Speculation that Erste is not the only Austrian bank that could be vulnerable to emerging Europe exposure is hampering EWO because the ETF allocates 38% of its weight to the financial services sector. That is nearly 1,600 basis points more than its weight to industrials, the ETF’s second-largest sector weight. [Spotlight on Austria ETF]
Last week, “Austria’s central bank said that the country’s lenders should review their business model after they had to use 44 billion euros, or almost two-thirds of their operating profit since 2008, on provision for delinquent debt. Rapid credit growth had fueled bank earnings and economic growth until 2008 as clients borrowed to buy homes, cars and consumer goods. When economic growth contracted, bad loans and writedowns soared,” report Stefan Riecher and Boris Groendahl for Bloomberg.
This is not the first time EWO has felt the chill of Austrian banks’ Eastern Europe exposure. In the first half of 2011, EWO struggled due to loans made by Austrian banks in the Czech Republic, Romania, Hungary and Croatia. The global financial crisis left the Austrian banking system vulnerable to the massive movements of foreign credit and foreign currency-denominated loans. [Austria ETF Gets Relief From Bank Deals]
iShares MSCI Austria Capped ETF