Banking Barometer 2022

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Executive Summary

Part I: The Swiss banking sector

The Swiss financial centre is one of the most competitive in the world and the leader in cross-border wealth management. It offers a first-class environment for technological innovation, while its regulatory system is recognised internationally as exemplary.

Contrasting economic trends Compared with those of other countries, the Swiss economy has withstood the COVID-19 pandemic well to date. The protective measures were gradually eased in 2021, leading to a strong economic recovery and a fall in unemployment. The economic trend in 2022 is subject to a great deal of uncertainty due to factors including the war in Ukraine and the related risk of energy shortages as well as the possibility of renewed COVID-19 measures and rising inflation rates. Gross domestic product (GDP) is expected to grow by 2.6% this year. Central banks hiking interest rates in view of persistently high inflation In June 2022, the Swiss National Bank (SNB) raised its headline interest rate for the first time in 15 years and forecast further hikes to maintain price stability. The US Federal Reserve (Fed) and – to lesser extent – the European Central Bank (ECB) also reacted to sharply rising consumer prices by hiking rates. The Fed additionally began scaling back its bond portfolio in June, whereas the ECB does not expect to do so until 2024. Government debt set to remain high over medium term The pandemic led to a further sharp increase in the already high levels of government debt. They are unlikely to fall in the medium term. In the eurozone in particular, high debt levels are hindering the exit from expansionary monetary policy. Switzerland’s government debt is relatively low by international standards. The Swiss Parliament is currently debating two different approaches to reducing the extraordinary debt resulting from the pandemic. Federal Council intends to pursue bilateral approach with European Union The Federal Council wishes to continue the bilateral approach and adopted a set of guidelines for its negotiating package with the European Union (EU). It will endeavour to anchor the institutional elements of the individual single market agreements using a vertical approach and no longer sees the horizontal approach (in which all institu­tional issues are treated together) as an option after its rejection of the institutional framework agreement. Key principles were worked out in talks between Switzerland and the United Kingdom (UK) on liberalising and expanding mutual market access in the area of financial services. The essential elements should be enshrined in an international treaty by the end of 2022. Private digital money and central bank digital currency attracting attention worldwide Various central banks, commercial banks and technology firms are working on forms of digital money to meet the needs of an increasingly digital economy. Depending on the form it takes, it can fundamentally transform banks’ business models and the work of central banks. The discussion paper published by the Swiss Bankers Association (SBA) is a contribution to an important debate on the design and use of digital money and its implications for the economy and society.1 Amendments to Liquidity Ordinance for systemically important banks enter into force The new regulatory concept is based on two pillars: the basic requirements, which are precisely calibrated and subject to reporting obligations, and the additional institution-specific requirements, which may be imposed by the Swiss Financial Market Supervisory Authority FINMA. The Federal Council largely took the SBA’s critical feedback into account. Organisation for Economic Co-operation and Development (OECD) working to introduce global minimum tax rate The proposal by the Organisation for Economic Co-operation and Development (OECD) to impose a minimum tax rate of 15% on the operating profits of large corporations would have a far-reaching impact on Switzerland, an export-oriented country with moderate taxation and a small domestic market. This regime would directly affect the larger Swiss banks. The SBA supports a measured Swiss implemen­tation and will lobby in favour of main­taining the successful Swiss model on behalf of its members.

Part II: Consolidated trend in Switzerland’s banks

The banks recorded a solid business performance in 2021. Their aggregate net income increased thanks to the result from commission business and services in particular. The aggregate balance sheet total was also higher. The number of staff in the banking sector increased slightly for the second year in succession.

