30.09.2024 – 16:17
Principality of Liechtenstein
Vaduz (ots)
In its 22nd meeting, the Committee for Financial Market Stability (AFMS) dealt with global economic developments and their effects on the Liechtenstein economy and the financial sector. The global economic weakness, particularly in the euro area, continues to have a negative impact on the Liechtenstein economy. Despite stubbornly high core inflation, both the European Central Bank and the US Federal Reserve have cut key interest rates, which is likely to further reduce banks’ interest margins. The stock markets reacted positively to the interest rate cuts, but the vulnerability to corrections remains high given the high valuations. The AFMS continuously monitors international developments and their implications in order to counteract the possible build-up of systemic risks and ensure the stability of the Liechtenstein financial sector. In this context, the AFMS expressly welcomes the outcome of the referendum on membership in the International Monetary Fund (IMF). Joining the IMF is of great importance for ensuring long-term financial stability not only for the financial center, but for the entire economy.
Discussion of systemic risks related to foreign sanctions
The AFMS discussed potential systemic risks in connection with foreign sanctions for the Liechtenstein financial center. For example, although the US OFAC sanctions are not directly applicable in Liechtenstein, non-compliance poses significant risks. These include serious reputational risks that can affect the trust of business partners, as well as operational and legal risks that could endanger the continued existence of the company. Due to the central role of the USA in the global financial system, violations can have serious consequences, not only for the financial intermediary affected, but also for the entire financial sector in Liechtenstein. Against this background, the FMA published at the beginning of September as part of the FMA Notice 2024/2 the clear expectation that foreign sanctions must definitely be taken into account as part of risk management. In addition, the AFMS discussed further possible measures on how these risks for the financial center can be effectively addressed.
AFMS recommends adjusting risk weights for residential real estate loans
The AFMS also advised on the risk weights for residential property loans, as these will be adjusted by the introduction of the Capital Adequacy Regulation (CRR III). This means that the right to choose according to Art. 124 CRR for risk weights for risk positions on residential properties secured by mortgages can no longer be exercised in the way it is applied under current law. Since, based on the currently available data, it is expected that the risk weights for risk positions on real estate secured by mortgages will tend to increase as a result of the legal changes to CRR III, the AFMS recommends the right to choose stricter risk weights in accordance with Article 5 of the Banking Ordinance (BankV) no longer be exercised and this will expire with the EEA adoption of CRR III. The implications of these changes should be taken into account next year, among other things, as part of the regular calibration of the systemic risk buffer (see AFMS recommendation AFMS/2024/3).
No activation of the countercyclical capital buffer
Given the continued negative credit gap, the AFMS recommends keeping the countercyclical capital buffer at 0% of the total risk amount, as leverage ratios in the non-financial sector remain below the long-term trend and therefore do not indicate excessive credit growth. The additional cyclical indicators that the AFMS uses to assess the countercyclical capital buffer also do not indicate increasing imbalances.
Information about AFMS
The Financial Market Stability Committee is the central body for macroprudential supervision in Liechtenstein. Its task is to counteract the identified systemic risks with efficient macroprudential instruments, recommendations and risk warnings in order to strengthen financial market stability in Liechtenstein. The members of the AFMS are appointed to the committee by the FMA and the Ministry of Presidential Affairs and Finance.
Press contact:
Ministry of Presidential Affairs and Finance
Financial Stability Committee
Simon Biedermann, Chairman
T +423 236 64 47
[email protected]
