The coronavirus crisis is hobbling banks, with Switzerland's financial regulator warning that credit defaults are the next shoe to drop.

Finma added defaults and losses on loans abroad as a key risk for banks and insurers, in an annual risk monitor disclosed on Wednesday. The emergence of credit defaults among seven principal risks comes eight months into the global coronavirus pandemic which sent policymakers and regulators scrambling.

«Potential defaults or corrections on the market for corporate credits and bonds are of concern to banks and insurers in equal measure,» Finma said in the report. Specifically, corporate loans abroad will default more often, and UBS and Credit Suisse will take hits on areas like leveraged finance and commodities trading, the Bern-based regulator said.

Against European Backdrop

The Swiss risk index comes against amid a growing chorus in wider Europe to brace for loan losses. The European Central Bank wants a type of bloc-wide «bad bank,» which the chief of Europe's resolution board argues goes too far.

Finma's other key risks on the rise include ultra-low or negative interest rates, cyber security threats, and a housing bubble. The regulator deemed the risk of money laundering in Switzerland as unchanged, as well as the risk of not winning access to markets in Europe.  The only risk to diminish is the discontinuation of Libor next year, a key concern of Finma's in previous years.