Liechtenstein’s Financial Sector Remains Sound, But Global Risks Abound
Financial Stability Report 2022 Highlights
The Liechtenstein Financial Market Authority (FMA) has released its Financial Stability Report 2022, concluding that the country’s financial sector remains sound and stable. However, systemic risks are assessed to be limited due to increased global vulnerabilities.
Banking Sector Remains Sound
According to the report, the banking sector in Liechtenstein has “remained sound and stable,” despite a worsening global outlook for the real economy and financial markets. Analysts at the FMA conducted a detailed risk assessment of the financial sector and economy, finding that debt servicing capacity is not expected to deteriorate even in the event of a global recession.
Identified Risks
However, concerns have been raised about the risks associated with the real estate sector, which could potentially impair the debt servicing capacity of private households. The report also examines the potential risks for the financial sector related to climate change and digitalization.
- Real Estate Sector: Impacts on debt servicing capacity
- Climate Change: Risks for the financial sector
- Digitalization: Potential impacts on the financial sector
Recommendations for Mitigation
In response to these identified risks, the FMA has issued recommendations for players in the financial sector and authorities to prepare for negative extreme scenarios. These include:
- Banks: Strengthen structural efficiency and sustainable lending standards
- Insurance Companies: Maintain reasonable levels of profitability and solvency
- Pension Schemes: Secure sustainable coverage ratios
Government Action
The government is also recommended to proceed with accession negotiations with the International Monetary Fund (IMF) as a precautionary measure. The FMA’s report serves as a warning for potential risks on the horizon, emphasizing the need for proactive measures to mitigate them and ensure the stability of Liechtenstein’s financial sector.