Banking Barometer 2023

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Executive Summary

Part I: The Swiss banking sector

Switzerland is one of the most competitive financial centres in the world and the leader in cross-border wealth management. Its first-class operating conditions and exemplary regulation are reflected in no small part in its innovative power and stability.

Cooling economy, robust job market The economic trend in 2022 was driven mainly by the recovery from the COVID-19 pandemic, various geopolitical crises and rising inflation. Growth slowed markedly. The Swiss Banking Outlook forecasts growth of 0.9% in gross domestic product (GDP) for 2023. Meanwhile, the Swiss job market remains robust, with the un­employment rate in the banking industry well below pre-COVID levels and a high number of vacancies waiting to be filled. Sharp rise in SNB policy rate in view of high inflation The Swiss National Bank (SNB) put an end to its negative interest rate policy in view of high consumer price inflation and has hiked its headline rate several times since June 2022. In addition, it no longer considers the Swiss franc to be overvalued. Mortgage and savings interest rates have risen in parallel with the policy rate. While interest margins in new business are back at the levels seen before the negative interest phase, the average interest on the lending portfolio as a whole is only increasing gradually. Decisive action safeguarding financial stability The recovery in income from interest operations increased the financial system’s overall resilience, but value adjustments resulting from the turnaround in interest rates caused several US banks with a poor grip on interest risks to become insolvent. This made things much harder for banks like Credit Suisse, which had already lost a lot of trust among its customers. The takeover of Credit Suisse by UBS, aided by the Swiss authorities, proved to be an expedient and effective means of ensuring system stability and maintaining trust in financial institutions. Overall, the Swiss banks are well placed to cope with the challenging macro­economic environment and weather any crises that may occur going forward. Work on digital Swiss franc and multibanking should strengthen Switzerland’s position A group of banks coordinated by the SBA has launched a project to introduce a digital Swiss franc based on tokenised deposits as a public good. Known as a deposit token, it will enable and facilitate trading and settlement of digital assets, payment transactions in “Industry 4.0”, and peer-to-peer applications without intermediaries (“decentralised finance”).1 The sector’s commitment is also an active step towards achieving the open finance objectives for the Swiss financial centre formulated by the Federal Council at the end of 2022. The memorandum of understanding signed by a number of commercial banks in early May 2023 enables the introduction of multi­banking offerings for natural persons, with the banks providing the necessary inter­faces. Basel III reform package nearing completion “Basel III Final” will see the last elements of the Basel III reform package – particularly the rules on capital adequacy – transposed into national law. The SBA supports the reform package in principle but sees a need for amendments, notably concerning regulation of the mortgage market. To avoid competitive disadvantages for Switzerland’s financial centre and its economy as a whole, implementation in the key comparable financial centres should also be taken into account. Swiss voters accept proposal to implement OECD minimum tax rate The Swiss electorate has recently voted on three tax projects. Whereas the proposal to amend the Federal Act on Stamp Duties and the reform of withholding tax were unable to secure a majority in the spring and autumn of 2022 respectively, despite both being recommended by business leaders, the Federal Council’s proposal for implementing the minimum tax rate planned by the Organisation for Economic Co-operation and Development (OECD) was adopted by a clear margin in June 2023. Starting in 2024, a minimum tax rate of 15% is to be applied to the profits of multinational enterprises worldwide. The Swiss implementation proposal is intended to ensure that the resulting additional tax revenues remain in Switzerland rather than flowing abroad. Federal Council sets parameters for negotiating mandate with EU Efforts to simplify market access in the European Union (EU) are continuing. The Federal Council set the parameters for a negotiating mandate with the EU in June 2023. It will endeavour to anchor institu­tional elements in the individual single market agreements using a vertical approach. The Federal Council is expected to adopt a mandate by the end of this year. An agreement between Switzerland and the UK on liberalising and expanding mutual market access in the area of financial services is also expected very soon.

Part II: Consolidated trend in Switzerland’s banks

Switzerland’s banks faced consid­erable headwinds last year. Aggregate net income was down slightly, while the balance sheet total contracted significantly for the first time in a decade. Trends varied widely among the various bank categories.

