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Investing.com -- The Swiss National Bank Financial Stability Report 2025 notes a deterioration in economic and financial conditions for Switzerland’s financial sector since June 2024, mainly driven by international trade tensions and geopolitical uncertainty.
Global economic growth was moderate over the past year, with solid growth in the U.S. and China, and slower growth in the euro area and Switzerland.
Inflation remains above central bank targets in many advanced economies, while long-term interest rates are high globally. In contrast, Switzerland’s inflation and long-term rates have returned to low levels.
Volatility in foreign exchange, stock, and bond markets surged in spring 2025 due to trade tensions, leading to sharp global stock declines before partial recovery.
Corporate credit risk premiums and default rates, including in Switzerland, rose to near historical averages. Residential real estate prices globally increased, while commercial real estate stabilized. Switzerland saw accelerating residential property price growth.
Swiss credit volumes continued to expand as falling interest rates renewed momentum, despite sectoral adjustments following UBS’s 2023 acquisition of Credit Suisse and Basel III Final rules implemented in 2025.
However, global public debt remains near historical peaks, and valuations in global real estate, corporate bonds, and U.S. equities appear stretched.
The SNB warns that Switzerland’s low interest rates may fuel further risk-taking in the mortgage and real estate sectors, increasing vulnerabilities.
Swiss banking sector profitability improved in 2024, largely due to UBS, while capital ratios remained stable.
Banks maintain significant capital and liquidity buffers, but profitability, risk exposure, and resilience vary across institutions.
Domestically focused banks experienced profit declines driven by narrower interest margins and higher operating costs.
Despite this, their capital ratios remain well above requirements. SNB stress tests show they could withstand adverse scenarios but remain vulnerable to sharp interest rate hikes combined with real estate corrections. The sectoral countercyclical capital buffer (CCyB) is set at its legal maximum.
Among systemically important banks (SIBs), PostFinance, Raiffeisen Group, and Zürcher Kantonalbank (ZKB) all saw profitability fall due to lower net interest income; PostFinance additionally reported higher credit loss expenses.
Raiffeisen and ZKB maintain capital well above regulatory minimums; PostFinance’s leverage ratio is only slightly above.
UBS’s profitability, excluding negative goodwill, rose in 2024, driven by higher divisional revenues, despite integration costs from acquiring Credit Suisse. UBS already meets its fully applied 2030 "too big to fail" capital requirements.
However, regulatory weaknesses remain; parent banks only partially back foreign subsidiaries with capital.
The Federal Council proposes requiring full CET1 capital deductions for foreign participations, raising UBS’s CET1 requirement by USD 23 billion, plus USD 3 billion from other measures.
Liquidity vulnerabilities are also addressed. The 2022–2023 crises demonstrated rapid liquidity outflows, prompting proposals for stronger liquidity buffers, improved contingency plans, collateral requirements, and a public liquidity backstop (PLB) in Switzerland.
The report flags the growing significance of non-bank financial intermediaries (NBFIs), which include investment funds, pension funds, insurance companies, and others. Representing 110% of Swiss GDP, their growth has outpaced banks.
While most Swiss NBFIs pose limited systemic risk, about 20% carry bank-like vulnerabilities.
UBS accounts for 67% of claims and 60% of liabilities involving NBFIs. The SNB calls for enhanced data collection to better assess NBFI risks and their interconnectedness with banks.