Financial Stability Report 2011
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Financial Stability Report 2011 Swiss National Bank Financial Stability Report Published by Copyright© Swiss National Bank The Swiss National Bank (SNB) respects all Financial Stability third-party rights, in particular rights relating P.O. Box to works protected by copyright (information CH-8022 Zurich or data, wordings and depictions, to the extent Telephone +41 44 631 31 11 that these are of an individual character). Languages SNB publications containing a reference to English, French and German a copyright (© Swiss National Bank/SNB, Zurich/year, or similar) may, under copyright Further information law, only be used (reproduced, used via the [email protected] internet, etc.) for non-commercial purposes and provided that the source is mentioned. Subscriptions, individual issues, Their use for commercial purposes is only change of address permitted with the prior express consent of Swiss National Bank, Library the SNB. P.O. Box, CH-8022 Zurich Telephone +41 44 631 32 84 General information and data published Fax +41 44 631 81 14 without reference to a copyright may be used E-mail: [email protected] without mentioning the source. Website To the extent that the information and data The publications of the Swiss National Bank clearly derive from outside sources, the users are available at www.snb.ch, Publications. of such information and data are obliged to respect any existing copyrights and to obtain Typeset and printed by the right of use from the relevant outside Neidhart + Schön AG, Zurich source themselves. Publication date Limitation of liability June 2011 The SNB accepts no responsibility for any information it provides. Under no circumstances ISSN 1661-7835 (print version) will it accept any liability for losses or ISSN 1661-7843 (online version) damage which may result from the use of such information. This limitation of liability Data and data sources applies, in particular, to the topicality, accuracy, The banking statistics used in this report validity and availability of the information. are based on official data submitted and/or on data reported by individual banks. As of 1995, data on the big banks are analysed © Swiss National Bank, Zurich/Berne 2011 on a consolidated basis. For years prior to 1995 and for other bank categories, non- consolidated figures are used. The analysis in this report covers the following bank categories: big banks, cantonal banks, Raiff eisen banks and regional banks. The totals cited in the charts and tables reflect a combination of these bank categories, together with the most important ‘other banks’ (cf. box 1). This document is based on data available as at 31 May 2011. Contents 5 Overall assessment Chapters 8 1 General economic and financial conditions 15 2 Profitability 17 3 Risk 28 4 Capital 34 5 Market assessment Boxes 14 1 Structure of the Swiss banking sector 24 2 Real estate and mortgage markets 32 3 Regulatory and loss-absorbing capital 33 4 Regulatory changes 2011 Financial Stability Report SNB 4 2011 Financial Stability Report Foreword Improvement in economic conditions This report highlights the main trends in the Global economic growth in 2010 surpassed Swiss banking sector with respect to their impact expectations. In addition, the global recovery is now on financial stability, to which the Swiss National on a firmer footing and is less reliant on fiscal Bank (SNB) is required to contribute in accordance stimuli. There is, however, considerable regional with the National Bank Act (art. 5 para. 2 (e) NBA). disparity. Strong growth in the emerging markets and A stable financial system can be defined as a sys- positive developments in Germany and Switzerland tem in which the various components fulfil their contrasted with economic weakness in several other functions and are able to withstand the shocks to European countries. which they are exposed. In 2010, real estate prices stabilised in many of Through this report, the SNB conveys its evalu- the countries that had experienced a housing crisis ation of the stability of the banking sector and in 2008/2009. However, risks remain elevated for provides the general public with relevant informa- a number of real estate markets, as price levels tion and indicators. The report gives the SNB the appear to be higher than justified by fundamentals. opportunity to highlight tensions or imbalances This also applies to Switzerland over the medium that could jeopardise this stability. It is not the term, if real estate prices continue to rise at the purpose of this report to analyse the solvency of same pace as in recent years. In some Swiss regions, individual financial institutions, and individual and in the owner-occupied apartment and apartment banks are only considered if this is deemed relevant building segments, signs of overheating are increas- for obtaining an overall picture. ingly apparent (cf. box 2). Mirroring the positive developments in global economic growth and real estate prices, overall credit Overall assessment quality improved slightly, as shown by indicators such as write-down