Net income
Swiss banks posted a positive overall performance in 2023, with aggregate net income up 2.9% year-on-year. Factoring in the extraordinary income from the takeover of Credit Suisse by UBS, the banking sector recorded an annual profit of CHF 25.9 bn.
The net income of all banks in Switzerland was CHF 72.3 bn in 2023, an increase of 2.9% year-on-year. This is due to sharp rises in net income at the cantonal banks (up 17.6%) and stock exchange banks (up 20.4%). There were improvements in the result from trading activities (up 21.3%) and the other result from ordinary activities (up 13.9%). The result from trading activities is probably attributable to a successful year on the stock markets. The pleasing figures for the sector as a whole in 2023 should be viewed in the context of numerous one-time effects – both positive and negative – related to the integration of Credit Suisse into UBS. Despite very good results from interest operations for domestically oriented banks, the interest income of banks in Switzerland overall declined by a modest 0.7%, mainly due to high interest expense at the big banks. The latter’s contribution to aggregate net income declined by a substantial 6.2 percentage points, while the share attributable to the cantonal and stock exchange banks saw the clearest growth.
TRENDS IN 2024
Waning inflationary pressure and moderate growth dominate first half of 2024 in Switzerland
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Trends in 2023
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 results from ordinary activities. The 2.9% growth in aggregate net income in 2023 was largely due to improvements in the result from trading activities and other results from ordinary activities.
As in 2022, the result from interest operations was the biggest single contributor to net income, accounting for 33.3% of the total despite a slight fall of 0.7%. Following the SNB’s interest rate turnaround in 2022, the policy rate rose to 1.75% in 2023. The impact of the rate hikes on interest expense and interest income is clear to see. With interest margins and lending volumes both up, banks in Switzerland recorded a very good result from interest operations overall, despite a slight drop caused by one-time effects linked to the takeover of Credit Suisse by UBS. Interest income rose by CHF 40.2 bn (86.3%), while interest expense was up CHF 40.4 bn (182.8%). The high interest expense was due to banks’ higher refinancing costs and, in particular, the rise in interest paid on customer deposits. The boost to interest income was attributable to loans to customers, and also to income on the banks’ sight deposits with the SNB, which climbed from CHF 0.8 bn at the end of 2022 to CHF 7.4 bn at the end of 2023 on the back of interest rate rises. The result from commission business and services declined once again, by 6.7%. Having peaked at CHF 25.5 bn in 2021, it has now fallen back to CHF 21.8 bn, while its share of net income has declined from 35.9% to 30.1%. As in 2022, the decrease was caused by a drop in commission income from securities trading and investment activities, together with declining fees in deposit business. The biggest relative increase in 2023 was in the result from trading activities, which rose to CHF 10.9 bn, back at the level seen in 2020 and up 21.3% compared with 2022. One important reason for this is the increased market volatility seen in 2023.
Figure 7
Net income by bank category
Figure 8
Figure 9
With the exception of the big banks, all bank categories saw their aggregate net income rise year-on-year in 2023. This is reflected in their share of total net income, with the big banks down by 6.2 percentage points and the cantonal and stock exchange banks in particular up.
The cantonal and stock exchange banks recorded especially large year-on-year growth in their share of net income. The cantonal banks climbed by 2.0 percentage points to 15.7%, reflecting a growth in net income of CHF 1,703.6 mn, mainly thanks to a jump in the result from interest operations, up 26.8% or CHF 1,582.4 mn year-on-year. The stock exchange banks also saw their share of net income rise, by 2.1 percentage points, though unlike at the cantonal banks, this was due to the other result from ordinary activities, which stood at CHF 1,145.3 mn in 2023, back in positive territory and massively up on a loss of CHF 142.1 mn a year earlier. The result from commission business and services, which accounts for roughly half of the stock exchange banks’ net income, stagnated while the result from interest operations rose by CHF 516 mn (24.8%). Overall, the stock exchange banks’ net income was up CHF 1,759.8 mn (20.4%). The regional and savings banks, Raiffeisen banks, foreign banks and private bankers all recorded net income growth in excess of 10%. Strikingly, in all cases the largest contributor was the improved result from interest operations. The Raiffeisen banks, for example, which generate around three quarters of their net income from this business, saw their total net income rise by CHF 547.3 mn, with the lion’s share attributable to a CHF 529.9 mn (20.6%) increase in the result from interest operations. The regional and cantonal banks likewise posted an increase of more than 20%. This is due to the improved net interest margin following the interest rate hikes, combined with higher income from interest on sight deposits at the SNB as part of the latter’s interest rate policy. The proportion of overall net income attributable to interest operations is much higher at the domestically oriented banks than the big banks, underscoring its importance to the former. Despite the positive performance in interest operations for most bank categories, the result from interest operations edged down by 0.7% overall. This was due to the sharp drop in this figure at the big banks – probably caused mainly by one-time effects related to the takeover of Credit Suisse by UBS (not shown) – down 52.5% from CHF 8,089.5 mn in 2022 to CHF 3,841.2 mn in 2023. As a consequence, the big banks’ share of the overall result from interest operations at Swiss banks declined from 33.0% to 15.8% over the same period. In spite of strong growth in trading activities (up 39.7%) and the other result from ordinary activities (up 4.9%), the big banks saw their net income fall by CHF 3,448.9 mn (10.0%), this being compounded by the result from commission business and services. Their share of total net income thus slipped back from 49.2% to 43.0%. Looking back over a ten-year period, the stock exchange banks’ share of total net income grew steadily between 2013 and 2021, before falling back for the first time in 2022, then rising sharply to 14.4% in 2023. The cantonal banks’ share also jumped in 2023, to 15.7%, after remaining constant over the previous decade. The private bankers’ contribution fell from 3.7% to 0.6% over the same period, that of the foreign banks from 16.7% to 12.5%. The latter’s decline is due to a changed environment in the wake of the financial crisis and the fact that some banks have cut their international activities back to specific fields of business as part of restructuring programmes, which has led to shifts within a group or sales of business units. However, foreign banks’ share of net income has been rising again since 2021. The big banks’ share has been steadily falling since 2020, from over half of net income to 43.0% in 2023. This highlights the structural change in the Swiss banking landscape which was underscored by the Credit Suisse takeover.
