Swiss Raise Bank-Capital Buffer to Cool Property Market

Swiss Raise Bank-Capital Buffer to Cool Property Market

Switzerland is raising the amount of capital banks must hold as a buffer to guard against mortgage writedowns as the country finds itself in the throes of its biggest property boom in two decades.

The government in Bern has agreed to the Swiss National Bank’s request to raise the buffer, to 2 percent from 1 percent of risk-weighted positions secured by residential real estate, according to a statement today. The deadline for banks to comply is June 30.

The SNB’s policy of zero interest rates has kept mortgages cheap, causing residential property prices to climb to a level last reached in 1989, shortly before a slump in values that hurt Switzerland’s economy for years. The government introduced the initial buffer in February and can boost it to as much as 2.5 percent.

“There was a further increase in imbalances on the mortgage and real estate markets,” the SNB said in a separate statement. “In an environment of persistently low interest rates, coupled with banks’ continued appetite for risk, the danger that imbalances will build up even more unless additional countermeasures are taken is considerable.”

No Restrictions

The increase of the buffer aims at making mortgage-lending less attractive, SNB President Thomas Jordan told Swiss public broadcaster SRF in Davos today.

The buffer will most affect Raiffeisen Schweiz and cantonal and regional lenders, according to Andreas Venditti, an analyst at Vontobel in Zurich. He sees “no major impact” on UBS AG and Credit Suisse Group AG, he said in a note to customers.

Raiffeisen “already fulfills these new requirements,” Franz Wuerth, a spokesman for the St. Gallen-based bank, said by telephone. Raiffeisen has granted 140 billion francs ($155 billion) in mortgages and about 75 percent are with private customers, he said. “Mortgages are still our core business and we will continue to seek growth there,” Wuerth said

Zuercher Kantonalbank, the country’s largest state-owned regional bank, also won’t restrict its “already cautious” mortgage policy, according to a statement from the Zurich-based company. The buffer will increase ZKB’s capital requirements by about 0.4 percent, or 250 million francs, it said. The bank had 69 billion francs in mortgage liabilities at the end of June.

Housing Costs

The Swiss Bankers Association said it’s disappointed by today’s decision to increase the buffer.

“The SBA remains convinced that this is not an effective means of controlling property prices: among other considerations, its impact is much too broad and it has not been tested in reality,” lobby group said in a statement.

The decision will increase mortgage interest rates and in turn housing costs, the Swiss association of house owners said in a statement. The organization said that while it understood the need for the measure, it found it regrettable.

Swiss mortgage lending has grown at a faster pace than the economy. Since 2008, mortgages outstanding to Swiss private households have increased 25 percent and apartment prices have risen 27 percent.

Today’s measure was predicted by Bloomberg’s monthly economic survey published earlier this week, in which 71 percent of economists expected the buffer to be raised, and more than half of those predicted an increase before the end of March. The median estimate was for the measure to be boosted to 2 percent.

At its most recent policy review, in December, SNB President Thomas Jordan implied further steps might be imminent. “We recognize that at the moment, the dynamic on the mortgage market hasn’t been tempered enough yet,” he said.

To contact the reporters on this story: Catherine Bosley in Davos, Switzerland at cbosley1@bloomberg.net; Carolyn Bandel in Zurich at cbandel@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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