UPDATE 2-Switzerland adds Raiffeisen to too-big-to-fail list

Wed Aug 13, 2014 8:25am EDT

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(Adds detail, CEO and professor comment)

ZURICH Aug 13 (Reuters) - The Swiss National Bank is adding cooperative lender Raiffeisen to a list of banks that come under closer supervision because of their importance to the wider financial system, the SNB said on Wednesday.

Nearly six years after the financial crisis, regulators in Switzerland are singling out banks - which account for roughly 6 percent of the country's economy - as firms whose stability is essential for the well-being of Switzerland's financial system.

Those banks, which include Swiss giants UBS and Credit Suisse as well as Zuercher Kantonalbank (ZKB), are required by the Swiss central bank to meet tougher regulatory requirements as a result. The stiffer rules include maintaining a bigger capital cushion and establishing an emergency plan to protect themselves against market shocks.

Raiffeisen has a dense network of 305 independently run branches in a national cooperative and a balance sheet of 183 billion Swiss francs (201.39 billion US dollar), but it is probably the cooperative bank's mortgage book which is of most concern to the Swiss central bank.

"Raiffeisen's strong market position in domestic deposits and loans was decisive in its decision," Raiffeisen said in a statement.

The bank will now consult with Swiss bank regulator FINMA about the next steps, including establishing fresh capital targets.

FINMA published provisional rules in May that would require UBS to hold total capital worth 19.2 percent of its risk-weighted assets by 2019. Credit Suisse would have to meet a 16.7 percent ratio.

As of June, Raiffeisen had reached a 15 percent ratio, just above the current FINMA target of 14.8 percent. The bank is targeting a ratio of around 15.6 percent by 2016.

Raiffeisen Chief Executive Pierin Vincenz said the bank could generate additional capital through retained profits or by tapping the debt market.

"The capital market is also available to us to raise capital," Vincenz told reports on a media call. "I do not expect that this will impair our basic strategy."

MORTGAGE MARKET

Raiffeisen is a major player in Switzerland's nearly 870 billion-franc mortgage market, holding a 16.5 percent stake worth 143.3 billion francs in 2013, according to SNB statistics. ZKB's 2013 figures, by comparison, show it held just under 70 billion francs worth or mortgages.

Ratings agency Moody's last year downgraded Raiffeisen's long-term debt rating, warning that its rising share of mortgage lending makes the cooperative bank susceptible to shocks if Switzerland's housing market falters.

Mortgage lenders, the government and the central bank have come up with a variety of measures to combat rising property prices fuelled by ultra-low interest rates, immigration and Switzerland's appeal as a safe haven for financial investors.

Those include temporarily demanding more capital against mortgage lending plans, to no longer allow pension funds as down payments for property and stiffer standards for mortgage loans.

At its June meeting, the SNB said there was no evidence of any sustainable easing in the mortgage and real estate markets although the pace of mortgage lending growth had slowed slightly.

A quarterly study by UBS last week suggested steps to cool off Switzerland's housing market are taking effect.

Overheated housing markets are also a worry in Britain and in Germany. The Bank of England in June imposed its first limits on how much most people can borrow to buy a home. Germany's finance minister has warned low interest rates were already spawning "dangerous" rises in domestic property prices.

Professor Arturo Bris at IMD business school said the actions taken by Switzerland's central bank - which include raising the level of capital banks must hold against their mortgage book to 2 percent - were the proper course of action.

"The SNB is in my opinion one of the very few that have taken a tough stance on mortgage lending and bank credit," Bris said. "The use of the counter-cyclical capital buffer in Switzerland ... guarantees that the central bank is vigilant regarding the real estate market and excess lending." (1 US dollar = 0.9087 Swiss franc) (Reporting by Alice Baghdjian, Katharina Bart and Joshua Franklin; Editing by Shri Navaratnam)

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