The outlook for Switzerland's (Aaa stable) banking system has been changed to negative from stable, principally because the likelihood of support for senior creditors from the Swiss government in the event of need is diminishing, according to Moody Investors Service.
Moody's view reflects the government's move forward to implement a resolution framework allowing burden-sharing with creditors (bail-in) to resolve failing domestic banks. Moody's believes that the negative implications of diminishing support for senior creditors outweigh the otherwise more positive elements that will continue to support the banks' standalone credit profiles.
At the same time, very low problem loan levels, having declined in 2013 to 1.1 percent of total gross loans from 1.2 percent a year earlier and sound earnings generation capacity, imply that Swiss banks' capital ratios will remain high, and so will further support Swiss banks' credit profiles.
Sustained property-price inflation and persistently low interest rates are the main fundamental challenges for Swiss banks over the next 12-18 months, Moody's concluded.