Scope Ratings reviews its ratings either yearly, or at least every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Scope performs monitoring reviews to determine whether outstanding ratings remain proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology/ies, latest developments, and the rated entity’s financial and operational aspects relative to similarly-rated peers; or through targeted reviews of an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Switzerland (AAA/Stable; S-1+/Stable) on 10 March 2021, incorporating the update from the sovereign methodology. The review resulted in no action on the assigned ratings. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

Switzerland’s AAA ratings are underpinned by i) its wealthy and well-diversified economy, highly skilled labour force and institutional strengths, including a stable, consensus-oriented and effective policy framework, which, in aggregate, underpin a high degree of economic resilience; ii) prudent fiscal management and authorities’ strong commitments to longer-term debt sustainability, underpinned by stringent and constitutionally-anchored budgetary rules as well as favourable financing conditions; and iii) a significant net external asset position, highly competitive exporting industries and the global reserve currency status of the Swiss franc. Challenges include i) a very large banking sector in relation to GDP, posing contingent liability risk to public finances; and ii) a gradual build-up of imbalances in the real estate market, supported by the low interest-rate environment, reflecting a continued increase in residential property prices and imbalances between regional price and income developments. These risks are mitigated by the Swiss banking sector’s strong credit fundamentals, significant household wealth as well as the Swiss Financial Market Supervisory Authority’s prudent supervisory framework.

Despite prolonged uncertainty around Switzerland’s relationship with the EU, reflecting limited progress in resolving disputed areas under a new framework agreement, Scope expects the constructive relationship to be maintained between the EU and Switzerland longer term. Swiss voters’ rejection of the initiative to end the free movement of persons with the EU in September 2020 reasserts the importance of this relationship.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 9 October 2020) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Levon Kameryan, Analyst

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