Switzerland's regulator appears poised to tighten the reins on mortgage lenders following a series of stress tests. Banks are arguing to take care of property risks on their own.
Last year, Swiss financial regulator Finma «stress tested» roughly 20 major mortgage lenders, as finews.com reported in December. The results, expected early this year, won't be made public, but seem to be alarming enough to move the regulator to action.
«The authorities have expressed a need for action in the residential investment property segment», Switzerland's banking lobby said in a statement on Wednesday. The regulator is moving because of stress tests, but also property market observations and analyses as well as supervisory activities, the lobby said.
Capital Cushion
The banking group hopes to pre-empt any regulatory action crimping lending for so-called yield-producing properties. The segment has grown by leaps and bounds, fostered by ultra-low Swiss interest rates favoring lending.
The lobby said it may introduce tighter self-regulation for lending practices if a working group of bankers comes to the same conclusion as the regulator about tightening lending. The last time bankers tightened the screws on their own practices was 2014.
Prices Rise, Returns Fall
Mortgage lenders are however also required to adhere to a central bank-mandated capital buffer to protect against property overheating risks. The brinkmanship between regulator and industry is somewhat artificial: Bern would likely be satisfied with effective self-regulation in lieu of supervisory measures.
Finma as well as the Swiss National Bank have been warning for months about rising risks from the Swiss property market. With yield properties in particular, prices have risen while returns are falling, alarming officials.
The worst-case scenario is for interest rates in Switzerland, at record lows since the financial crisis of 2008/09, to begin normalizing. This would imperil borrowers accustomed to low rates, and in turn the banks, which have lent heavily in order to offload their cash.
