Banking Barometer 2024

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Executive Summary

Part I: The Swiss banking sector

Switzerland is in a dynamic economic environment influenced by global macro­economic and geopolitical developments. Measures to strengthen financial stability and the regulatory framework and promote digital innovation are key to securing the Swiss financial centre’s compe­titiveness over the long term.

Rising employment in banking sector despite modest economic growth The Swiss economy posted modest growth in 2023. Gross domestic product (GDP) was up 1.3% against a backdrop of slowing global growth and muted international demand. The Swiss Banking Outlook 2024 forecasts a similarly restrained rate of 1.2% for the end of 2024. The Swiss National Bank (SNB) has responded to easing inflation by lowering its policy rate in two steps during the first half of 2024, to 1.25%. The unemployment rate remained low, albeit with a slight rise in the second half of 2023, while the number of people employed in the banking sector rose by 1.4% over the year as a whole. Robust international financial system and continued development of “too big to fail” rules The global financial markets were dominated in 2023 by high interest income and the collapse of several US banks as well as Credit Suisse. In spite of these challenges, the international financial system showed itself to be in robust shape. Switzerland’s domestically oriented banks improved their profitability thanks to higher interest rates, and the takeover of Credit Suisse by UBS immediately stabilised the situation at the embattled bank as well as in the Swiss and inter­national financial system. The Federal Council then analysed the regulations for systemically important banks and came up with several proposed measures to develop the “too big to fail” rule set. These include expanding the provision of liquidity by the SNB and introducing a public liquidity backstop. Internationally coordinated regulation enhances Switzerland’s appeal Switzerland’s banking and financial market regulation plays a key role in the Swiss financial centre’s attractiveness and competitiveness. According to the Swiss Finance Institute (SFI), Switzerland is among the world’s leading financial centres in terms of regulation and constantly adapts its rules. The “Basel III Final” regulatory reform project aims to make capital adequacy regulations more risk-sensitive and introduce a minimum capital threshold where internal models are used. However, the Federal Council’s decision to implement it from the start of 2025 weakens the Swiss financial centre’s competitiveness relative to its main international financial rivals. Relevant core markets such as the European Union (EU), the United Kingdom (UK) and the United States (US) will not be rolling out the final Basel III standards, or at least significant parts of them, until a later date. Another reform currently in the pipeline concerns the Federal Act on the Transparency of Legal Entities (TLEA), which is intended to help in combating money laundering. In line with a long-term strategy on implementing international guidelines, Swiss banks adhere strictly to sanctions imposed by Swiss, international and supranational bodies. Improved market access through international agreements The Federal Council has finalised the negotiating mandate on deepening bilateral relations with the EU and signed a financial services agreement with the UK. These measures should improve access to both the EU’s single market and the UK market, thereby strengthening the Swiss financial centre’s competitiveness. Ongoing efforts with regard to Switzerland’s relations with China, which were most recently bolstered by a meeting of ministers on the subject of financial markets in Beijing in April 2024, underscore the importance Switzerland attaches to inter­national presence and market access. Innovation boost from digital financial services In digital financial services, projects such as the digital Swiss franc and open finance are laying the foundations for new and inno­vative business models. The launch of a blockchain-based deposit token should simplify the trading and settlement of digital assets as well as payment trans­actions. From August 2024, the biggest retail banks will be obliged to process instant payments, allowing funds to be transferred in real time. Meanwhile, work is ongoing on an electronic identity (e-ID) to increase security and build trust in digital transactions. Preserving an attractive tax framework An attractive tax framework is essential to the Swiss financial centre’s compet­itiveness. Switzerland introduced the minimum tax on the profits of multi­national enterprises proposed by the Organisation for Economic Co-operation and Development (OECD) in January 2024. The United Nations, meanwhile, is working on a plan to redistribute global tax revenues that could restrict Switzerland’s tax sovereignty. The Crypto Asset Reporting Framework (CARF) enters into force in January 2026 and is designed to improve tax transparency with regard to digital assets. In view of these devel­opments, Switzerland faces the challenge of striking a balance between complying with international tax standards and maintaining the competitiveness of its financial centre.

Part II: Consolidated trend in Switzerland’s banks

The Swiss banks’ overall performance in 2023 was positive. Aggregate net income rose by 2.9% to CHF 72.3 bn, with the cantonal and stock exchange banks posting especially strong increases. The annual profit for the sector as a whole was a record CHF 25.9 bn, but the income figures were heavily influenced by one-time effects related to the takeover of Credit Suisse by UBS.

