Banking Barometer 2022

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Net income

The aggregate net income of the banks in Switzerland rose by around 1.4% year-on-year in 2021, while aggregate annual profit was lower than in 2020.

The aggregate net income of all banks in Switzerland rose by 1.4% year-on-year in 2021 to CHF 70.9 bn. This slight increase was due to the result from commission business and services (up 10.9%) and the other result from ordinary activities (up 12.1%), whereas the result from trading activities had a negative effect, falling by CHF 3.2 bn or 29.4%. With low interest rates persisting throughout 2021, the result from interest operations rose by only 0.8% and thus equalled the 2019 figure of CHF 23.8 bn. The big banks’ share of net income fell slightly for the first time since 2017, while those of the other categories remained relatively stable.


First half of 2022 fraught with uncertainty

Trends in 2021

Net income by banking activity

Aggregate net income comprises the results from interest operations, commission business and services, and trading activities as well as the other result from ordinary activities. The 1.4% growth in net income in 2021 resulted from an increase in the result from commission business and services and a decrease in the result from trading activities.

For the first time since 2015, the result from commission business and services was the largest contributor to net income with a share of 36.0%. It rose by 10.9% from CHF 23 bn to CHF 25.5 bn, mainly due to commission income from securities and investment business, which was around CHF 2 bn (8.9%) higher year-on-year thanks to sharply rising securities prices. While the result from interest operations increased slightly by CHF 0.2 bn (0.8%), it lost its status as the most important component of net income as its share slipped to 33.6%. The small rise was caused by a sharp decline in interest expense (down CHF 4.8 bn or 34%) and a somewhat weaker fall in interest income (down CHF 4.5 bn or 12%). The lower interest expense was the result of improved refinancing conditions for banks and the reduced cost of negative interest on sight deposits held with the SNB. Compared with the previous year, the SNB’s income from negative interest fell again by around CHF 121 mn to CHF 1.3 bn,22 with most of this coming from banks as before. Following strong growth in net income from trading activities in 2020, the trend was reversed in 2021 as the figure fell back significantly below CHF 10 bn, down almost 30% compared with the prior year. This represents a normalisation at the level seen in the years before 2020, one reason for this being the decline in market volatility seen in 2021, especially compared with 2020. This normally goes hand in hand with lower levels of trading activity for banks.

Figure 9

Net income by bank category

Figure 10

The drop in trading activity hit the big banks harder, which is why their share of net income fell slightly. The other categories’ shares remained relatively stable.

All bank categories apart from the big banks recorded stable or rising shares of net income compared with 2020. The cantonal banks, for example, saw their share grow by 0.4 of percentage point to 13.1%. This corresponds to a CHF 366.5 mn increase in net income. The foreign banks also increased their share in 2021 (to 9.9%), halting the downward trend of the past ten years. Their net income totalled CHF 6,992.7 mn. The big banks (not shown) were the only category to post lower net income in 2021, down CHF 640 mn, causing their share of overall net income to fall from 53.1% to 51.4%. This was mainly due to a drop in trading activities, which make up a greater proportion of their income than is the case for banks in the other categories. The share of total net income contributed by the “stock exchange banks” category has increased from 8.7% to 12.9% since 2011. The big banks also increased their share over the same period, from 46.5% to 51.4% (not shown). The private bankers’ share fell from 4.1% to 0.5% during the period, that of the foreign banks from 17.5% to 9.9%. The reduction among the foreign banks is partly due to the altered operating conditions in the wake of the financial crisis, which led to numerous branch closures in Switzerland. Some banks have also cut their international activities back to specific fields of business in recent years as part of restructuring programmes, which has in some cases led to shifts within a group or even the sale of entire business units.

Annual profit and taxes

The slight increase in aggregate net income and stable operating expenses caused gross operating profit to rise by 3.1% year-on-year in 2021. After value adjustments and taxes, the annual profits of the banks in Switzerland totalled around CHF 7.8 bn.

Operating expenses, which are made up of personnel expenses and general and administrative expenses, remained stable (up 0.3%) year-on-year, while aggregate net income posted a slight rise of 1.4%. This led to a gross operating profit CHF 0.8 bn higher than in 2020. After deduction of depreciation, amortisation, value adjustments and provisions, the Swiss banks’ operating result was CHF 9 bn (down 37.8%). This much lower result was driven primarily by the sharp increase in depreciation, amortisation and provisions at the big banks in connection with the US hedge fund Archegos Capital Management and the financial services provider Greensill Capital. The overall annual profit (result of the period) fell from CHF 13.7 bn in 2020 to CHF 7.8 bn in 2021. The banks paid significantly more tax in 2021 (CHF 2.6 bn, compared with CHF 1.9 bn in 2020).

Figure 11

First half of 2022 fraught with uncertainty

Following a pronounced recovery in 2021, economic trends have been fraught with uncertainty in 2022. SECO forecasts GDP growth of 2.6% for the year as a whole. The SNB hiked its headline interest rate in June 2022 for the first time in 15 years.

