Net income
The banks in Switzerland posted a solid performance overall in 2022. Their aggregate net income fell slightly (by around 0.9% year-on-year), and annual profit came to CHF 6.5 bn.
The net income of all banks in Switzerland was CHF 70.3 bn in 2022, a decline of 0.9% year-on-year. This is due to the sharp drop in net income at the big banks34 (down 5.2%) and stock exchange banks (down 5.6%). There were declines in the result from commission business and services (down 8.4%) and the other result from ordinary activities (down 3.7%), while the result from trading activities was up 17.8%, and the result from interest operations up 2.8%. The latter increased more sharply than in prior years, owing to the interest rate turnaround in 2022. The big banks’ contribution to net income declined by 2.2 percentage points, while the proportion attributable to the cantonal and foreign banks showed the highest growth.
Trends in 2022
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 0.9% fall in aggregate net income in 2022 was caused by a lower result from commission business and services offsetting higher results from interest operations and trading activities.
While the result from commission business and services accounted for the largest share of net income in 2021, in 2022 the result from interest operations resumed its place as the biggest contributor. It grew by 2.8% from CHF 23.8 bn to CHF 24.5 bn, and now accounts for 34.9% of total net income, mainly as a result of the turnaround in Swiss National Bank (SNB) interest rates in 2022. The higher result from interest operations was caused by a strong increase in interest income of CHF 13.5 bn and a slightly lower increase of CHF 12.8 bn in interest expense. The latter was due to banks’ higher refinancing costs. Interest on the sight deposits of banks and other financial market participants generated income of CHF 0.6 bn for the SNB in 2022 before the negative rates were lifted, after which it led to an expense of CHF 0.8 bn.35 In the previous year, under the negative interest rate regime in force at the time, it had earned income of CHF 1.3 bn.36 At the same time, there was an 8.4% decline in the result from commission business and services, attributable primarily to reduced commission income from securities and investment business. This was probably due to the negative market trend in 2022. The Swiss Market Index (SMI) fell by around 17% over the year. Following a sharp fall in the result from trading activities in 2021, the trend was reversed in 2022, with a 17.8% year-on-year increase bringing the figure up to CHF 9 bn, above the level seen in the years before 2020. One reason for this is the increased market volatility seen in 2022. Sharply declining securities prices are generally linked to increased own-account trading by banks.
Figure 7
Net income by bank category
Figure 8
Stock exchange banks’ net income fell in 2022 for the first time in a decade. The big banks contributed a smaller share of net income, whereas the share attributable to the cantonal and foreign banks in particular increased.
The cantonal and foreign banks in particular recorded a year-on-year increase in their shares of net income. The cantonal banks, for example, saw their share grow by 0.7 of a percentage point to 13.7%, corresponding to an increase of CHF 391 mn. The foreign banks also grew their share and are now back at their 2017 level after a number of years of decline. They contributed 11.6% of net income in 2022, up 1.7 percentage points year-on-year, and also posted a sharp rise in absolute terms, up 16.2% to CHF 8,120.3 mn. The foreign banks saw only a relatively small decline in commission business and services, while recording marked rises in income in the other three areas, largely due to sharp growth in income from participations. The big banks and stock exchange banks both saw their shares of net income decline. For the stock exchange banks, the result from commission business and services accounts for around 60% of net income, and consequently they were harder hit by falling securities prices in 2022. The big banks (not shown) recorded an absolute fall in net income of CHF 1,885.4 mn, the largest for 10 years. They were also the only bank category to post a lower result from interest operations (down 13.1%). The big banks also experienced a disproportionately large fall in their result from commission business and services, causing their share of overall net income to slip back from 51.4% to 49.2%. In a multi-year comparison, the stock exchange banks’ share of total net income grew steadily between 2012 and 2021, before falling back for the first time in 2022, from 12.9% to 12.3%. The cantonal banks’ share has remained largely stable over the last decade. The private bankers’ contribution fell from 3.6% to 0.4% during the period, that of the foreign banks from 18.4% to 11.6%. The reduction among the foreign banks is partly due to the changed 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. However, foreign banks’ share of net income has been rising again since 2021.
Annual profit and taxes
Gross operating profit fell by 5.1% year-on-year. After value adjustments and taxes, the annual profits of the banks in Switzerland totalled CHF 6.5 bn.
