Morningstar DBRS Confirms Swiss Confederation at AAA, Stable Trend

DBRS Ratings GmbH (Morningstar DBRS) confirmed the Swiss Confederation's Long-Term Foreign and Local Currency - Issuer Ratings at AAA. At the same time, Morningstar DBRS confirmed the Short-Term Foreign and Local Currency - Issuer Ratings at R-1 (high). The trend on all ratings is Stable.

KEY CREDIT RATING CONSIDERATIONS
The confirmation of the Stable trend reflects Morningstar DBRS' view that the risks to Switzerland's credit ratings remain limited, despite a challenging external environment. In June 2025, the Swiss Federal Expert Group on Business Cycles has revised down its real GDP growth forecasts (sports events adjusted) to 1.3% for 2025 and 1.2% for 2026, versus 1.5% and 1.7% anticipated in December 2024. This downward revision reflects the Expert Group's assumption that the global economy is expected to grow at a slower pace due to international trade tensions and economic uncertainty. However, Morningstar DBRS considers that Switzerland's solid public finances and strong macroeconomic fundamentals should help mitigate those economic headwinds. Switzerland's prudent fiscal policy, underpinned by its debt brake rule and the low public debt level at 37.6% of GDP in 2024 will continue to provide ample room to support the economy against potential shocks.

Switzerland's AAA credit ratings remain underpinned by its wealthy and diversified economy, sound public finances, and solid external position. Strong institutions, predictable policies, and historical neutrality have long made Switzerland a safe haven for investors. Switzerland benefits from a highly productive workforce, high levels of educational attainment and labor force participation. These credit strengths counterbalance the challenges associated with Switzerland's high mortgage debt and the contingent liability risks posed by its large banking sector.

In December 2024, Switzerland and the European Union (EU) reached a deal on a broad package of agreements aiming to stabilize and develop their bilateral relations. The package includes new agreements on electricity, food safety, and health and participation in EU programmes. The EU is Switzerland's largest trading partner, and the deal signifies an important step in enhancing Swiss-EU relations with implications for trade, energy, research and migration policies. In June 2025, the Swiss Federal Council approved the agreements and opened the domestic consultation process which will take place until end-October 2025.

CREDIT RATING DRIVERS
Morningstar DBRS could downgrade the credit ratings if severe external shocks or a sustained deterioration in growth prospects materially affect Switzerland's financial stability and fiscal position. Moreover, a materialization of substantial contingent liabilities stemming from the financial sector could put negative pressure on the credit ratings.

CREDIT RATING RATIONALE
Swiss Economic Fundamentals Remain Very Strong Despite the Uncertain Trade Environment

Switzerland's credit ratings remain underpinned by its wealthy and diversified economy, and solid economic performance. GDP per capita is estimated at USD 104,523 in 2025, one of the highest in the world. The Swiss economy is one of most competitive globally and benefits from a highly productive workforce, characterized by a very educated labor force and elevated labor force participation (83.9% as of Q1 2025), and internationally competitive industries and companies.

Switzerland's economic activity moderated in 2024, with real GDP growth (sports events adjusted) coming in at 1.0% from 1.2% in 2023, mainly reflecting subdued foreign trade despite strong domestic demand. While the Swiss Federal Expert Group on Business Cycles anticipated real GDP growth (sports events adjusted) of 1.5% for 2025 and 1.7% for 2026 in December 2024, it has revised down its forecasts to 1.3% for 2025 and 1.2% for 2026. This downward revision reflects the assumption the global economy is expected to grow at a slower pace, due to international trade tensions and economic uncertainty, which is likely to dampen cyclically exposed sectors of the Swiss export industry.

