2014 Banking Barometer: Banks in Switzerland increase operating net income despite challenges

Basel, September 04, 2014 The Swiss Bankers Association’s (SBA) annual Banking Barometer shows that the banks in Switzerland continue to play an important role for the Swiss economy, despite the sustained pressure to consolidate and the difficult international and domestic market conditions. In 2013, the operating net income of the banks in Switzerland increased to CHF 60.8 bn and their assets under management rose by CHF 340 bn. If PostFinance is excluded from the data, the banks were able to further reduce their balance sheet totals, and consequently their risk exposure. New regulation, including the automatic exchange of information in tax matters with countries abroad, and shrinking margins are resulting in structural changes – which entail both opportunities and risks. Following a difficult year in 2013, the banks expect a slightly positive trend in employment levels.
The Swiss banking sector is a significant contributor to the success of the Swiss financial centre and to the prosperity of Switzerland. It accounts for around 6 percent of the country’s total economic performance. Further key figures for the banks in Switzerland in the 2013 fiscal year are:
  • Assets under management rose again in 2013. In total, the banks in Switzerland managed CHF 6,136 bn in assets at the end of 2013. Compared to the previous year, this corresponds to an increase of CHF 340 bn. The rise came as a result of inflows from emerging markets – primarily from Latin America and Eastern Europe – as well as from positive developments in capital markets. In contrast, assets from Western Europe decreased. This is likely due to the regularisation of legacy assets and the ensuing tax settlements. Further outflows of client assets from Western Europe should be expected in future. At the same time, assets from emerging markets are expected to continue their upward trend.
  • The share of foreign assets under management remains unchanged at just slightly over 50 percent. The Swiss banking sector was able to defend its position in the global cross-border private banking business and remains the global market leader with a share of 26 percent. Forecasts indicate that Switzerland will maintain its global first-place ranking for the medium term.
  • The balance sheet total of the banks rose by 2.6 percent as a result of the first-time inclusion of PostFinance. Without PostFinance, the balance sheet total for 2013 would have decreased by 1.7 percent. This was primarily the result of the exit from non-core businesses due to the Basel III capital requirements and (non-risk-weighted) leverage ratio. The strategic reduction of risk-weighted assets and of the overall balance sheet total is expected to continue in 2014.
  • After stagnating in 2011 and 2012, aggregate operating net income rose by 3.1 percent to CHF 60.8 bn in 2013. This is attributable to a rise in interest net income as well as an increase in income from the commission and services business. The banks in Switzerland paid around 25 percent more taxes on earnings compared to the previous year, namely CHF 1.93 bn.
  • Interest rate levels are expected to remain low for the current year. At the same time, continued narrow margins and higher costs due to increased regulation are expected, which will likely lower the banks’ profits for 2014.
  • Bank lending practices in Switzerland were once again unproblematic in 2013. The total domestic credit volume amounted to CHF 1,045.4 bn. This corresponds to a rise of 4.5 percent compared to the previous year. CHF 869.8 bn thereof is attributable to domestic mortgage lending. This is 4.2 percent more than in 2012, which marks a smaller increase than in the two previous years and is likely primarily the result of the amendments made to the banks’ self-regulation rules, which prescribe minimum requirements for mortgage lending. These rules came into effect on 1 July 2012 and 1 September 2014. The Swiss economy also benefited from uninterrupted access to credit.
  • Employee levels at the banks in Switzerland increased by 579 jobs in 2013. This rise is attributable to the first-time inclusion of PostFinance. Without this addition, employee levels would have decreased by 2,840 jobs. On average, the unemployment rate in the Swiss banking sector in 2013 was 2.7 percent, and thus half a percentage point below that of the overall economy (3.2%). The banks expect to see a slightly positive employment trend for the second half of 2014.

Challenges and structural Change

The banks in Switzerland faced different challenges in 2013. Legal developments in international tax matters and developments in domestic and European regulation affected business activities and had a negative impact in terms of costs and margins. In addition to tightened regulation – accompanied by higher costs and unchanged or decreased revenues – the uneven global economic developments and the as yet unresolved fiscal issues with the eurozone presented additional challenges for the profitability of the banks in Switzerland.

The current developments will likely result in consolidation in the banking sector as well as in structural change. At the end of 2013, the number of banking institutions in Switzerland decreased by 14 to a total of 283. In 2013 there were eight acquisitions, one merger, five banks lost their bank status and one foreign bank branch was closed. These developments were offset by the inclusion of PostFinance. This trend toward consolidation continued in the first half of 2014, in particular for the foreign banks. A further shrinking of the Swiss banking sector is to be expected in the coming years.

The EU banking union: not without repercussions for the Swiss financial centre

The European Union (EU) is currently planning the introduction of its biggest project since the introduction of the euro: the EU banking union. Its aim is to unify and stabilise the European banking system. The project has repercussions for the Swiss financial centre, despite the fact that Switzerland is not a member of the EU. As an international financial centre, Switzerland has active relationships in the EU. In general, the Swiss financial centre will benefit from a unified regulation of the European banking sector.

The SBA’s Banking Barometer study

The SBA publishes its Banking Barometer annually. The study is based on the one hand on statistics, in particular those of the Swiss National Bank, but also on the findings of surveys conducted with the member institutions. The results of the study were presented today at a press conference.