ZURICH (Reuters) - The head of Credit Suisse's <CSGN.S> domestic business warned on Monday that the Swiss central bank's negative interest rate policy could lead to instability for Switzerland's lenders.
Since January last year, the Swiss National Bank has kept interest rates in negative territory in an effort to discourage investors from holding the Swiss franc, whose strength hits Swiss exporters.
So far, only one of Switzerland's 260-odd banks has passed on negative rates to retail clients and Thomas Gottstein, chief executive of Credit Suisse's Swiss Universal Bank, said banks could live with sub-zero rates for the moment.
However, Gottstein cautioned that negative rates are already weighing on banks' savings and deposits businesses and this could end up attracting other competitors which do not hold significant liabilities in Swiss francs, such as foreign banks, into the market.
"In the medium and long term, that is not a stable state of affairs," Gottstein told reporters at a presentation of Credit Suisse's economic forecasts for the Swiss economy.
The SNB last week kept its target range for three-month Libor at -1.25 to –0.25 percent while maintaining its interest rate on cash deposits at -0.75 percent.
Negative rates and currency intervention have been the cornerstone of the SNB's strategy to weaken demand for the franc since it scrapped its cap against the euro in January 2015.
The negative rates have caused unease in Switzerland by acting as a charge on banks, while insurers and pension funds have wrestled with low bond yields.
(Reporting by Joshua Franklin; editing by Jason Neely)