Interest rate risks and mortgage growth 2014

In the low interest rate environment, monitoring and managing interest rate risks remains extremely important. FINMA therefore carried out on-site supervisory reviews at various commercial banks in 2014 to gain in-depth insight into their risk management. The topic is also consistently addressed in regular discussions with bank representatives. If any issues of importance from a supervisory perspective are identified, the institutions concerned are ordered to make either organisational changes or strengthen their capital base as appropriate.

The mortgage market is currently dogged by uncertainty. The low interest rate environment that is principally driving the real estate market remains in place. However, FINMA noted a modest slowdown in mortgage growth in 2014. This is partly attributable to political factors such as the attitude towards immigration and to the implementation of regulatory measures. The Federal Council approved a further increase in the countercyclical capital buffer for residential property from 1% to 2% with effect from the end of June 2014. Following consultations with the authorities, the Swiss Bankers Association also made adjustments to its self-regulatory regime for mortgages, which essentially involved shortening the amortisation period for second tranche mortgages, increasing the amount of the initial down payment and the eligibility of second incomes to cases of joint and several liability, and introducing the lower of cost or market value for real estate evaluations.

FINMA conducted on-site supervisory reviews in 2014 focusing on investment properties, which revealed major differences in the valuations applied by banks. It also carried out mortgage stress tests of banks to highlight the potential losses in the event of a real estate crisis. These raised banks’ awareness of the issue and required them to incorporate specific adverse scenarios for the property market in their risk management processes.

(From the Annual Report 2014)