rates on lending or risk premia on General economic and financial conditions for corporate bonds. However, credit quality remains the Swiss banking sector as a whole continued to historically low in the US and Europe. By contrast, improve in 2010. The global recovery became more indicators show a relatively high level of credit sustainable, and the Swiss economy also saw robust quality for Switzerland, despite the recession in 2009. growth. Against this background, the profitability Yet the economic environment continues to be and capital situation of the big banks improved one of high uncertainty and risks, as is highlighted further, and remained good overall for banks with by the situation on the financial and capital markets. a domestic focus. Risk premia on sovereign debt over the past year However, the prevailing uncertainties and risks increased considerably in some cases. This reflects in the economic environment remain high, and the heightened problem of sovereign indebtedness – a renewed, sharp deterioration over the next twelve and thus the greater risk of debt restructuring – in months cannot be ruled out. Under such an adverse a number of states, mainly in Europe. There are also scenario, big bank losses relative to capital could be still significant risks associated with the inter - considerable, given their risk profile. Both big banks national banking system. For example, despite a sharp have made major strides towards expanding their decline in 2009, risk premia on bank debt are still loss-absorbing capital base. In view of the ongoing high in a historical comparison. Finally, develop- high risks associated with the economic environ- ments on the stock markets in the emerging market ment, as well as these banks’ continuing high economies suggest a risk of new imbalances. If the leverage and the enhanced regulatory requirements, low interest rate environment persists, there is a risk it is particularly important from a financial stability that, in the medium term, the advanced economies perspective that the Swiss big banks continue to will also see a rise in share prices that is not justified strengthen their loss-absorbing capital base. by fundamentals. For domestically focused banks, the risks are Owing to the prevailing uncertainties and risks largely of a medium-term nature, and are related to in the economic environment – especially at inter- potential adverse developments on the Swiss real national level – a renewed, sharp deterioration in estate and mortgage markets. In view of this, steps economic conditions over the next twelve months have been taken to improve risk monitoring and cannot be ruled out. Under a realistic adverse tighten microprudential supervision. Furthermore, scenario, global economic growth will slow markedly, an initiative to revise the self-regulation guidelines leading to substantial price corrections on financial for mortgage-backed loans is underway. Should the markets. A possible trigger for this scenario could developments currently being observed on the real be lower-than-expected economic growth in some estate and mortgage markets continue at the current European countries, which will result in a further pace, or even accelerate, further policy measures deterioration of government finances, rising stress in would have to be considered. the banking sector and corrections on the real estate markets. Such a development would also affect the SNB 5 2011 Financial Stability Report economic recovery and financial markets in other (UBS) and issuing contingent convertible bonds countries. Share and real estate prices would fall and (Credit Suisse), both big banks have already taken credit risk would rebound. important first steps in this regard.3 These steps sug- gest that the big banks should be able to expand Profitability and regulatory capital their loss-absorbing capital base relatively quickly situation have improved at big banks, and comply with the Basel III minimum standards by but substantial challenges remain the end of the transition period in 2019. The improvement in the situation for the Swiss In view of the big banks’ continuing high lever- banking sector compared to the previous year was age and the considerable risks that prevail in the largely attributable to the two big banks. In 2010, economic environment, it is crucial that a sufficient these institutions reported combined net profits of base of loss-absorbing capital be laid down as soon around CHF 13 billion, as opposed to roughly CHF as possible. The level of loss-absorbing capital at the 4 billion in 2009. This positive development was big banks amounted to less than 2% of total assets driven by UBS, whose situation improved further over at the end of 2010. The consequences of any mis- the course of last year. At the same time, both big assessment of risks would be correspondingly severe. banks continued to strengthen their capital base. By way of comparison: during the recent crisis, UBS Since 2007, there has been a marked increase in the suffered cumulative losses amounting to well over two big banks’ risk-weighted capital ratios – which 2% of total assets.