Thursday June 18, 10:05 AM
Big Swiss banks still at risk: central bank
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GENEVA (AFP) - Switzerland's central bank on Thursday warned the country's biggest banks were still heavily exposed to the financial slump after overall Swiss banking profits dropped by 40 percent in 2008.
The stability of the whole Swiss banking sector would also be threatened if the economic recession turns out to be deeper and longer lasting than expected, the Swiss National Bank said in its 2009 Financial Stability Report.
Without naming UBS (Virt-X: UBSN.VX - news) and Credit Suisse, it called on the big banks to improve their resilience, by bolstering their capital base again, making further cuts in their risk positions and adapting their costs.
The SNB said that despite the measures taken last year to cut their risky investments and the overall size of their portfolios "the big banks' overall risk exposure continues to be material."
"In addition to the still sizeable market risks, they face a marked increase in credit risks as a result of the economic downturn," the central bank added.
"Their overall risk exposure appears material not only in absolute terms, but also relative to their ability to absorb future losses."
Although it predicted a stabilisation of financial markets and a gradual economic recovery in 2010, the Swiss central bank said it still expected a "sharp deterioration" in credit quality in the short and medium term.
Further price corrections should also be expected in some European property markets, and the two features combined would make "substantial loan losses" and lower bank earnings likely, as well as undermine capital.
The central bank underlined throughout the report that Switzerland's smaller retail and regional banks were in better shape and more resilient to the downturn.
"The situation of the big banks appears to be more difficult," the SNB cautioned.
A worse than expected recession and renewed turmoil on financial markets "would constitute a considerable threat to the stability of the Swiss banking sector," it added.
Switzerland's 327 banks saw their profits drop by 8.4 billion Swiss francs (5.6 billion euros, 7.8 billion dollars) last year, according to the SNB's annual banking statistics.
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