DuPont reloaded: the profitability of the Austrian banking sector and the impact of the COVID-19 pandemic

This short study follows up on our previous paper that analyzed the profitability of Austrian banks’ subsidiaries in Central, Eastern and Southeastern Europe (CESEE) from 2004 to 2016 on the basis of a DuPont analysis.2 Now, we not only update the time frame to include years before and during the COVID-19 pandemic (2017 to 2021), but also look at the entire Austrian banking sector. In addition, we explain trends in banks’ net interest income in more detail by analyzing to what extent it depends on price and volume effects. We find that banks’ return on equity dropped substantially during 2020 but bounced back to pre-pandemic levels in 2021. The obvious driver were risk costs, which spiked at first but quickly calmed down again as the impact of the pandemic proved to be less severe than originally expected. Also, banks’ net interest margin was negatively affected during the pandemic, both by low interest rates and banks’ shift toward lower-margin business. The future development of profitability in the Austrian banking sector is highly uncertain. But even though – like in the past few years – much will depend on external factors, including monetary, fiscal and prudential decisions as well as geopolitical developments, our analysis suggests that the Austrian banking sector is well prepared to weather these challenging times.