Switzerland's Strong External Position Remains a Key Credit Strength

Switzerland's credit ratings are underpinned by its strong external position. Switzerland's current account surpluses, averaging around 6% of GDP over the last ten years reflect its role as a financial center, its high value-added exporting industries, high per-capita income levels, and high savings rate. The IMF expects the current account surplus to remain above 5% of GDP by 2027. Switzerland also benefits from a large net international investment asset position (NIIP) amounting to 119.3% of GDP in Q1 2025. This reflects the substantial accumulated net wealth of Swiss residents and official reserves. Switzerland's total reserve assets rose from USD 341 billion in 2011 to USD 1,111 billion in 2021 and stood at USD 912 billion in 2024 or close to 100% of GDP.

Prudent Fiscal Policy and Low Debt Ratio Support Switzerland's Credit Ratings

Switzerland's prudent fiscal policy, underpinned by its debt brake rule, and its low public debt ratio constitute an important credit strength. Under the debt brake rule, higher expenditures are financed by increased revenues or corresponding expenditure cuts. The debt brake, which was introduced in 2003 at the federal level mandates a balanced budget over the business cycle. In addition to the federal government, most Swiss cantons also have implemented similar regulations. The government's response to the pandemic resulted in moderate deficits of 3% of GDP in 2020 and 0.3% in 2021, before returning to surpluses of 1.2% of GDP in 2022, 0.1% in 2023 and 0.6% in 2024. The IMF expects fiscal surpluses of 0.2% on average by 2027, despite the spending pressures stemming from defense, infrastructure, and social expenditures.

Switzerland's credit ratings are also underpinned by its healthy public sector debt position with the public debt ratio remaining low relative to other AAA-rated peers. According to the IMF, the general gross debt should continue to slightly decrease in coming years, reaching 35.1% of GDP in 2027 versus 37.6% in 2024. The public debt ratio, as defined in the Maastricht Treaty, was standing at 25.5% of GDP at year-end 2024. Switzerland's prudent fiscal policy anchored by its debt brake rule has helped maintain low debt levels, supporting the country's resilience to shocks and helps the country to stand out among other highly rated sovereigns. All debt is denominated in local currency. With government bond yields decreasing since beginning 2023, interest expenditures should remain extremely low and are anticipated at 0.1% of GDP for the general government by the IMF by 2027.

Monetary Policy Easing Continues; Banking Sector Has Showed Resilience and Systematically Important Banks with Foreign Subsidiaries Could Face Stricter Capital Requirements in Coming Years

The Swiss National Bank (SNB) cut interest rates for the sixth consecutive time in June this year, bringing the policy rate to 0%, as the inflationary pressures continued to decrease in the second quarter of 2025. The year-over-year consumer price index (CPI) fell to -0.1% in May 2025. The SNB's conditional inflation forecasts are currently of 0.2% for 2025, 0.5% for 2026 and 0.7% for 2027. Those forecasts assume that the SNB policy rate is0% over the forecast horizon.

In recent years, the Swiss banking system has successfully managed to overcome key domestic challenges and has shown resilience despite macroeconomic and geopolitical headwinds with banks remaining liquid, improving profitability and with sound capitalisation. Asset quality remains very strong with the non-performing loans to total gross loans ratio standing at 0.83% in Q1 2025. The banking sector is one of the most important pillars of the Swiss economy accounting for around 5% of value added, however its size, which is nearly 420% of GDP, means that shocks to banks, especially if systemically important, can have more pronounced effects on the economy.

On December 20, 2024, the Swiss Parliamentary Investigation Committee (PinC) released its finding on the collapse of Credit Suisse attributing the crisis to years of mismanagement at the bank. The report highlights the lack of effectiveness of its banking supervision but also acknowledges the effectiveness of the Swiss authorities in facilitating the UBS takeover and safeguarding financial stability. The merger of the parent bank was completed at the end of May 2024 and that of the Swiss entity in July 2024. The full integration is scheduled to be completed by the end of 2026. The large size of the new group, results in a higher concentration in the Swiss banking system, which increased contingent liability risks for the sovereign. However, the combined entity will have to comply with higher capital requirements that reflect the change in its systemic importance. Following the review of the Credit Suisse case, the Swiss Federal Council proposed in June 2025 several measures to increase capital requirements for systemically important banks with foreign subsidiaries and to strengthen liquidity in a time of crisis while improving resolution planning through additional requirements on the recovery and resolution of systemically important banks. The consultation process for the legislative amendments will be opened in autumn 2025 and in the first half of 2026 respectively. The entry into force is expected for 2028 at the earliest. For measures that can be implemented on an ordinance level, a consultation has been opened and will take place until September 2025.. Those measures are not expected to be implemented before January 2027.

