Austria to help banks with up to 100 billion euros (Roundup)

Oct 13, 2008, 15:04 GMT

Vienna - The Austrian government announced Monday it would provide up to 100 billion euros (134 billion dollars) to strengthen the country's banks in reaction to the international financial crisis.

'This is not a rescue plan - that's not necessary,' said Vice Chancellor and Finance Minister Wilhelm Molterer, according to Austrian news agency APA.

Up to 85 billion euros would be used to guarantee lending between banks, while up to 15 billion euros would be used to increase the banks' capitalisation, 'in order to strengthen the solidity of the banks,' Molterer said.

If necessary, the government is also ready to take over shares of financial institutions through a government holding.

The leading ATX index of the Vienna Stock Exchange rose by 12.15 per cent by the afternoon, following Monday mornings's first news of the plan, which is part of a package agreed to by the 15 eurozone countries on Sunday.

'The package is massive and comprehensive and provides us with instruments to be prepared,' Molterer said.

The most important issue was to enable small and mid-size Austrian companies to get credits for investments, he explained.

The Austrian parliament could meet as soon as Friday to approve the plan, the governing social democrats and conservatives have proposed.

Under the package, the state also provides unlimited guarantees for private bank savings and bans short-selling of securities, a practice in which traders seek to profit from falling prices.

So far, none of the Austrian banks have reported liquidity problems, although heavyweights Raiffeisen International Bank-Holding AG and Erste Bank Group AG both saw their shares tumble last week in Vienna.

By the afternoon, Raiffeisen stocks were up 13.31 per cent, while Erste gained 11.89 per cent.

Leaders of the eurozone countries proposed on Sunday in Paris a rescue package for Europe's banking system. It includes government guarantees for interbank loans, as well as plans to inject capital to the financial sector and to partially nationalize banks.