The Swiss central bank’s statement that
UBS and
Credit Suisse need to beef up their loss-absorbing capacity shows that Switzerland has one of the strictest supervisory frameworks from banks in Europe, says
Fitch Ratings.

The rating agency says the alpine state has been a pioneer in recent years in tightening regulation. This is due to the considerable relative size of UBS and Credit Suisse and the importance of financial services for the domestic economy, Fitch thinks.

Fitch now expects regulators in other countries to follow suit and close the gap on the Swiss National Bank and the country’s financial regulator in the coming years.

The SNB said on Thursday that the two Swiss banking giants should improve their "look-through" Basel III Common Equity Tier 1 ratios and decrease leverage by restricting dividends in the case of UBS or by taking "all action necessary" in the case of Credit Suisse.

Fitch believes that the statement confirms its view that Credit Suisse will have to generate enough internal capital and manage the transition to Basel III to support its current A rating. Given UBS' lower rating of A- and comparatively stronger Basel III capital position, continued improvements in Basel III capitalisation could put upward pressure on UBS' rating in the medium term.

UBS' Basel 2.5 core Tier 1 and Basel III look-through CET1 ratios stood at 16.7 per cent and 7.5 per cent respectively at end of the first quarter this year. Credit Suisse's Basel 2.5 core Tier 1 ratio was 10 per cent at the same time and the SNB estimates the bank's Basel III look-through CET1 ratio at 5.9 per cent.

On a more positive note, Fitch said that both banks' credit profiles are supported by their small direct exposure to the struggling economies in peripheral Europe as well as Switzerland's status as a safe haven.