One-time effects among big banks weighing on aggregate interest income While the domestically oriented banks achieved particularly good results in interest operations, the big banks suffered a sharp fall. Interest income across the sector as a whole rose by an impressive 86.3% or CHF 40.2 bn. Overall, however, the result from interest operations was down CHF 172.4 mn due to high interest expenses relating to the demise of Credit Suisse. The result from trading activities was a full 21.3% higher year-on-year in what was a volatile year for the stock markets. Meanwhile, the downtrend in commission business and services continued with a fall of 6.7% on the back of lower income from securities and invest­ment business. Assets under management were up 6.9% at CHF 8,391.7 bn, comprising CHF 3,794.4 bn from foreign-domiciled customers and CHF 4,597.3 bn from Swiss-domiciled customers. The end result of all of these developments is a 2.9% increase in aggregate net income. The bank’s operating profit for the year rose to CHF 25.9 bn due to extraordinary income in connection with the takeover of Credit Suisse by UBS. This represents an all-time high, but it was heavily influenced by UBS’s negative goodwill from the takeover. The banks paid corporate taxes totalling CHF 3.2 bn, up 52.2% on the prior year. Stabilisation in liquid assets, other asset items mostly lower The aggregate balance sheet total of all banks in Switzerland contracted by 4.9% in 2023 to CHF 3,177.0 bn, with the big banks hit hardest. Mortgage loans were up slightly and remained the largest asset item, making up 37.8% of the total. Liquid assets, which had fallen sharply in 2022, stabilised and showed a 2.4% increase. Both this stabilisation and the smaller decline in sight deposits with the SNB can be attributed to higher headline interest rates and the resulting higher opportunity cost of holding liquidity. At the same time, amounts due from foreign customers and banks fell significantly. Time deposits posting further growth on liabilities side On the liabilities side, amounts due in respect of customer deposits were down in 2023, mainly due to a 23.8% fall in sight deposits.Some of this money was rotated into time deposits, which showed a 50.2% increase as customers increasingly favoured long-term investments following the turnaround in interest rates. However, some of the fall in sight deposits was caused by uncertainty surrounding Credit Suisse and its takeover by UBS. The CHF 22.4 bn drop in amounts due to banks was mainly due to declines outside Switzerland. The changes on the liabilities side reflect the banks’ efforts to adapt to the new interest rate environment and the associated customer preferences. Number of staff at banks in Switzerland rising further The employment situation at Swiss banks was stable in 2023, with the number of staff rising slightly. Overall, the banks in Switzerland employed 93,299 full-time equivalents at the end of 2023, 1,280 more than the previous year. The un­employment rate in the financial sector held steady at 2.3%, in line with the Swiss average. In spite of the challenges posed by the takeover of Credit Suisse by UBS, the Swiss banking sector proved robust on the job front.

According to an SBA survey, Swiss banks’ domestic headcount remained stable during the first half of 2024. The 1.3% fall in the total number of staff was entirely due to developments abroad. According to SECO, the financial sector unemployment rate rose to 2.6% compared with the end of 2023. The banks surveyed have a cautiously optimistic view of the employ­ment outlook for the second half of the year. UBS was not included in the forecast. While 7.6% of the banks expect their headcount to fall, 36.2% expect it to rise. The majority – 56.2% – expect no change. The number of banks experiencing recruitment difficulties due to a lack of qualified specialists remains doggedly high. According to the survey, retail banking, wealth management and logistics have the best prospects for employment growth in the second half of 2024.

Figure 1

Moderate growth and stabilisation in first half of 2024 The economic trend remained moderately positive in the first half of 2024. The Swiss Banking Outlook 2024 predicts GDP growth of 1.2%. Inflation remained moderate and stable in the first half of 2024, and the SNB lowered its policy rate to 1.25% before the other leading central banks cut their rates. The aggregate balance sheet total of all banks in Switzerland rose by 2.9% to CHF 3,380.8 bn. Amounts due from banks and trading portfolios were higher, whereas liquid assets and financial investments were slightly lower. Amounts due in respect of customer deposits and amounts due to banks were up, but bonds were down. Assets under management exceeded CHF 9,000 bn for the first time ever, rising by 8.0% to CHF 9,069 bn. This was helped by the positive stock market trend, which caused securities holdings to increase by 7.7%. Amounts due to customers excluding sight deposits were up 9.5%, reflecting the trust customers place in Swiss banking and, according to the SNB, the effects of adjustment to the new balance sheet structure in the wake of the Credit Suisse takeover.

Figure 2

The editorial deadline for the Banking Barometer 2024 was August 16, 2023.