The Swiss Bankers Association (SBA) recently presented a wealth of data and offered a positive outlook on the sector. However, a deeper look reveals some less encouraging developments, particularly regarding assets under management and employment trends. Notably, cryptocurrencies appear to be replacing sustainable finance as a significant revenue opportunity.
Following the collapse of Credit Suisse (CS), the Swiss banking sector has regained stability. Switzerland remains the global leader in cross-border wealth management, and prospects appear favorable. This conclusion can indeed be drawn based on the publications «Banking Barometer» and «Swiss Banking Outlook» presented by the Swiss Bankers Association (SBA) at a press conference on Thursday
The annual Banking Barometer relies on data from the Swiss National Bank (SNB) and insights from surveys of SBA member organizations. The outlook is based on a survey conducted in July among 15 chief economists and chief investment officers from member organizations.
Employment Growth – With Caveats...
A deeper look beyond the raw numbers and statements provides more nuanced insights. Employment trends, a key focus for those in the financial sector, reveal a mixed picture.
The increase of 1,280 domestic employees in 2023, bringing the total to 93,299 (1.4 percent increase), is encouraging. Employment remained stable through mid-2024, with over half of the surveyed banks expecting stable employment and about a third even anticipating an increase in headcount during the second half of 2024—a notably high percentage, given that the typical response is usually «stable».
...But Big Questionmarks Regarding the Outlook
Swiss banks, however, have reduced their workforce abroad by 2.9 percent. Martin Hess, Head of Economic Policy, sees this as the continuation of a trend that has persisted for the past two to three years. Hess suggests that this trend is linked to geopolitical factors and the broader shift towards reshoring. While it may seem positive that banks are increasing domestic employment rather than expanding primarily abroad, as was previously the case, the driving forces behind this trend are political in nature and not conducive to the overall increase in global wealth, from which banks as asset managers significantly benefit.
Unfortunately, there’s also a caveat to the positive outlook. According to Hess, UBS, a major player in the industry and significant employer, was not allowed to participate in this survey due to legal reasons.
Maintaining the Top Spot– But Where’s the New Money?
Switzerland has managed to maintain its top position in cross-border wealth management, which is reassuring after the CS crisis. In 2023, assets under management grew by 6.9 percent to 8.39 trillion Swiss francs ($9.9 trillion) with 3.79 trillion francs belonging to foreign clients. Holdings of foreign private clients increased by 4.8 percent to 2.21 trillion francs.
However, according to Hess, most of this growth is attributed to favorable market conditions rather than new money inflows from abroad (exact figures on this are not available).
Not Only Efficient But Also Cost-Effective
However, the Banking Barometer also presents some figures that are rather disappointing, though they are understandable, e.g. the interest income, which was extremely lucrative for most banks in 2023. Nevertheless, the net interest income for domestically focused banks decreased by 0.7 percent. This decline was primarily due to the large banks, where interest income fell and interest expenses rose sharply. During the crisis, Credit Suisse could only obtain the urgently needed liquidity by paying significantly higher interest rates compared to the market rate—whether to the Swiss National Bank (SNB) for its emergency loans or to foreign market participants (while the effect would have been neutralized with domestic lenders).
Hess could not resist making a pointed remark (or «factual observation», depending on one's perspective) regarding the interest business. The SNB has reduced its own interest burden on banks' sight deposits in 2023 and 2024 through various measures, and has justified these actions accordingly. For Hess, it is unprecedented that the implementation of monetary policy must not only be efficient but also «cost-effective».
Declining Interest Rates Clouds Outlook...
The interest rate environment shaped by the SNB also impacted commission and service revenues, which declined again, bringing in 21.8 billion francs (–6.7 percent). According to Hess, the removal of account management fees, which banks had charged during the negative interest rate period, also played a role. On the other hand, buoyed by a strong stock market, trading revenues increased by 21.3 percent to 10.9 billion francs.
The outlook for the current year is assessed as stable by the 15 experts surveyed by the SBVg for the «Swiss Banking Outlook». In light of declining interest rates, success in interest income is expected to decline. However, the respondents believe that this will be at least partially offset by positive developments in commission, service, and trading revenues.
...And Will Not Stimulate Lending
Despite declining interest rates, experts expect credit growth to be below average in 2024. This is particularly true for mortgage loans, due to a decreasing supply in the real estate market and an increase in objections and construction regulations.
Regarding the corporate credit market, the majority of respondents anticipate that non-banks will increasingly provide loans to businesses, which will intensify competition and increase margin pressure.
Risk #1: Regulatory Density and Complexity
What are the major risks for the Swiss banking sector? The experts highlight, possibly influenced by their own experiences, the increasing density and complexity of regulation. This trend is expected to lead to significantly higher costs. Unlike a year ago, where only annual evaluations were made, all 15 respondents now consider regulatory density to be a «significant or even very significant risk.»
The interest rate environment is also becoming more challenging. The outlook notes that «declining interest rates and structurally and historically low net interest margins pose particular challenges for domestically focused banks.» The experts also identify budget banks (discount banks) and technology companies as «significant risks», as they increasingly enter the market, particularly in payment services.
UBS as a Strategic Advantage for Switzerland
However, it is important to also consider the opportunities alongside the risks. According to Hess, while politics often view UBS as a risk, it remains a strategic asset for Switzerland, especially given its large international corporations. Having a major bank is seen as a strategic advantage (or at least a continued opportunity) for the country.
The opportunities include continued improvements in customer experience through digital channels. New factors cited by experts are the strengthening international economy and a return to a neutral monetary policy in Switzerland, which are expected to boost demand for banking services.
Enthusiasm for Crypto and Disillusionment with Sustainable Finance
The perception of cryptocurrencies has shifted significantly. While only 13 percent believed in 2023 that cryptocurrencies would increase investment volumes, this number has risen to 50 percent this year.
Conversely, the enthusiasm for sustainable investing has waned. Only about half of the experts (compared to four-fifths last year) now believe that Sustainable Finance can attract new customer segments to high-margin products. The other half no longer sees a significant revenue opportunity in sustainable financial products for the Swiss banking sector.
