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Fitch: Lower bank levy to boost Austrian banks' competitiveness

Fitch Ratings said the Austriangovernment's plan to reduce the bank levy and link it to lenders' profitsshould improve the banking sector's competitiveness against European rivals andaccelerate internal capital generation.

The government plan, which stillneeds parliamentary approval, would see the bank levy reduced to €100 million ayear from 2017 from €640 million in 2016 and directly connected to banks' profits.Banks will still have to contribute about €350 million a year to the Europeansingle resolution fund and the deposit guarantee scheme.

Fitch said the reduced levy willease profitability pressure on Austrian banks, which are now increasingly focusingon domestic business where margins are generally low.

The agency noted, however, that aone-off, sector-wide payment of €1 billion included in the plan willeffectively postpone the positive impact of the tax cut by two years, andshareholders are likely to expect a rise in recent modest profit distributions,thereby reducing the benefit to capitalization.

Fitch said the change isparticularly significant for UniCredit Bank Austria AG, as the planned of its central and easternEuropean businesses to parent UniCredit SpA will substantially reduce its revenue basebut would not affect the calculation of its levy under the existing system.

The agency noted two other majorAustrian banks, Erste Group BankAG and RaiffeisenBank International AG, remain exposed to the risk of CEE countriesimposing high levies.