Economic uncertainty has reigned thus far in 2022, with the ongoing war in Ukraine, the impact of international sanctions against Russia, the COVID-19-related lockdowns in China, and the threat of a new wave of the pandemic and in particular an energy shortage holding back the recovery. High inflation rates in the eurozone and the US also pose a risk. In Switzerland, inflation exceeded the SNB target of 2% in February 2022 for the first time since 2008 and stood at 3.4% in June.23 In view of this inflationary pressure, the SNB felt it had no option but to proceed with an initial half-point rate hike to –0.25% in June.24 It had earned a total of CHF 540 mn from negative interest up to the end of the same month.25 On top of this, according to the SNB, both mortgage loans and residential property prices have risen sharply again in the first half of the year.26 The Fed raised the target range for its benchmark interest rate in four steps during the first half of the year to 2.25–2.5% and started to scale back its bond portfolio in June. This was in response to high inflation rates, which the Fed believes are due to rising energy prices, a supply/demand imbalance resulting from the pandemic, and general price pressure.27 The ECB has been more hesitant. It decided to hike its headline rate by half a percentage point in July and to cease making net asset purchases under its Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP) with effect from that month.28 At the same time, however, it introduced the Transmission Protection Instrument (TPI), which has no volume limit.29 The euro steadily depreciated against the franc in the first half of 2022, partly due to differing monetary policies, and reached parity on 4 March. The price of a euro in July was less than one franc. The dollar, on the other hand, has gained value relative to the franc since May. The above developments are depressing economic expectations: the International Monetary Fund expects the global economy to grow by 3.2% this year, while SECO expects Swiss gross domestic product (GDP) to grow by 2.6%. A number of key political votes and decisions occurred in Switzerland in the first half of 2022. The electorate rejected the reform of stamp duty. The planned abolition of stamp duty on new issues of equity was intended to create an incentive for innovation and thus secure jobs. This would have strengthened Switzerland’s corporate landscape, particularly with regard to SMEs and start-ups. At its retreat dealing with European policy in February 2022, the Federal Council reiterated its interest in continuing the bilateral approach with the EU and adopted a set of guidelines for its negotiating package, having decided in May 2021 not to sign the institutional framework agreement with the EU.

The Federal Council’s commitment to the bilateral approach and efforts to intensify talks with the EU are to be welcomed. Cross-border wealth management for private clients based in the EU is a key export sector for Switzerland that relies on practicable and sustainable market access solutions. Switzerland has adopted the EU’s sanctions against Russia. The Swiss banks have a key role to play in this respect. Financial assets worth CHF 6.7 bn were frozen in Switzerland up to July 2022.30 The positive stock market trend in 2021 was followed by a significant price correction in the first half of 2022 due to the prevailing geopolitical uncertainty and restrictive monetary policy. The Swiss Market Index (SMI) lost as much as 20% between January and June and reached an interim low of 10,349 points. It was down almost 1,300 points year-on-year at the end of June. Continuing uncertainty over economic developments and waning post-pandemic catch-up effects mean that the markets are likely to remain under pressure in the second half of the year, which will have a negative impact on the banks’ trading and commission business. Corporate bankruptcies were up 40% year-on-year in the first half of 2022, although the figure was only 10% above the average from 2018 and 2019. The bankruptcy rate in 2021 was exceptionally low thanks to the COVID-19 relief measures. This fresh wave of bankruptcies has hit the pharmaceutical and service industries hardest, with the large number of newly formed companies in the latter probably playing a part. Many companies encounter problems in their early years. The bankruptcy rates in the hospitality and construction industries, meanwhile, remained largely stable.31 Around CHF 6 bn of the approximately CHF 17 bn in COVID-19 credits granted by the Swiss banks has been repaid in full to date, including CHF 822 mn in the first half of 2022.32 Given their strong capital underpinning and progress in terms of risk management, the banks are well prepared to prevent credit defaults and absorb any losses that do occur through defaults. Nevertheless, overall net income can be expected to fall year-on-year in 2022 and 2023 in view of the downbeat economic forecasts and financial market trends.

22 SNB (2022). Annual Report 2021.

23 FSO (2022). Swiss Consumer Price Index.

24 SNB (2022). Monetary policy assessment of 16 June 2022.

25 SNB (2022). Interim results of the SNB as at 30 June 2022.

26 SNB (2022). Monetary policy assessment of 16 June 2022. 27 Fed (2022). FOCM statement and Implementation Note issued 4 May, 15 June and 27 July 2022. 28 ECB (2022). Monetary policy decisions, 9 June and 21 July 2022. 29 ECB (2022). The Transmission Protection Instrument. 30­wirtschaftspolitik_Wirtschaftliche_Zusammenarbeit/Wirtschaftsbeziehungen/­exportkontrollen-und-sanktionen/­sanktionen-­embargos/­sanktions­massnahmen/faq_­russland_­ukraine.html, last accessed on 3 August 2022. 31 Creditreform (2022). Firmen- und Privatkonkurse 2022. 32, last accessed on 25 July 2022.