Moody’s Sees Property Price ‘Headwinds’ for Swiss Banks’ Capital

Soaring prices in Switzerland’s domestic property market and pressure on profitability are weighing on a “stable” rating for Swiss banks, Moody’s Investors Service said.

“There are increasing indications of overly-high asset-price inflation in Swiss real-estate markets,” Moody’s analysts Michael Rohr and Carola Schuler said in an e-mailed report from Frankfurt today. “That has the potential to significantly impact Swiss banks’ asset quality and capital ratios in an adverse scenario.”

Earnings at Swiss regional banks would suffer from loan-loss charges in the event of an unexpectedly large slowdown in Swiss property markets, potentially damaging their capital position, according to Moody’s.

Switzerland’s 24 cantonal banks, most of which were established in the 19th century, had assets in excess of 500 billion francs ($527 billion) at the end of December, according to the Swiss Cantonal Banks Association.

The impact of low interest rates and possible fines from a U.S. probe of Swiss wealth managers suspected of helping tax dodgers also pose significant challenges, New York-based Moody’s said.

Still, Moody’s outlook for Swiss banks remains at “stable” as lenders have low levels of problem loans, strong capital ratios, limited reliance on wholesale funding and the ability to absorb losses through earnings and loan-loss reserves, Moody’s said. The Swiss government’s creditworthiness and low unemployment in the country also contribute to a stable environment, according to the firm.

To contact the reporter on this story: Giles Broom in Geneva at gbroom@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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