Annual profit and taxes
Gross operating profit rose by 1.5% year-on-year to CHF 27.2 bn. After value adjustments and taxes, and including the extraordinary income of CHF 18.3 bn from the UBS takeover of Credit Suisse, the annual profit of banks in Switzerland stood at CHF 25.9 bn.
The small (2.9%) increase in aggregate net income translated into a gross operating profit of CHF 27.2 bn in 2023, CHF 0.4 bn (1.5%) higher than in 2022. Operating expenses, comprising personnel and administrative expenses, rose by 3.8%. The growth in personnel expenses reflects the increase in banks’ headcount. After deduction of depreciation, amortisation, value adjustments and provisions, the Swiss banks’ operating result was CHF 11.7 bn (up 39.5%), despite gross operating profit remaining broadly in line with the previous year. The main reason for this pleasing result is the sharp (approximately 36%) year-on-year decline in depreciation and amortisation, which had been very high in 2022 because of Credit Suisse. The extraordinary income of CHF 18.7 bn is noticeably high. No less than CHF 18.3 bn of this is attributable to the big banks and, in large part, to the UBS takeover of Credit Suisse, with the key factor being one-time negative goodwill of USD 29 bn. After deduction of extraordinary expenses, the Swiss banks posted an extraordinary net income of CHF 17.6 bn. The banks paid CHF 3.2 bn in taxes, CHF 1.1 bn (52.2%) more than the previous year. This adds up to an annual profit (result of the period) of CHF 25.9 bn, though this cannot be compared with previous years. Adjusting for the big banks’ extraordinary net income to enable a like-for-like comparison, the figure is around CHF 7.6 bn, 16.7% higher than the CHF 6.5 bn recorded in 2022.
Figure 10
Breakdown of result of the period for banks in Switzerland as at end-2023
In CHF bn
Chart: Swiss Bankers Association . Source: Swiss National Bank . Created with Datawrapper
Waning inflationary pressure and moderate growth dominate first half of 2024 in Switzerland
The economic environment for Swiss banks is improving slightly. The sector’s consensus forecast for GDP growth in 2024 is 1.2%. Declining inflation is making life noticeably easier for the Swiss economy. The SNB has responded by lowering its policy rate in two steps during the first half of 2024, to 1.25%. Geopolitical uncertainties remain.
The international economic trend in the first half of 2024 is comparable to that seen in 2023. In response to persistent uncertainty surrounding inflation expectations and high geopolitical risks, central banks in the industrialised nations have become more cautious in their monetary policy easing, compared with their stance at the end of the first quarter. Economic growth in the industrialised nations remains muted, with a figure of 1.7% predicted for the full year. For Switzerland, the Swiss Banking Outlook 2024 predicts modest GDP growth of 1.2% for the year. The SNB has lowered its policy rate, to 1.25% in July, in response to waning inflationary pressure at home. The number of corporate bankruptcies in Switzerland reached a high after the first half of the year, up 9.4%. At present, nine firms a day are going under. That said, the number of new companies being set up remains high. Growth in real estate prices slowed further in the first months of 2024 in reaction to higher interest rates. Prices for owner-occupied properties continued to rise, albeit at a slower rate, while those for residential investment properties stagnated. The most recent interest rate cuts have not yet fed through into property prices. This is consistent with the Swiss Banking Outlook 2024 forecast of below-average growth in mortgage loans for 2024.
Both the euro and the US dollar appreciated slightly against the Swiss franc in the first half of 2024. The EUR was trading at CHF 0.95 at the end of July, and the USD at CHF 0.88. Following price gains in 2023, the Swiss Market Index (SMI) posted a further sharp rise in the first half of 2024. It stood at around 12,317 points at the end of July, up 10.6% on the end of 2023. The SBA’s sector outlook is optimistic for the SMI going forward, forecasting a rise of 12% for 2024 as a whole. Exchanges outside Switzerland posted an even more positive performance in the first months of the year, with the broad-based US S&P 500 index, for example, up around 16%. This is largely attributable to better-than-expected quarterly numbers from US companies and hopes of interest rate cuts. However, the Swiss franc’s continuing strength cancelled out some of the price gains on foreign stocks. The Swiss Banking Outlook 2024 expects the aggregate net income of banks in Switzerland to stagnate in 2024 compared with 2023. The financial market experts surveyed are predicting a slight contraction in interest margins in response to lower headline interest rates, but also growth in investment and securities business. The Swiss Banking Outlook 2024 consequently predicts an improvement in the result from commission business and services as a result of increased trading volumes, along with higher income from trading activities. By contrast, growth in mortgage lending is expected to remain slight over the rest of 2024.