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Fitch Affirms Switzerland at 'AAA'; Outlook Stable
June 18, 2013 / 4:28 PM / 4 years ago

Fitch Affirms Switzerland at 'AAA'; Outlook Stable

(The following statement was released by the rating agency) LONDON, June 18 (Fitch) Fitch Ratings has affirmed Switzerland's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'AAA' with a Stable Outlook. Fitch has simultaneously affirmed the Short-term foreign currency IDR at 'F1+' and the Country Ceiling for Switzerland at 'AAA'. KEY RATING DRIVERS The affirmation of Switzerland's 'AAA' sovereign ratings with Stable Outlook reflects the following key rating factors: - The country has an advanced, diversified and wealthy economy, which is supported by a track record of low and stable inflation and macroeconomic stability despite the sluggish global recovery and eurozone crisis. - Public finances are significantly better than the 'AAA' median indicators with the EU-definition of gross general government debt at 35.3% of GDP, and net debt at 24.4% of GDP at end-2012. Central government debt has fallen to 18.9% of GDP at end-2012, from 27.5% in 2003, underpinned by the Swiss federal debt brake. The general government balance has been recording consistent surpluses since 2006, and was 0.6% of GDP in 2012. - Switzerland's strong external finances. The Swiss economy is a large net external creditor to the tune of 128% of GDP in 2012. The current account has also sustained a surplus for over two decades, with a five-year average of 7.9% of GDP, reflecting Switzerland's strong export-oriented economy and net international asset position. - Switzerland has strong institutions and governance which contribute to a stable political and economic environment. The authorities have been swift and decisive in responding to the 2009 recession. - The economy also benefits from a mid-level reserve currency status which enhances financing flexibility and has contributed to record low government borrowing costs. RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that the downside risks to the 'AAA' rating are currently not material. Nonetheless, the following risk factors individually, or collectively, may result in a negative rating action: - A material negative shock emanating from the banking sector, for example related to overheating in the Swiss residential mortgages and real estate markets, a greater than anticipated impact from international pressure to change Swiss banking secrecy laws or losses on trading and international lending portfolios. - An extreme intensification of the eurozone crisis would affect Switzerland's financial sector, economic performance and potentially place pressure on public finances in view of the extensive trade and financial linkages to the rest of the world including the eurozone. KEY ASSUMPTIONS The ratings and Outlooks are sensitive to a number of assumptions. - Overall, Fitch believes the Swiss banking system is relatively strong, consistent with its Bank System Indicator and average Viability Rating of 'a'. The large Swiss banks have undergone significant deleveraging, undertaken major cost-cutting and progressed towards higher capital requirements under Basel III and additional domestic regulatory requirements for banks. Swiss legislation also addresses the resolution of banks considered 'too big to fail'. Nevertheless, the system remains large at 4.9x Swiss GDP, representing a significant albeit declining contingent liabilities on the public finances. - Fitch assumes that the impact of strong international pressure to combat tax fraud and evasion on the Swiss banking model will be manageable, as it is a longstanding trend and banks will be able to continue to compete on the basis of the country's stability and high quality services. Nonetheless, there are considerable uncertainties regarding the outcome and impact of legislation currently debated in the Swiss parliament, the size of fines payable to the US and other regulators, any reputational damage, the impact on profitability and the potential effect on non-resident assets under management. - The Swiss residential real estate sector has been showing signs of overheating in recent years, though Fitch's macro prudential indicator is currently only indicating a low level of risk of a systemic financial crisis related to credit growth and asset prices. Accelerating growth of mortgage lending and persistent increase in house prices without signs of cooling off could develop into a real-estate bubble which could result in asset quality problems for the large Swiss banking system. - Significant reforms are needed over the medium term to mitigate the impact of an ageing population on Swiss public finances and ensure their long-term sustainability. Several reforms have been proposed in parliament but their passage through legislation is uncertain. Failure to address the adverse impact of ageing on the public finances could lead to negative rating action, though this would be unlikely until the long-term. Contact: Primary Analyst Eugene Chiam Research Analyst +44 20 3530 1512 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Michele Napolitano Director +44 20 3530 1536 Committee Chairperson Ed Parker Managing Director +44 20 3530 1176 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, Sovereign Rating Criteria', dated 13 August 2012 and 'Country Ceilings' dated 13 August 2012 are available at www.fitchratings.com. Applicable Criteria and Related Research: Sovereign Rating Methodology here Country Ceilings here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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