Austrian Subsidiaries’ Profitability in the Czech Republic and Slovakia – CESEE Margins with an Austrian Risk Profile

The Czech Republic and Slovakia belong to the small and increasingly concentrated group of countries in Central, Eastern and Southeastern Europe (CESEE) whose banking markets have continued to generate substantial profits for Austrian banks also after the outbreak of the financial crisis in 2008. This short study sheds light on why Austrian subsidiaries have been able to maintain their profitability in these two countries especially when compared to those in other CESEE countries. We find that the strong quality of their asset portfolios is the main contributing factor; also, the Czech and Slovak markets now offer net interest margins well above Austrian levels, while the credit risk level is close to that in Austria. By contrast, several other CESEE markets have recorded worsening credit quality and, consequently, dwindling returns. Despite some downside risks related to the low interest rate environment, the openness of the Czech and Slovak economies and a potential intensification in competition, it seems that, from a current perspective, Czech and Slovak subsidiaries can be considered the most stable earnings generators in Austrian banks’ international portfolio.