Reuters logo
Fitch Affirms Switzerland at 'AAA'; Outlook Stable
September 29, 2017 / 8:14 PM / 2 months ago

Fitch Affirms Switzerland at 'AAA'; Outlook Stable

(The following statement was released by the rating agency) LONDON, September 29 (Fitch) Fitch Ratings has affirmed Switzerland's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'AAA' with a Stable Outlook. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS Switzerland's 'AAA' rating reflects its track record of prudent economic and fiscal policies, a diversified and wealthy economy, and high levels of human development. Switzerland surpasses its 'AAA' peers on most key indicators. GDP per capita is 1.5x the 'AAA' median. Fitch has revised down its growth forecast for the Swiss economy for 2017 to 0.8% from 1.3% in June, following the disappointing real output growth for the first two quarters of the year. We expect the economy to gain momentum in 2018 and 2019, growing by 1.6% and 1.7% respectively. A positive labour market outlook and subdued price growth will support household purchasing power while recovering external demand will foster investment in export-oriented industries. Inflation is set to rise to 0.4% in 2017 and 2018 before reaching 1.1% in 2019. We believe subdued inflation will lead the Swiss National Bank (SNB) to maintain an expansionary monetary policy while any rate hikes will closely follow those of the European Central Bank. On 14 September, the SNB maintained its interest rate on sight deposits at -0.75% in light of low expected price growth and still "highly valued" currency. We expect the SNB will intervene on the FX market if capital inflows resume sharply on the backdrop of any resurgence of geopolitical risks. Normalisation of political risk after the French election in May has lifted pressure on the exchange rate, with the CHF depreciating by 6% against the euro over the past three months. We forecast the general government debt ratio to increase slightly to 29.8% of GDP in 2017 before decreasing to 29.1% in 2018. Public finances are underpinned by strong fiscal rules, including a binding debt brake rule, which has led to a near-balanced fiscal position in recent years. Fitch forecasts the government to post a small yearly surplus of 0.3% of GDP over 2017-2019. The Pensions 2020 reform package, which entailed an increase in VAT to fund rising age-related public spending, was approved by the parliament in May 2017 but rejected in a referendum in September. We expect Switzerland to post an average current account surplus of 10.6% of GDP over 2017-2019, supported by strong performances of the pharmaceutical industry and luxury consumer goods and recovery of the manufacturing and service sectors on the back of a depreciating currency. The net external creditor position of 149% of GDP at end-2016 is well in excess of the 'AAA' median of 7.5% of GDP and is underpinned by a history of current account surpluses and the Swiss franc's status as a global reserve currency. We believe Switzerland will maintain a strong relationship with the EU. A new corporate tax reform addresses EU concerns over unfair tax competition applied by local governments to multinational companies. The reform should allow the country to comply with the mutual understanding signed in 2014 with the EU on business taxation and align Swiss corporate taxation with OECD standards. Following the rejection of the corporate tax reform (CTR III) in a referendum in February 2017, the Swiss government swiftly launched a new reform plan, the Tax Proposal 17, and initiated a public consultation in September. The consultation will run until December 2017 and the proposal will be submitted to parliament in spring 2018. The proposal provides for additional financing measures to compensate for the cantons' revenue shortfall implied by the decrease of the tax rate. The banking sector remains large and concentrated, with the sector total assets accounting for 486% of GDP at-end 1H17. The two systematically-important global banks, UBS and Credit Suisse, account for half of the total sector's assets. They have both also improved their loss-absorbing capacity and leverage following the implementation of the Swiss "Too-big-to-fail" regulation (TBTF2), reducing the potential contingent liability to the sovereign. They remain exposed to a potential downward swing in the real estate market, but are less reliant on the Swiss mortgage market for their earnings than the domestically-focused banks. Domestically focused banks, with Raiffeisen, Zuercher Kantonalbank and Postfinance being systematically important, further increased their exposure to the real estate market in 2016, with mortgage growth rising by 4.1%, compared with 2.7% for the market as a whole. Pressure on profitability stemming from the low rate environment has led to higher risk taking and exposure to interest rate risk. The share of new loans with loan-to-value ratios of 75% or more remains elevated and a rate rise would push up mortgage costs quickly given the short repricing maturities typical in the Swiss market, although we do not expect any rapid increase in rates. SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Switzerland a score equivalent to a rating of AAA on the Long-Term FC IDR scale. Fitch's sovereign rating committee did not adjust the output from the SRM to arrive at the final LT FC IDR. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM. RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that the downside risks to the 'AAA' rating are currently not material. Nonetheless, negative rating action could result from a material shock to the financial sector, for example due to a sharp correction in the Swiss residential real estate market, or large losses on trading and international lending portfolios. KEY ASSUMPTIONS We assume Switzerland will not breach the Free Movement of Persons Agreement with the EU. The adoption, in December 2016, by the Swiss parliament of a law giving Swiss citizens priority access to new job offers enabled a soft implementation of the constitutional amendments "against mass immigration". However, a new popular vote is likely to be held on the bilateral treaty with the EU on free movement of people, following the initiative of the Swiss People Party. The vote is unlikely to take place before 2019 and we do not expect it will strain the relationship with the EU. Lengthening life expectancy and extremely low interest rates weigh on the sustainability of the Swiss pension system and public finances over the longer term. We assume that the reforms necessary to ensure sustainability will be passed before demographic pressures significantly erode the fiscal position. The full list of rating actions is as follows: Long-Term Foreign-Currency IDR affirmed at 'AAA'; Outlook Stable Long-Term Local-Currency IDR affirmed at 'AAA'; Outlook Stable Short-Term Foreign-Currency IDR affirmed at 'F1+' Short-Term Local-Currency IDR affirmed at 'F1+' Country Ceiling affirmed at 'AAA' Issue ratings on long-term senior-unsecured local-currency bonds affirmed at 'AAA' Issue ratings on short-term senior-unsecured local-currency bonds affirmed at 'F1+' Contact: Primary Analyst Marina Stefani Associate Director +44 20 3530 1809 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Gergely Kiss Director +44 20 3530 1425 Committee Chairperson Charles Seville Senior Director +1 212 908 0277 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 Country Ceilings Criteria (pub. 21 Jul 2017) here Sovereign Rating Criteria (pub. 21 Jul 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy 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 WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below