“Actively shaping transition – future prospects for banking in Switzerland”

Basel, May 30, 2014 The Swiss Bankers Association (SBA) and The Boston Consulting Group (BCG) have conducted an examination of the Swiss banking centre in a joint study. Following a period of stabilisation, the study presents a positive growth outlook, albeit one connected with significant challenges and risks. Banking regulation will remain a key issue, whereby international market access, cost implications, and the national transposition and implementation of regulations in particular will play a central role for Switzerland. The study identifies potential for growth in all areas in which the banks in Switzerland conduct business. Private banking in particular – where the Swiss banking centre will continue to defend its leading position – shows significant potential.
The study “Actively shaping transition – future prospects for banking in Switzerland”, is an update of the study “Banking in transition – future prospects for banking in Switzerland”, published in 2011. It examines the developments, challenges, areas for action and growth opportunities for banks in the following business areas: private banking, retail clients, corporate clients, asset management and investment banking.

A stable banking sector

The Swiss banking sector has experienced stable growth in terms of gross revenues since 2010.
  • Modest growth of 1.1 percent on average per year from 2010 to 2013 to CHF 54.4 billion, primarily as a result of only marginal growth in private banking despite positive developments in the capital markets.
    - Narrowing margins largely compensated for through a rise in volumes, whereby the retail and corporate clients businesses in particular experienced greatest benefit from increased volumes
    - Weaker earnings performance in the business with Western European private banking clients due to tax regularisation and outflows primarily from the affluent segment
    - Emerging countries made largest contribution to growth in private banking
  • Private banking, which has been strong historically, remains by far the most important pillar in the banking sector, accounting for almost 50 percent of revenues of banks in Switzerland (2013), Switzerland continues to be largest global offshore centre.
  • Fewer uncertainties compared to 2010 with regard to regulation as a result of more stable international framework for standards, although still a prominent issue.

Positive outlook in a challenging environment

Solid growth leading up to 2018 despite significant challenges.
  • The 2.5 percent gross revenues growth projected for the period leading up to 2018 is higher than in the last three years, driven by a stronger private banking and ongoing solid retail and corporate clients businesses.
    - Downward pressure on margins will continue to be very strong with a constant rise in volumes
    - Emerging countries will continue to make largest contribution to growth in private banking
    - Schwellenländer weiterhin mit grösstem Wachstumsbeitrag im Private Banking
  • Switzerland will remain the biggest offshore centre for private banking in 2018, but with lower growth rates than competitors.
  • Regulation, in particular surrounding international market access, as well as political developments in Switzerland, will present challenges and risk factors.
    - International market access biggest element of uncertainty for the entire banking centre
    - Greatest alignment possible of international standards with implications for service offering, customer behaviour and Switzerland’s unique selling propositions
    - Increased pressure on costs as result of new regulations, primarily for smaller banks, will most likely result in further consolidation
    - Location-specific competitiveness will increasingly be differentiated through national transposition and implementation of regulations
  • Investment management capabilities will increase in importance, as will the ability to innovate and the ability to react to challenging regulatory and economic realities with appropriate business models.
  • Significant additional opportunities exist in all of the business areas, with the highest absolute potential in private banking (CHF 2 billion in 2018) and the highest relative potential in asset management (CHF 0.4 billion in 2018).

Imperatives for the players in the Swiss banking centre

In light of the regulatory and economic challenges, the following recommendations for action can be extrapolated
  • Access to international markets must be secured in order to generate growth and ensure existing businesses continue to remain profitable.
  • The Swiss banking centre must be supported through prudent domestic political action in order to create the framework conditions necessary for profitable growth.
  • In future, the strong currency as well as political and economic stability, which are unique selling propositions, will gain in relative importance for Switzerland, and accordingly, economic and fiscal policy must increasingly take this into account.
  • The complexity and the ensuing increase in costs arising from new regulations affect smaller institutions to a greater degree, which means that considering differentiating regulations is sensible.
  • In the competition with other banking and financial centres, Switzerland should be marketed actively and the appropriate base data should be generated in order to allow for the suitable management of initiatives and measures.
  • The adoption of regulation must be examined in a differentiated manner and implemented pragmatically in order to avoid unnecessary limitations and competitive disadvantages for market participants.
  • The banks in Switzerland are called on to scrutinise their business models systematically and to amend these in line with the challenges that have been outlined.
  • Growth opportunities should be examined and pursued by the banks in order to achieve profitable growth in difficult market conditions.

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