Result from commission business and services dominating aggregate net income The result from commission business and services grew by 10.9% and was the largest contributor to the banks’ net income for the first time since 2015. This was due to the sharp rise in securities prices during 2021. The result from trading activities, on the other hand, fell back after increasing markedly in 2020. Overall, aggregate net income was up 1.4%. The result from interest operations only showed a small increase as low interest rates continue to pose a challenge for the banks. The SNB collected CHF 1.3 bn in negative interest in 2021. Most of this came from banks, and this continued to weigh heavily on their results. The banks’ gross operating profit rose by 3.1% in 2021. The banks paid taxes amounting to CHF 2.6 bn. Sharp increase in liquid assets, mortgage loans still largest asset item The aggregate balance sheet total of all banks in Switzerland grew by 3.5% to CHF 3,587.8 bn in 2021. Liquid assets increased by 11.1% and thus contributed substantially to the growth in total assets. Following a sharp rise in the prior year, the increase in the banks’ sight deposits with the SNB returned to pre-pandemic levels at 4.4%. Mortgage loans remained the largest asset item on the Swiss banks’ balance sheet, accounting for 31.6% of total assets. Liquid assets and mortgage loans have been the driving forces behind assets over the past decade. Liquid assets showed a dramatic increase from CHF 259 bn in 2011 to CHF 760.6 bn in 2021. This was due to the Basel III liquidity rules, the strong franc and low interest rates, among other things. Low interest rates have made residential property more attractive, leading to a rise of around 40% in mortgage loans over the same period. Sight and time deposits both higher On the liabilities side, amounts due in respect of customer deposits rose by 4.6% and made up 57.5% of the balance sheet total at the end of 2021. The increase was due to growth of around 10% in both sight and time deposits, which reflects the unusually high saving rate caused by the pandemic. Other customer deposit and trading portfolio liabilities, meanwhile, were lower. The growth in time deposits contrasts with the trend seen over the past decade. Their share of total liabilities fell from 12% in 2011 to 7% in 2021. At the same time, sight deposits increased their share from 22.9% to 35.7%. Low interest rates make time deposits less attractive compared with sight deposits, resulting in a rotation out of the former and into the latter. Sharp increase in assets under management Assets under management increased by an impressive 12.1% in 2021 after a slight fall in 2020. The assets of both Swiss-domiciled and foreign-domiciled customers grew, driven primarily by a sharp increase in securities holdings in customers’ custody accounts at banks (up 14.3%). Fiduciary liabilities, meanwhile, were down 10.8%, and amounts due to customers excluding sight deposits were down 3.6%. Assets under management grew by 68% between 2011 and 2021, with the proportion attributable to foreign customers falling from 51% to 47.4%. One reason for this is the appreciation of the Swiss franc, which has a greater impact on foreign customers as a greater proportion of their assets is denominated in foreign currencies. Number of bank staff rises for second year running In 2021, the 239 Swiss banks recorded an increase in headcount for the second period in a row, adding 619 full-time equivalents. However, this cannot be seen as a trend reversal. Consol­idation within the industry, more stringent regulation and outsourcing had caused the number of staff to fall steadily since 2013. According to the State Secretariat for Economic Affairs (SECO), the unemployment rate in the financial sector was 2.4% at the end of 2021, slightly lower than that of the overall economy.

Figure 1

The big banks’ headcount was down by 314 full-time equivalents year-on-year, whereas all other bank categories apart from private bankers posted an increase in staff numbers. According to the SBA survey, the Swiss banks’ headcount rose by around 1% in the first half of 2022, with the number of foreign jobs growing faster (by 1.5%) than the number of domestic jobs (0.4%). The SECO figures show that the unemploy­ment rate in the financial sector fell to 2.2% in the same period. The outlook for the remainder of the year is positive. Only 5.7% of the banks surveyed expect their headcount to fall, whereas 38.3% expect it to rise. According to the survey, retail banking, wealth management, and logistics and operations (back office) have the best prospects for employment growth in the second half of 2022. First half of 2022 fraught with uncertainty Economic trends have been fraught with uncertainty thus far in 2022 due to geopolitical factors, rising inflation rates and the return to more restrictive monetary policy. This has depressed stock markets, which is reflected in the Swiss banks’ balance sheets and assets under manage­ment. Following a sharp rise in 2021, assets under management were down 4.4% in the first five months of 2022. The aggregate balance sheet total grew by 1.3% in the same period, with amounts due from securities financing transactions and other assets showing the largest increases on the assets side. Trading portfolios in securities and precious metals, meanwhile, showed a significant decline. On the liabilities side, time deposits followed an increase in 2021 with further growth of 10.9%, while sight deposits were down 1.4%. The turnaround in interest rates is likely to accentuate the trend in favour of time deposits.

Figure 2