Ratings On All Swiss Banks Affirmed

Outlook On Nine Swiss Banks To Negative On Exposure To Rising Property Prices; Ratings On All Swiss Banks
Affirmed
The outlook revisions stem from our view that the residential real estate
price increases we have observed in Switzerland over the past three years
represent a risk for those Swiss banks that have mainly domestic operations.
If this trend continues, the growing economic imbalance may lead us to a more
negative view of the economic environment in which Swiss banks operate and to
lower our ratings by one notch.
Home prices have been rising in Switzerland, albeit not as quickly as in some
European countries before the onset of the 2008 financial market crisis. We
also note several "hot spots", where real estate price increases exceed the
Swiss average, including the Zurich region, Lake Geneva, and areas of southern
Switzerland. We believe the upward momentum will continue in 2012, but likely
at a slower pace over the medium term.
We consider the risk of a sharp correction in property prices to be low in the
short term, given the robust demand for housing in Switzerland. This is in
light of immigration-led population growth relative to a limited supply of
housing units and the country's relatively sound economic outlook. We also
think the conservative risk and lending culture of many Swiss lending
institutions mitigates the risk of a property price bubble.
Nevertheless, given that domestic-oriented Swiss banks have significant
residential real estate loan exposures, the possibility of a continued
increase in house prices is likely to lead to increased risks of a correction
and higher loan losses for Swiss banks. The house price increases, although in
our view moderate, would not be compatible with our current assessment of
"very low risk" of "economic imbalances" under our Banking Industry Country
Risk Assessment (BICRA) criteria. We could therefore change our assessment to
"low risk" and, in turn, revise the anchor for Swiss banks downward by one
notch.
The effect of such a change on individual bank ratings will depend on a review
of the factors leading to our assessment of individual banks' stand-alone
credit profiles, given any change in the anchor. This could, for example,
result from a change in our assessment of capital adequacy within our
risk-adjusted capital framework. We use the BICRA economic risk score to
calibrate the risk weights used in our calculation of capital in several asset
classes. Conversely, we could assess certain banks as having better risk
positions because of comparatively more conservative underwriting standards
and the ability to build up additional loan loss provisions to withstand the
effects of a potential house price correction.
We are affirming the ratings and have not revised the outlook on five further
Swiss banks for the following reasons:
• UBS and Credit Suisse. The affirmation of our ratings on UBS AG and
Credit Suisse Group AG reflect that our anchor for these banks is already
one notch lower than that for domestic Swiss banks, reflecting their
global presence.
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