Committee highlights impact of high interest rates on the financial sector – Liechtenstein
VADUZ – The Committee for Financial Stability (AFMS) has expanded the current risk situation and discussed the relevant financial stability risks – both domestically and internationally – in connection with the increasing geopolitical risks, high inflation and rising interest rates.
“Persistent inflationary pressures require a stronger monetary policy response than initially expected from the UK,” it said in a statement on Tuesday. Market developments in recent weeks have been determined by rising interest rates, higher risk premiums and significant corrections on the global stock markets. While higher interest rates could in principle also have a positive effect on the profitability of the banking sector via the interest margin, the current developments are also associated with an increase in credit risks, including in the mortgage sector, and with a decline in assets.
“Due to the high level of capitalization and good liquidity, the Liechtenstein banking sector is basically well prepared for the coming ones,” the Ministry for Presidential Affairs and Finance announced on Tuesday. Would nevertheless continue to monitor developments closely in order to be able to propose measures if deemed necessary.
No activation of the countercyclical capital buffer
Despite the great uncertainty about economic development in connection with the war of aggression against Ukraine, high inflation and higher interest rates, the AFMS currently does not recommend activating the countercyclical capital buffer. The leverage ratio of the non-financial sector is currently not above the costly trend, which is why the credit gap does not signal excessive credit growth. In addition to the credit gap, the AFMS also takes into account a number of other published indicators. As these indicators do not currently point to rising imbalances, the AFMS proposes leaving the countercyclical capital buffer at a rate of 0 per cent of the total risk amount.
AFMS recommends maintaining the A-SII capital buffer
As part of the announcement of other systemically important institutions (O-SII) in Liechtenstein, the FMA has included three institutions as systemically important on the basis of the guideline of the European Banking Authority. The AFMS recommendation provides for maintaining the O-SII buffer for the identified O-SIIs at 2 percent of the total risk amount on a group and individual basis.
