In its yearly report on financial stability in Switzerland, the Swiss National Bank (SNB) said the country’s largest banks had made significant progress in improving lending practices, though there’s more to be done.
Since last year’s warnings of “below average” capitalisation and a gloomy outlook for the banks’ futures if they didn’t adjust their lending practices, the SNB has significantly softened its tone and even praised UBS and Credit Suisse for their efforts in the past year.
Both banks significantly reduced their investment banking activities, issuing more bonds and selling off bad assets. In February, the Swiss government also issued harsher capital requirements for mortgage lending, which the banks were forced to comply with.
However, SNB President Thomas Jordan told the media that the banks’ prudence must keep improving in the year to come, as Switzerland’s extremely low interest rates of zero to 0.25 per cent continue to create a risk of imbalance in the mortgage and real estate markets.
The strong franc
The 2011 package of financial measures to counter the economic impact of the strong Swiss franc has had the desired effect and boosted innovation, according to an external evaluation. [...]
The Swiss National Bank reacts
Specifically, the SNB said Switzerland’s biggest banks still needed to do more to up their leverage ratios – measures of a bank’s ability to meet its financial obligations – in order to meet government requirements by 2019. And, the SNB is not ruling out more regulation in the future.
"In the event of a further build-up of risks in the Swiss mortgage and real estate markets, it might prove necessary to take further regulatory measures," the National Bank said.
Also on Thursday, Jordan indicated the Swiss exchange rate ceiling of CHF1.20 to the euro would remain in place because it has worked so far, helping to ward off a severe recession that would have resulted from more expensive exports. He also said that Switzerland’s economy is expected to continue to grow by 1 to 1.5 per cent in the next year, though not without risks.
"The risks for the Swiss economy remain high," he said. "They continue to originate, for the most part, from the international environment. A weakening in the global economic momentum cannot be excluded. Further developments in the euro area financial and sovereign debt crisis remain uncertain. Tensions can reappear at any moment on global financial markets."