 17 March 2020.

In this context, the ECB also announced an adjustment of the interest rate on 12 March 2020. This will come into effect before the fourth operation in June 2020.


To minimize the medium and long-term economic impact of the efforts to contain the COVID 19 pandemic, the Member States of the European Union have implemented a wide range of support measures.

In Austria, the legislator has created the possibility of a three month moratorium for consumers and micro-entrepreneurs (§ 2 (1 -7) of the 2nd COVID-19 Accompanying Justice Act). This possibility is only granted for credit agreements concluded before 15 March 2020. This means that claims of the lender for repayment, interest or redemption payments due between April 1, 2020 and June 30, 2020 will be deferred for a period of three months from the due date. In any case, the prerequisite is that the resulting payment delays are due to the COVID-19 pandemic.

The EBA also considers the payment moratoria to be effective instruments for coping with short-term liquidity problems, but in its statement of 2 April 2020 it also emphasises that it is particularly important, especially under difficult economic conditions, to ensure that risks are identified and measured truthfully and accurately. In accordance with the existing frameworks, credit institutions are therefore still obliged to identify those situations in which short-term payment claims can turn into long-term financial difficulties and ultimately lead to insolvency. In its statement of 2 April 2020, the EBA states conditions under which borrowers who agree moratoria do not automatically have to be classified as “forborne” (individual loan restructuring):

  • The moratorium was created in connection with the COVID-19 crisis.
  • It only changes the timing of payments and does not apply to new credit agreements granted after the introduction of the moratorium.

The national legislator has fully accepted this.

In addition, it is possible to avoid defaults through consensual amendment of credit agreements.

Austrian Financial Market Authority (Finanzmarktaufsicht, FMA)

The FMA and OeNB fully support the above-mentioned measures of the Single Supervisory Mechanism (SSM) and present the following points regarding supervisory flexibility:

  • To establish creditworthiness, the disclosure of the last available annual financial statements is sufficient. As a rule, this will be the annual financial statements from 2018.
  • In order to assess the borrower’s ability to meet its principal payments, credit institutions may use a liquidity analysis of the borrower based on a year-round, historical liquidity analysis.
  • Debtors in default are not necessarily to be classified as defaulted (deferral, see above).
  • The FMA recommends applying the transitional rules of the accounting standards IFRS 9 in order to ensure a medium-term perspective and to allow government measures to be incorporated.

Extension of deadlines in national regulatory reporting system

Due to the COVID-19 pandemic, the Austrian Financial Market Supervisory Authority (Finanzmarktaufsichtsbehörde, FMA) considers it expedient for reasons of administrative efficiency to grant banks subject to reporting requirements a conditional extension of deadlines. Expected losses of relevant employees (due to illness, home office, etc.) may lead to increased problems in meeting reporting deadlines.

The FMA is authorized to extend by decree deadlines in the laws mentioned in § 2 paras. 1 to 4 of the Financial Market Authority Act (Finanzmarktaufsichtsbehördengesetz, FMABG) or in a decree issued on the basis of these laws for notification, reporting, submission and other contribution obligations, publications or other information obligations (§ 22 para. 13 of the FMABG).

On 27 April 2020, the FMA made use of its right and enacted the Regulation on the Extension of Deadlines in 2020 (Verordnung über die Verlängerung von Fristen im Jahr 2020, FMA-FriVerV 2020, BGBl. II No. 181/2020).

With the FMA-FriVerV 2020, the following applies in principle:

The respective deadline extension shall only be granted if and to the extent that this is necessary for the obligor using the respective deadline extension due to the COVID-19 crisis (§ 1 FMA-FriVerV 2020). Thus, a direct connection between the deadline extension to be granted and the COVID-19 pandemic is required. The deadlines regulated in this Regulation are maximum deadlines that neither must nor may be used without corresponding necessity.

In the field of banking supervision, this mainly concerns extensions of deadlines that provide for reporting obligations for annual financial statement documentation:

  • For financial years ending prior to 1 January 2020, the six-month period referred to in § 44 paras. 1 to 5 Banking Act (Bankwesengesetz, BWG), § 6 para. 1 Annual and Consolidated Accounts Regulation (Jahres- und Konzernabschluss-Verordnung, JKAB-V), § 4 Payment and E-Money Institutions Reporting Regulation (Zahlungs- und E-Geld-Institute-Meldeverordnung, ZEIMV) and § 1 Reserve Notification Regulation (Reservenmeldungsverordnung, ResV) shall be extended by four months to ten months (§ 2 para. 1 FMA-FriVerV 2020).
  • Transmission deadlines for national reporting provisions that were set between 1 March and 31 May 2020 extended by ten banking days in order to provide operational facilitation for the processing of reports. (§ 2 para. 2 FMA-FriVerV 2020).
  • Transmission deadlines for financial plans (in accordance with Annex G1 in § 6 para. 5 and § 11 para. 3 of the Regulation on the Statement of Assets, Earnings and Risks (Vermögens-, Erfolgs- und Risikoausweis-Verordnung, VERA-V) are extended by two months on the recommendation of the EBA. (§ 2 para. 3 FMA-FriVerV 2020).
  • The transmission deadline for the reporting of debt financing of properties in accordance with Annex H of VERA-V is extended to 30 September 2020. (§ 2 para. 4 FMA-FriVerV 2020).

In addition, it is still possible to submit substantiated requests for extensions of deadlines to the FMA (§ 6 FMA-FriVerV 2020 in conjunction with § 22 para. 13 FMABG).

The BörseG 2018 remains unaffected by the FMA-FriVerV 2020.

The deadlines for the cost bases for data reports, pursuant to the FMA Cost Regulation 2016 (FMA-Kostenverordnung 2016, FMA-KVO), were also adapted in line with the FMA-FriVerV 2020 (see § 23 para. 9 FMA-KVO).


The measures mentioned above offer banks considerable capital relief to support the economy. The ECB expressed its interest in ensuring that banks take advantage of the positive effects of these measures and are not used to increase dividend payments or variable remuneration.


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