Austria's finance ministry is considering taking an equity stake in public sector financier Kommunalkredit to improve the lender's rating, a ministry spokesman said on Tuesday. Talks were proceeding about how big such a stake could be and what form of equity would be injected in the bank, which faces a liquidity squeeze because it relies on wholesale funding to refinance its loan book, the spokesman said.
"We are thinking about how we can put their business model on a sustainable foundation," Harald Waiglein said. "Of course we are also talking about capital measures, because this would help improve the rating, which then would also improve the earnings situation," said the spokesman. Kommunalkredit said on Sunday it had started talks with the finance ministry about measures under the country's recently enacted banking stability package.
Kommunalkredit, a key financier of Austrian states and municipalities that has 20 billion euros ($25 billion) in bonds outstanding, is the first major Austrian bank to require state help arising from the global financial crisis. The unlisted bank has a balance sheet total of 34.5 billion euros, making it Austria's eighth-biggest lender.
With only 3 percent of its assets in customer deposits, it is highly dependent on wholesale refinancing, a market that has practically dried up. "The problem is that their business model has come under pressure," Waiglein said. "They are refinancing on the interbank or bond market, and both those markets don't function."
Waiglein confirmed media reports saying that Kommunalkredit was also exposed to Icelandic bank debt, but added that this was not the reason for its current problems. He declined to say how big its Icelandic exposure was. According to the Bank for International Settlements, Austrian banks are owed 2.6 billion euros by Icelandic borrowers, a high exposure relative to Austria's size. Media reports have put Kommunalkredit's exposure at 200 million euros.