The slight (0.9%) decline in aggregate net income resulted in a gross operating profit of CHF 26.8 bn in 2022, CHF 1.4 bn (5.1%) lower than in 2021. Operating expenses, which are made up of personnel expenses and general and administrative expenses, rose by 1.9%. The growth in personnel expenses reflects the increase in banks’ headcount. After deduction of depreciation, amortisation, value adjustments and provisions, the Swiss banks’ net income stood at CHF 8.4 bn (down 7.0%). This decrease was largely due to renewed high depreciation, amortisation and provisions at the big banks, especially Credit Suisse. The banks paid less tax in 2022 (CHF 2.1 bn, compared with CHF 2.6 bn in 2021). The resulting annual profit (result of the period) fell by 16.3%, from CHF 7.8 bn in 2021 to CHF 6.5 bn in 2022.
Figure 9
Breakdown of result of the period for banks in Switzerland 2022
In CHF bn
Chart: Swiss Bankers Association . Source: Swiss National Bank . Created with Datawrapper
Mixed economic environment in first half of 2023
The economic environment remains challenging for the banks in 2023. The Swiss Banking Outlook predicts below-average gross domestic product (GDP) growth of 0.9%. Inflation fell in the first half of the year, but is still high. The SNB has raised its policy rate in a number of steps to 1.75%.
The performance of economies around the world has been modest in the first half of 2023, due to a combination of rising interest rates, persistently high inflation and the war in Ukraine. Economic growth in the industrialised nations is slowing, and this is reflected in a moderate growth forecast of 1.3% for 2023.37 For Switzerland, the Swiss Banking Outlook is predicting below-average GDP growth of 0.9%. The SNB has raised its policy rate further in response to doggedly high inflation: as of July 2023 it stood at 1.75%.38 In March 2023, company bankruptcies in Switzerland reached their highest level for 20 years, while the number of new firms being set up is slowed significantly.39 This trend is partly due to higher financing costs for companies and the ending of COVID-19 support measures. The number of bankruptcies is therefore likely to remain high in the second half of the year. Around CHF 7.5 bn of the approximately CHF 17 bn in COVID-19 credits granted by Swiss banks has been repaid in full to date.40 Growth in real estate prices slowed in the first half of 2023 in response to rising interest rates.41 This is consistent with the Swiss Banking Outlook forecast of below-average growth in mortgage loans for 2023. Both the euro and the US dollar lost further ground against the Swiss franc in the first half of the year, with the EUR standing at CHF 0.95 and the USD at CHF 0.86 in July.
The Swiss Market Index (SMI) staged a marked recovery in the first half of 2023, but could still only recoup part of the losses sustained in 2022. At the end of July, the index stood at around 11,300 points, 5.4% higher than at the end of 2022. Looking ahead, the Swiss Banking Outlook is optimistic for the SMI, and is forecasting a rise of 8.8% for the whole of 2023. Exchanges abroad also posted positive numbers in the opening months of 2023, with the broad-based US S&P 500 index, for example, gaining around 20% by July. This performance is essentially due to highly successful tech stocks, as the majority of other stocks in the index posted little or no price rise. However, the strengthening franc partially cancelled out the gains on foreign stocks. Despite the challenging economic environment, the Swiss Banking Outlook expects banks in Switzerland to record higher net income in 2023 than in 2022. The financial market experts see interest operations as the key driver, with margins set to rise following the interest rate turnaround. The prospects for commission business and services and trading activities, meanwhile, are less clear-cut. On the one hand, positive trends on the equity markets point to increased profits, but on the other, uncertainty regarding economic developments is weighing on profit forecasts. The latter, coupled with higher interest rates, are also being blamed for an expected flattening of mortgage loan growth over the remainder of the year.
34 According to the SNB, the “big banks” category comprises the following four entities: Credit Suisse (Switzerland) Ltd, Credit Suisse AG, UBS Inc. and UBS Switzerland AG. 35 SNB (2023). Annual Report 2022. 36 SNB (2022). Annual Report 2021. 37 IMF (2023). World Economic Outlook. 38 SNB (2023). Monetary policy assessment of 22 June 2023. 39 KOF (2023). Significant increase in company bankruptcies. 40 covid19.easygov.swiss, last accessed on 19 July 2023. 41 SNB (2023). Financial Stability Report.