Swiss banks tipped to retain stability

Safe as houses: banks are safeguarded against potential mortgage loan defaults Keystone

The Swiss banking sector is strong enough to withstand negative interest rates, the strong franc, the heating housing market and volatile market conditions, according to ratings agency Moody’s.

This content was published on August 17, 2016 - 16:05

Swiss banks were given a clean bill of health by Moody’s despite concerns over the performance of some banks, particularly Credit Suisse that has seen its stock price plummet this year. Switzerland’s second largest bank has been forced to defend itself against suspicions that it is not well capitalized enough to withstand shocks.

"Swiss banks continue to have very low problem loan ratios and sound capital buffers, as well as limited reliance on confidence-sensitive capital market funding and adequate loss absorption capacity," stated Michael Rohr, a Senior Credit Officer at Moody's.

The ratings agency believes the Swiss economy will grow by 1.4% this year, rising to 1.7% in 2017 with unemployment to remain low and stable.

Mortgage mountain

Researchers at Moody’s declared themselves satisfied that Switzerland’s booming mortgage loan industry will not contain any nasty shocks. With interest rates at rock bottom and other investment classes performing badly, many investors have been putting their money into bricks and mortar.

This has resulted in fears of a housing market bubble and defaults should interest rates rise too swiftly. However, Moody’s said that measures put into place by the Swiss National Bank to prevent lending from spiraling out of control should contain the situation.

Swiss banks are also well positioned to ride out the prolonged period of low interest rates and the strong franc, the report concluded. The only unknown variable blotting the horizon is how Switzerland will implement a referendum to curb immigration. This may lead to clashes with the European Union and result in decreased economic growth.

“Nevertheless, Moody's base-case scenario is that a continued benign macroeconomic environment in Switzerland will support the banks' asset quality, with loan-loss charges and problem loans staying low over the outlook horizon [the next 12-18 months],” the report said.

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