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Fitch: KA Finanz's Plan Shows Austria's Clarity on Bank Run-Offs
May 10, 2017 / 3:20 PM / 7 months ago

Fitch: KA Finanz's Plan Shows Austria's Clarity on Bank Run-Offs

(The following statement was released by the rating agency) LONDON, May 10 (Fitch) KA Finanz's (KF) plan to convert from a bank to a run-off company, move fully to direct state funding and accelerate its portfolio run-off demonstrates the Austrian authorities' proactive approach to managing run-off institutions, Fitch Ratings says. The clarity of the plan, authorised by the state-owned bank's management and helped by market conditions more favourable for asset disposals, is in contrast to the long stand-off between creditors of the run-off institution Heta Asset Resolution and the authorities before the bail-in of Heta's debt last year. The plan for KF's funding to be provided directly by the state represents a strong commitment from the government. KF receives about 60% of its funding from other sources, including covered bonds, repos and European Central Bank tenders. Under the plan, all refinancing would be provided by the government-owned entity Abbaumanagementgesellschaft des Bundes (ABBAG), replacing existing financing as it matures. Run-off status would exempt KF from capital and liquidity regulatory requirements applying to regulated banks, reducing its compliance burden and costs. As a run-off company, KF would need to return its banking licence and its market activity would be restricted to initiatives focused on run-off, such as hedging and buy-back programmes. KF ceased lending when it was nationalised in 2008 but has continued to take customer deposits from institutional investors until now. KF intends to accelerate the run-off of its portfolio, taking advantage of more favourable market conditions that should reduce or reverse impairment losses, and aims to complete the process within 10 years of attaining formal run-off status. This would be well ahead of the existing target of 2040 originally agreed with the European Commission and would mean a much earlier conclusion to Austria's run-off institutions than anticipated. The sector's two other wind-down entities, immigon and Heta, are set to complete their run-off by end-2017 and end-2022, respectively, having made faster progress than originally planned. <iframe allowfullscreen src="//" title="Austrian Bank Run-Offs" width="550" height="556" scrolling="no" frameborder="0"> Heta's management plans to wind down 80% of its portfolio by end-2018 and 90% by end-2020. On 2 May, the Austrian regulator reduced the haircut for Heta's senior debt in an updated wind-down decree as it now sees a residual EUR8.6 billion cash to distribute rather than the EUR6.0 billion expected previously. In comparison to the two other run-off institutions, KF's progress has been slower but we expect significant steps in the coming years if its updated plan receives regulatory approval. We think a faster, clearer conclusion to the sector's run-offs would help to improve international investor confidence in second-tier Austrian banks. Access to international investors, and German creditors in particular, is important for the sector. German creditors were the counterparties most affected by Heta's resolution. KF's updated plan, announced on 26 April, is subject to regulatory approval of its run-off status and negotiations with ABBAG on a refinancing facility. Contact: Christian Schindler Associate Director Financial Institutions +44 20 3530 1323 Fitch Ratings Limited 30 North Colonnade London E14 5GN David Prowse Senior Analyst Fitch Wire +44 20 3530 1250 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:; Rebecca O'Neill, London, Tel: +44 203 530 1697, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. 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