MOODY'S MAINTAINS STABLE OUTLOOK ON SWITZERLAND'S BANKING SYSTEM

Frankfurt am Main, August 17, 2016 -- Moody's Investors Service has maintained its stable outlook on the Swiss banking system, reflecting the rating agency's expectation of solid operating conditions despite the challenges of low interest rates and house price inflation. The outlook expresses Moody's expectation of how bank creditworthiness will evolve in Switzerland over the next 12-18 months.

Moody's report, entitled "Banking System Outlook -- Switzerland: Outlook Stable as Economic Pickup Offsets Impact of Low Rates, Rising Property Prices" is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.

"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," says Michael Rohr, a Senior Credit Officer at Moody's.



Stable operating conditions in Switzerland will support the country's banks over the outlook horizon; as noted in June 2016, Moody's expects Swiss GDP to grow 1.4% in 2016 and around 1.8% in 2017, up from 0.8% in 2015. In addition, unemployment will likely remain low, according to the rating agency.

However, the main challenges for Swiss banks over the next 12-18 months result from persistently very low, and even negative, interest rates -- the Swiss National Bank's base rate is -0.75 -- as well as sustained, albeit slowing, property-price inflation.

The low interest rate environment means that Swiss banks' profitability pressures will likely intensify over the outlook horizon, despite maintaining a moderate level among European peers; Moody's estimates a net income to tangible assets ratio of 0.4%-0.5% over the next 12-18 months.

"Although profitability levels for Swiss banks have remained largely resilient over the last 12-18 months, the positive effects of lower funding costs, higher asset margins and effective hedging options that safeguarded earnings in 2015 are likely to recede in 2016 and potentially beyond," explains Mr. Rohr.

In addition, the Swiss franc's role as a safe-haven investment poses risk of currency appreciation that could negatively affect the banks' profitability, asset quality and/or asset and wealth management operations. Further, the final implementation of a referendum that is likely to curb immigration into Switzerland may weaken the country's economic strength and have repercussions for Swiss banks' credit profiles. 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.

Moody's further expects Swiss banks to be able to maintain their above-average capital ratios and continue to benefit from benign funding and liquidity conditions, supported by Switzerland's role as a safe-haven for investment.

Finally, Moody's expectations of Swiss government support for banks in case of need are expected to remain unchanged during the outlook horizon. This assessment incorporates the Swiss operational bank resolution framework for resolving failing banks, which allows Swiss authorities to use their resolution powers in case of need, providing for burden-sharing with senior creditors if a bank is in financial stress.


Moody's Investors Service
Global Credit Research - 17 Aug 2016