Scope Ratings reviews its ratings either yearly, or at least every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Monitoring reviews are unrelated to the calendar that outlines public finance rating actions.

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 on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Swiss Confederation (AAA/Stable; S-1+/Stable) on 25 August 2021. 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 safe haven status of the Swiss franc. Challenges include i) a very large banking sector in relation to GDP, posing potential contingent liability risks 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. 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.

Switzerland’s formal withdrawal from negotiations over the institutional framework agreement with the EU prolongs uncertainty as concerns Switzerland’s near-to-medium-term financial and trade relations with the EU. This could hold potential negative effects on the Swiss economic outlook over the long term, starting with risks surrounding so-called guillotine clauses linked to imminent changes in trade terms. However, Switzerland’s core institutional, fiscal and economic credit strengths, as well as the long-standing safe haven status of the Swiss franc underpin the AAA-rating.

The Stable Outlook reflects Scope’s assessment that the challenges Switzerland faces remain manageable in view of the country’s outstanding credit strengths. The ratings/Outlooks could be downgraded if, individually or collectively: i) financial stability risks materialise with significant negative implications for the economic growth and public finance outlook, for example, via a sharp correction in the housing market or large and persistent losses weakening banks’ balance sheets, and/or, ii) there is an unforeseen deterioration in policy predictability and/or a significant deterioration in relations with the EU and trade disruptions, with significant and lasting economic repercussions.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Ratings Rating Methodology, 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 Julian Zimmermann, Analyst

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