Seizing the moment
August 30, 2018

Seizing the moment

The banks have never been in a better position since the financial crisis than they are now. This in no way means, however, that the pressure is off. Consolidation in the sector continues and the banks must now, more than ever before, equip themselves for the future.

The 2018 edition of the Banking Barometer is hot off the press. The review of the banking landscape in Switzerland over the past months paints a positive picture. Despite many political and economic challenges, above all the uncertainties surrounding Brexit and trade tensions, the banks reported solid results. 2017 was a good year for stock markets, and the trading business experienced strong growth of 25.4 %. This is reflected in the banks’ gross profit, which rose to CHF 18.5 bn and increased by 11.9 % compared to the previous year. The banks paid CHF 2.2 bn in taxes and their total annual profit was almost CHF 10 bn, which corresponds to an increase of 24 % compared to 2016.

Assets under management reach highest level since financial crisis

Also favourable are the figures for the wealth management business. The aggregate total of assets under management reached a new record since the financial crisis. At the end of 2017, the banks in Switzerland managed almost CHF 7,300 bn in customer assets, whereof approx. one-third were attributable to the cross-border private banking business. The banks will remain the undisputed global leaders in this segment in the medium term. Particularly strong growth of 13 % was recorded in institutional asset management.

Clear skies ahead?

By no means. First, because consolidation is set to continue: the number of banks decreased once again in 2017, by eight institutions – a trend that has been observed for several years now. This time, the reduction impacted only the foreign banks, of which primarily small institutions. For these banks, the high costs of regulation are a particular burden, efficiencies of scale are very difficult to achieve, and they are faced with a further narrowing of margins in private banking. Second, the uncertainties will not subside in the coming years. For example, no one can at present predict the effects of the Brexit negotiations on the Swiss financial centre. The biggest challenge in my view remains the ongoing low interest rate environment, which is having an increasing impact on the banks the longer it persists.

Trough reached and overcome

Over the last ten years, the banks have proven that they are capable of persevering in a difficult environment. The trough has been reached and overcome. The banks are also optimistic in their assessment of the situation. The annual employment survey conducted by the Bankers Association shows that the share of banks surveyed that expect to see an improvement in the employment situation is the highest since 2010. An improvement is expected in particular in private banking.

Courage to innovate and transform

The economic cycle, which has been characterised by global growth, a brisk level of investment activity and positive consumer sentiment in Switzerland, has to date been cooperating. However, there are indications that Switzerland’s competitiveness, and therefore also that of the financial institutions, will come under pressure in the long term. In wealth management, Asian financial centres with higher growth rates than Switzerland’s are competing with the country’s financial centre. New providers, whether tech or insurance companies, or other platforms, are crowding into the market and intensifying competition. The banks must now seize the moment from a position of strength, or in other words, demonstrate their courage to innovate and transform. Because cost discipline, digital fitness and an international focus will make the difference. I am certain that the prospects are good.