Net income and interest operations
Net income constrained by stagnating interest operations
After an upbeat result in 2023, the financial experts foresee a flat trend in Swiss banks’ net income in 2024. The growth outlook is clouded by falling interest margins.
After aggregate net income showed a pleasing increase in 2023, especially for domestically oriented banks in Switzerland, those surveyed predict that the 2024 result will be in line with last year’s high figure. However, their opinions differ: 29% expect net income to be higher, 36% think it will be lower, and only 29% forecast no change. Declining interest income detracts from what is otherwise a very positive outlook. The respondents anticipate a further fall in interest rates as well as fiercer competition in lending business, which will weigh on interest margins. Interest income in 2023 was hit by high expenses related to Credit Suisse. Across the industry, the absence of this one-time factor in 2024 should cushion the impact of dwindling margins on interest income. The experts also believe that a positive trend in the results from commission business, services and trading activities can offset some or all of the effects of pressure on interest margins. They expect both asset values and market price volatility to continue rising this year.
Figure 7
Figure 8
The survey respondents forecast lending growth below the average level from the last five years, particularly for mortgages. Some 40% expect growth in mortgage lending to slow down due to contracting supply on the real estate market and an increase in objections and building regulations. Growth in other forms of lending is set to be in line with the multi-year average of about 2.0% in 2024, although the mildly positive macroeconomic outlook for Europe and Switzerland and rising real incomes could result in a higher-than-expected figure.
The financial market experts answered various questions on the prospects for other aspects of interest operations. The majority agree that non-banks will increasingly move into corporate lending going forward, making competition even more intense. Many also agree with the statement that Switzerland’s very low interest margins by international standards are of a structural nature. This points to major challenges for the Swiss banks in the coming years with regard to interest operations, a view further underscored by a majority of experts agreeing that current interest margins are not sustainable. Nevertheless, the interest earned on sight deposits at the SNB still makes them an attractive investment proposition for Swiss banks in spite of the increased minimum reserve requirement.
Figure 9