Austria should step up efforts to increase the resilience of its banking sector, given its significantly high exposure to countries in Central Eastern and South Eastern Europe (CESEE), the Organization for Economic Cooperation and Development said in a report on Tuesday.

Austria's banking sector is relatively large compared to the size of the economy and significantly exposed to CESEE countries. Though concerns of generalized deleveraging of Austrian banks in this region have not materialized, the residents in these countries hold large foreign currency loans, the report noted.

While these activities have contributed to profitability of the banks, it also imply higher risks as illustrated by the increase in loan loss provisions. "The repayment of participation capital and upcoming tighter regulatory requirements warrant a better capitalization of these banks," the OECD said.

Overall, the Austrian banking sector has strengthened its capital position, but the Tier 1 capital adequacy ratio of large internationally active Austrian banks still remained lower than their peers. OECD said these banks should present clear strategies to strengthen their capital base taking into account the need to repay government capital. Also, the restructuring of the nationalized banks should be pursued, the report said.

RTTNews