Austria to help banks with up to 100 billion euros (2nd Roundup)

Oct 13, 2008, 16:18 GMT

Vienna - The Austrian government announced Monday it would provide up to 100 billion euros (134 billion dollars) to guarantee lending among banks and to support their capitalisation.

'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 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 12.77 per cent by closing time, the highest increase within a day since the index was launched in 1991.

'The package is massive and comprehensive and provides us with instruments to be prepared,' Molterer said of the plan, which is is part of the Sunday agreement by the 15 eurozone countries.

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

'Basically, 100 billion euros is a big chunk, compared with the size of Austria,' said Guenter Hohberger, an analyst at Erste Bank. Austria's GDP in 2007 was 271 billion euros.

But for Austria's economy, the banking package was 'not all there is to it', as the country was very exposed to Central and Eastern European markets, he said. Governments in that region needed to approve similar packages, he added.

Poland said Monday its national bank was preparing a package to grow trust between banks, while eurozone member Slovenia has proposed a temporary blanket guarantee on savings deposits.

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

Under the Austrian 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.

On Monday, Raiffeisen stocks were up 18.08 per cent, while Erste gained 11.71 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.