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Swiss Credit Market 2019: Swiss cantons still solid as a rock
After the publication of the Swiss Credit Handbook in September this year, Credit Suisse is now following up with the Swiss Cantons Handbook 2019. The handbook examines the credit worthiness of 26 cantons and 6 cities and assigns credit ratings to all of them. Solid cantonal finances, a stable macroeconomic environment and the national financial equalization system contributed to the stable state of the rating landscape.
Overall, the cantons have again had another year of solid cantonal finances in a stable macroeconomic environment, leading to an unchanged rating landscape compared to last year. However, there are still differences in credit quality, reflected in a relatively wide range of individual ratings. At the top of the rating scale, we still have the cantons of Zurich, Zug, Vaud, Nidwalden and Schwyz with an AAA rating. While the cantons of Zug, Schwyz, Nidwalden and Zurich shine with high scores in locational quality and resource strength, the Canton of Vaud earned a spot in the top bucket based on a very strong financial score. At the bottom of the landscape, but still with a very decent rating of High A, we find the cantons of Jura, Ticino and Neuchatel. The rating of the Canton of Jura is mainly a result of the lowest readings of both the resource and locational quality index, while the weak financial score drives the rating of the Canton of Neuchatel. The rating of the Canton of Ticino is attributable to a combination of weak locational quality and a weak financial score.
Good credit quality supports stable outlook
While cantonal finances remain solid, the financial profiles of some cantons are weaker than others facing challenges such as higher indebtedness for example. At this stage, the Credit Research analysts of Credit Suisse do not foresee major disruptions that could weaken the overall credit quality of Swiss cantons. Following the approval of the Tax Reform and AHV Financing Bill in May 2019, inter-cantonal tax competition is likely to intensify, leading to potential changes in the rankings of locational quality and the resource strength between cantons. Based on the still rock-solid cantonal credit quality, beneficial refinancing conditions and high cost discipline, the Credit Research analysts of Credit Suisse retain their favorable view on the sector with a stable outlook.
About the Swiss Cantons Handbook 2019
The Credit Suisse Swiss Cantons Handbook provides a detailed assessment of the credit quality of all Swiss cantons and six Swiss cities as well as a rating outlook. Research analysts in Credit Suisse apply their extensive research capabilities to evaluate each canton's locational quality, their resource strength (i.e. potential to generate future tax revenues), the financial profile for each canton, and the financial state of the cantonal banks. Based on the canton’s score for each of these factors, the research analyst assigns a credit rating to each canton, which is used in the composition of benchmark bond indices in Switzerland, amongst other things. Swiss Institutional Credit Research ratings are of long-term nature and look beyond short-term swings.
The Swiss Cantons Handbook is available upon request.