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Home sweet home

Geneva, Switzerland (GenevaLunch) – Home loans, which account for 90 percent of bank credits in Switzerland, have grown by 5.2 percent in the first nine months of 2009, with the rate of increase up most strongly since March. And while the rate of growth of corporate loans is down, they, too, continue to grow.

“There is no credit crunch,” Manuel Jetzer, Geneva region head of Credit Suisse declared at the annual press conference of the Geneva Financial Centre 14 October. “There is no credit contraction in Switzerland.”

Much of the thanks for this goes to the home loan business, which is benefiting from historically low interest rates, with some banks offering new loans for as low as 1.65 percent*.

At UBS and Credit Suisse, the country’s two large banks, which have 35 percent of the mortgage business, fixed rate home loans start at 1.95 and 2.05 percent respectively, for one year contracts. The other 65 percent of loans are made by cantonal and regional cooperative banks, which are traditionally very competitive on the home loan market. Insurance companies and pension funds also handle mortgages, but they have a very small market share.

The mortgage market has reached CHF1 billion, a record level, Jetzer says. The Swiss National Bank shows a 2004 figure of just under CHF600,000 in mortgages. Ninety percent of loans to households are mortgages in Switzerland, a far higher percentage than that in the US and the UK, where consumer credit remains high, the Economist Intelligence Unit reported in July 2009 in an article about households defaulting on loans. The Swiss traditionally are conservative in their use of credit cards and borrow less readily than their neighbours for high cost goods like cars.

“Mortgages are a stabilizing factor in our economy,” says Jetzer.

Corporate loans are still growing in all areas, including credit for small and medium-sized businesses, but the rate of growth slowed significantly, starting in 2009. The pace has picked up again since March 2009, albeit slowly, a situation Jetzer calls “normal, in this kind of economic situation.”

*current rate, based on money markets, as part of flexible rate package, Credit Suisse