SNB says more losses possible at big Swiss banks

The Swiss National Bank said it cannot rule out further losses at Switzerland's big banks due to tough market conditions, even after measures to stabilise the financial system.

The comments by SNB board member Philipp Hildebrand came as the central bank cut interest rates by half a percentage point, its fourth cut in two months, as it warned a sharply worsening global climate would tip Switzerland, a main financial centre, into recession next year.

"The numerous international measures aimed at stabilising the financial system have ... had a positive effect on the Swiss big banks. Nevertheless, further losses cannot be ruled out in view of the difficult market conditions," Mr Hildebrand said.

"The situation remains serious, and the SNB will continue to monitor it closely together with the Swiss Federal Banking Commission and the Federal Department of Finance."

Banking makes up more than 10 per cent of Switzerland's gross domestic product and the country's largest banks, Credit Suisse and UBS, hold liabilities that together are several times the country's output.

Mr Hildebrand said the deteriorating economic environment would "considerably" increase credit risks at banks and provisions for such risks would likely hit bank profits.

"Bank provisions for credit risks are currently at a historically low level and they will need to be substantially increased. This will have a negative impact on their profitability," Mr Hildebrand said.

"In the case of the big banks, the situation also involves considerable risks for trading portfolios."

He said state-backed measures announced in October to shore up UBS have helped stabilise its liquidity situation after the bank was forced to make about $49 billion in writedowns, more than any other bank in Europe.

The SNB said a recent announcement that Credit Suisse had losses of €1.8 billion in October and November showed the bank was right to reinforce its capital base, when it raised 10 billion francs in October.

Mr Hildebrand also said that the SNB would, together with the country's bank regulator, draft new liquidity rules for the big Swiss banks which would come on top of recently-announced new capital adequacy rules.

The rules are aimed at strengthening the banks in the face of economic and financial shocks.

UBS and Credit Suisse have until 2013 to implement the new rules on bank regulatory capital, which also include the introduction of a leverage ratio, but this date can be extended if the crisis deepens.

"In the short-term, priority will clearly be devoted to managing the crisis," Mr Hildebrand said.