Results from interest operations and trading activities gaining importance The result from interest operations regained its place as the largest contributor to the banks’ net income thanks to an increase of 2.8%, which was mainly due to the turnaround in interest rates. The result from trading activities was also sharply higher year-on-year, whereas the result from commission business and services declined. This was probably caused by the negative market trend in 2022, with the Swiss Market Index (SMI) shedding around 17%. Overall, aggregate net income posted a small drop of 0.9%. Annual profit was down 16.3% last year at CHF 6.5 bn. The banks paid corporate taxes totalling CHF 2.1 bn, in line with the long-term average. Sharp fall in liquid assets, mortgage loans still largest asset item The aggregate balance sheet total of all banks in Switzerland contracted by a hefty 6.9% to CHF 3,339.7 bn in 2022. The downturn among the big banks was especially large and probably driven mainly by shifts in customer funds at Credit Suisse. Liquid assets were sharply lower, while financial investments grew strongly. The banks’ sight deposits at the SNB fell more sharply in 2022 than they had for ten years. This was prompted by the sale of foreign currencies by the SNB, the increased opportunity costs of holding liquidity as a result of the higher policy rate, and high liquidity requirements at Credit Suisse. Mortgage loans remain the largest asset item with a share of 35.2%, making up more than a third of the total for the first time. Significant drop in sight deposits with some rotation into time deposits On the liabilities side, amounts due in respect of customer deposits posted a significant fall of 8.5% in 2022 due to lower sight deposits and other customer deposit liabilities. There was a certain amount of rotation into time deposits, but a large share of the decrease was caused by shifts in customer funds at Credit Suisse in October 2022. Some of these probably ended up with other bank categories: the cantonal, Raiffeisen, regional and savings banks all recorded a rise in sight deposits in 2022, despite the higher opportunity costs. Drop in assets under management reflects negative stock market trend Assets under management showed a sharp drop of 11.2% in 2022. The assets of both Swiss-domiciled and foreign-domiciled customers were down as the negative market trend led to a marked decrease of 13.9% in securities holdings. The Swiss franc remained the dominant investment currency with a share of more than 50%. Looking back over the longer term, assets under management have posted strong growth overall since 2012 despite falling back to 2019/2020 levels in 2022. Number of staff at banks in Switzerland rises for third year running In 2022, the 235 Swiss banks recorded an increase in domestic headcount for the third period in a row, adding 1,429 full-time equivalents. This brings the number of staff back above the level recorded in 2017. The big banks shed around 25 jobs in 2022, while banks in the remaining categories added a total of 1,453. According to the State Secretariat for Economic Affairs (SECO), the unemploy­ment rate in the financial sector was 2.0% at the end of 2022, slightly lower than that of the overall economy. The results of the SBA survey show that the Swiss banks’ headcount reduced by almost 2% in the first half of 2023, although this was entirely due to developments outside Switzerland. Domestic headcount was up 0.3% in the same period. According to SECO, the unemployment rate in the financial sector was unchanged compared with the end of 2022 at 2%. The SBA survey reveals an uncertain outlook for the rest of the year. The banks surveyed were upbeat for the second half of 2023, although the big banks were not included in the poll. Just 5.7% of the banks surveyed expect their headcount to fall, whereas 37.7% expect it to rise. The majority – 56.6% – expect no change. 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 the year.

Figure 1

Challenging macroeconomic environment for banks Following a weak trend in the second half of 2022, economic growth remained modest in the first half of 2023. Continued strong demand inside Switzerland was set against rising bankruptcies and higher corporate financing costs. Inflation has fallen slightly since the start of the year but remains high. The positive trend on the financial markets compared with last year is probably boosting banks’ trading and commission business. The interest margin for new loans and mortgages is also back at the levels seen before the negative interest rate phase. The Swiss Banking Outlook thus forecasts a year-on-year increase in net income for 2023. Total assets were more or less flat in the first five months of 2023, rising by just 0.2%. Assets under manage­ment, meanwhile, added 5.5% in the first few months of the year, but this was only enough to recoup some of the heavy loss recorded in 2022.

Part III: Swiss Banking Outlook

The Swiss Banking Outlook is being published for the first time in 2023. It offers a valuable insight into the industry’s outlook based on a survey of experienced financial market experts covering expected trends in key economic and financial market indicators as well as topics relevant to Swiss banking up to the end of 2024.

Weak economic growth and inflation above 2% expected for 2023 The Swiss Banking Outlook forecasts economic growth of 0.9% and an inflation rate of 2.4% for the year as a whole. A majority of the experts surveyed do not expect the SNB to hike interest rates beyond the current level of 1.75%. The macroeconomic picture looks somewhat more optimistic for 2024, with economic growth of 1.5%, lower inflation and a turnaround in interest rates expected. Growth in net income in 2023 mainly driven by interest operations The Swiss Banking Outlook predicts higher net income for the banks in Switzerland in 2023, once again driven mainly by a higher result from interest operations. As regards mortgages, meanwhile, the majority of the experts surveyed expect higher interest rates and modest economic growth to lead to a below-average increase for the year as a whole. Digital customer experience and sustainable finance seen as major opportunities for Swiss banking Besides rising interest rates, the Swiss Banking Outlook also suggests that the future earnings prospects of banks in Switzerland hinge on further improvements in the customer experience thanks to digital channels and on continued efforts to promote sustainable finance. Strong growth in volumes is anticipated for sustainable investments in 2023. Risks to Swiss banks’ income are seen in particular in the high cost of adapting IT systems and the increasing density of regulation.

Figure 2

The editorial deadline for the Banking Barometer 2023 was 14.8.2023.

1 SBA (2023). The Deposit Token. New money for digital Switzerland. SBA white paper.