Liechtenstein’s Financial Sector Remains Sound and Stable, but Risks Persist: FMA Urges Proactive Risk Management Strategies

The Liechtenstein Financial Market Authority (FMA) has released its latest Financial Stability Report 2022, which concludes that the country’s financial sector is sound and stable. While systemic risks are assessed as limited, the FMA is urging financial institutions and government authorities to proactively adopt measures to mitigate potential threats.

Banking Sector Remains Resilient

The report notes that Liechtenstein’s banking sector has remained resilient, with analysts expecting debt servicing capacity to remain intact in the event of a global recession. However, the FMA has identified specific areas of concern, including:

• Increased risks in the real estate sector, which could impair private households’ debt servicing capacity.
• The potential for global economic shocks to impact Liechtenstein’s financial institutions.

Climate Change and Digitalization Risks

The report also highlights the potential risks associated with climate change and digitalization for the financial sector. These risks include:

• Extreme weather events and natural disasters that could impact financial institutions’ operations and assets.
• The need for institutions to prepare for extreme scenarios, such as a global recession or cyber attacks.

To address these concerns, the FMA has issued a series of recommendations aimed at enhancing structural efficiency and sustainable lending standards among banks. Additionally, the FMA advises insurance companies to maintain reasonable profitability and solvency levels, and pension schemes to secure sustainable coverage ratios.

Government Recommendations

The government is also advised to accelerate accession negotiations with the International Monetary Fund (IMF) to bolster its own resilience. By adopting these proactive risk management strategies, financial institutions in Liechtenstein can ensure continued stability and prosperity for the country’s economy.

Key Takeaways

• The FMA recommends that financial institutions adopt a proactive approach to risk management, including scenario planning and stress testing.
• Institutions should prioritize sustainable lending standards and maintain reasonable profitability and solvency levels.
• Government authorities should accelerate accession negotiations with the IMF to bolster Liechtenstein’s resilience.
• Financial institutions should prepare for extreme scenarios, such as climate-related disasters or cyber attacks.