Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Swiss Confederation (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AAA/Stable; short-term local- and foreign-currency issuer ratings: S-1+/Stable) on 16 April 2024.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, click here.

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 underpin a high degree of economic resilience; ii) strong fiscal fundamentals, driven by a strong commitment to longer-term debt sustainability and stringent and constitutionally-anchored budgetary rules, in addition to 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 highly concentrated and very large banking sector in relation to GDP, posing potential contingent liability risks to public finances, as highlighted by the Credit Suisse crisis in March 2023; ii) imbalances in the real estate market with high, albeit declining, levels of residential overvaluation, after the continued increase in residential property prices since 2020, increasing vulnerability to market corrections. These risks are mitigated by the significant wealth of Swiss households, as well as by the effective financial policy making and the Swiss Financial Market Supervisory Authority’s prudent supervisory framework. Finally, there exist some uncertainties about future Swiss-EU trade relations, although negotiations have recently resumed.

In response to the Credit Suisse crisis, the Swiss Federal Council will make the public liquidity backstop a permanent feature under ordinary law for systemically important banks (SIBs). In addition, the Federal Council has concluded an in-depth assessment of the ‘too-big-to-fail’ regulation in April 2024. In particular, the Federal Council proposed a package of 22 measures, including: i) strengthening crisis prevention for SIBs, including via higher capital requirements, and by ensuring good corporate governance as well as more accountable risk management through the introduction of a senior managers regime and bonus clawback provisions; ii) strengthening SIBs’ own liquidity holdings and expanding the potential for liquidity provision by the Swiss National Bank; and iii) expanding the crisis toolkit to enable an orderly market exit of SIBs in the event of a crisis. This includes ensuring that a bank’s recovery plan can be implemented quickly and conducting resolvability assessments for SIBs.

The Stable Outlook reflects Scope’s assessment that risks to the ratings are balanced.

The ratings/Outlooks could be downgraded if, individually or collectively: i) financial stability risks materialised with significant negative implications for the economic growth and public finance outlook; and/or ii) the economic outlook worsened materially, for example due to a significant deterioration in relations with the EU and trade disruptions.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 29 January 2024) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Julian Zimmermann, Associate Director

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