Basel III fears over positive bankruptcy trend

The Austrian economy seems to reassert itself, new figures presented by a creditors’ protection organisation show.

The Creditors’ Protection Association of 1870 (KSV) said today (Weds) that 1,672 companies declared bankruptcy in the first half of this year. This is a three per cent decrease compared to the first six months of 2010, according to the KSV. Around 10,300 employees have been affected by developments since January, the organisation added.

The number of business bankruptcies declined in all of the country’s nine provinces except Vienna. The capital recorded an increase of 0.9 per cent. The western province of Vorarlberg registered the strongest drop (minus 45.2 per cent). Businesses in Salzburg also did well in the first six months of 2011. The number of broke firms declined by 23.9 per cent in the region.

The KSV explained that current economic developments – the force to save costs after the worst of the crisis seems to be behind the economy and the difficult situation of Eurozone member Greece – have forced businesspeople to make decisions more carefully than in the past. The association explained it would correct its forecast for the whole year due to the numbers for the first six months. Fewer firms would go bust throughout 2011 than initially expected by the KSV, the organisation claimed today.

The institution pointed out that banks’ fiscal policies would have an immense impact on Austrian companies’ performance in the coming months. The KSV explained businesses benefited from the financial institutes’ low interest rates.

Now all eyes are on European Union (EU) decision-makers whether the previously agreed Basel III regulations will come into force without any changes. The law – which would force banks to have higher equity ratios than ever before if they wanted to provide small and medium-sized enterprises (SME) with credits – has sparked mixed reactions among the continents’ political and economic leaders.

Erste Group Bank AG (Erste Bank) chief Andreas Treichl risked a worsening of relationships between bankers and politicians last month by branding Austria’s political leaders as “stupid and cowardly.”

Treichl found these harsh words to express criticism considering the planned Basel III decree. He attacked decision-makers for being ready to give the green light to the restrictions while banks faced no additional rules when engaging in high-risk speculative deals. “The next crisis will come and it will be worse than the current one,” Treichl warned.

His statements were dismissed by most Austrian politicians as inappropriate and incorrect, while some commentators argued that bankers, not politicians, established the Basel III guidelines. Treichl saw himself forced to apologise “for my choice of words” a few days after he delivered the rant at a business event in Salzburg. The Erste Bank boss was quick to add that he would not move an inch as far as the issues he raised were regarded. “It seems a bit of emotion is needed to start a debate about something in Austria,” he claimed.

Some economic experts fear Europe’s real economy could suffer if banks faced too stringent restrictions regarding their lending activities. SMEs could struggle as an effect and many ambitious business ideas could be ended early if banks were forced to say no to appeals for money, they warned.

The number of business bankruptcies has never been lower in Austria in the first six months of a year since 2004, KSV’s new report reveals. Meanwhile, the number of individuals going bust soared by eight per cent to nearly 8,000 from the first half of 2010 to the same period of this year. Up to 150,000 Austrians are bankrupt at the moment, according to business newspapers. The province of Lower Austria registered the highest increase of private bankruptcies at 23.8 per cent ahead of Styria (plus 16.9 per cent). Burgenland and Carinthia were the only provinces where fewer people declared themselves bankrupt in the first six months of this year than in the same time span of the previous year.