In addition, Morningstar DBRS considers that banks' exposure to the real estate market remains a source of vulnerability for financial stability. With lower interest rates since 2024, real estate price growth has picked up, although at a slower pace than in 2021 and 2022. The high demand and low supply will most likely keep the housing market tight, with the risk of overheating in the market remaining. Switzerland's household debt-to-GDP ratio remains high at 125% at the end of 2024, nevertheless risks are mitigated by the large and liquid balance sheet of households. Switzerland's high mortgage debt, the contingent liability risks posed by its large banking sector and the banks' exposure to the real estate market weigh on the negative adjustment in the "Monetary Policy and Financial Stability" building block assessment.

Federal Council Approved the Swiss-EU Package Agreements in June 2025 and Opened the Domestic Consultation Process

On December 20, 2024, Switzerland and the EU reached a substantive conclusion on the agreements aimed at enhancing their economic and political ties. Switzerland and the EU announced that negotiations on a package approach were completed, aiming to stabilize and develop their bilateral relations. The broad package includes the update of existing agreements on the free movement of people, air and land transport, trade in agricultural products, mutual recognition of conformity assessment, and new agreements on food safety, health and electricity and will allow Switzerland's participation in EU programmes. The agreement must be ratified by the European and Swiss parliaments. The EU is Switzerland's largest trading partner and Morningstar DBRS considers that the completion of an agreement will be an important step in maintaining a close relationship with the EU ensuring seamless cross-border trade, while serving as a foundation for long term collaboration. On June 13, 2025, the Swiss Federal Council approved the agreements and opened the domestic consultation process which will take place until end-October 2025.

Switzerland's political environment is characterized by its federal democratic system, high institutional capacity and a low level of corruption as reflected in the World Governance Indicators. The stable political system, combined with neutrality in international conflicts, has long made Switzerland a safe haven for investors. Following the October 2023 elections, the parliament elected the Federal Council in December 2023. Since then, the Council maintained economic policy continuity.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025) https://dbrs.morningstar.com/research/454196

For more information on the Rating Committee decision, please see the Scorecard Indicators and Building Block Assessments.

Notes:
All figures are in Swiss francs unless otherwise noted. Public finance statistics reported on a general government basis unless specified.

The principal methodology is the Global Methodology for Rating Sovereign Governments (9 July 2025) https://dbrs.morningstar.com/research/457952. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings https://dbrs.morningstar.com/research/454196 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The sources of information used for these credit ratings include Swiss Federal Council, State Secretariat of Economic Affairs (Economic Forecasts, June 2025), Federal Department of Finance (Public Finances 2024; Forecast for Public Finances, March 2025), Swiss National Bank (Quarterly Bulletin 2/2025, Financial Stability Report 2025), Federal Office for the Environment (Supplement
to Switzerland's Long-Term Climate Strategy - NDC 2031-2035), Federal Statistical Office, European Central Bank (ECB), Eurostat, OECD, IMF (WEO and IFS, April 2025), World Bank, Bank for International Settlements and Macrobond. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, these are unsolicited credit ratings. These credit ratings were not initiated at the request of the issuer.

With Rated Entity or Related Third Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO

Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/459095/.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Mehdi Fadli, Senior Vice President, Sector Lead, Global Sovereign Ratings
Rating Committee Chair: Nichola James, Managing Director, Global Sovereign Ratings
Initial Rating Date: 14 July 2011
Last Rating Date: 17 January 2025

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