Banking Barometer 2021 – Resilience

According to the survey, Swiss banks are resilient to the consequences of the coronavirus pandemic and are optimistic about the future.

Global economy in a state of emergency – banks show themselves to be resilient

The global economy has been in a state of emergency since the outbreak of the coronavirus pandemic at the start of 2020. Only determined intervention by governments and central banks prevented a collapse. In the lending business, the crisis led to an increase in credit risks in individual sectors, but significant loan defaults have so far been avoided due to the comprehensive government rescue measures. At the same time, the surge in crisis-induced volatility led to more trading by customers and investors again, boosting banks’ trading and commission business. Swiss banks entered the coronavirus crisis from a position of strength.

The multi-year ‘fitness regime’ in place since the 2008 financial crisis has paid off and banks have shown themselves to be highly resilient during this crisis. Since that time banks have reduced risks and further strengthened their capital and liquidity buffers. It is therefore hardly surprising that the banks have so far coped well with the endurance test posed by the coronavirus pandemic: solid results, no system outages, a largely smooth transition to working from home and no negative headlines. The banks have also proven deft and dependable in dealing with the deluge of corporate customers brought about by state-subsidized loans programs, which they themselves proactively helped to shape. In short, the banks have made an important contribution to overcoming the crisis and, unlike in the financial crisis in 2008, have been part of the solution not the problem. 

Given these developments, it is unsurprising that by now only 11% of the banks surveyed categorically rule out passing on negative interest rates to private customers. Last year it was 21%, while five years ago the figure was as high as 70%. Charging negative interest on customer balances is therefore no longer taboo, especially for customers who do not use any other revenue-generating services for the bank apart from plain account management.

For the time being, the talk about the threshold for negative interest rates has somewhat calmed down this year and 50% of banks – about the same amount as last year – say they intend to lower this bar. One reason is that the SNB is increasing the exemption threshold for paying negative interest. Another is that, in the wake of the coronavirus pandemic, the banks have deliberately shown restraint in passing on negative interest, presumably also for reputational reasons. But due to the increasing pressure on the banks’ revenues and earnings, it appears this will be a only momentary state of affairs.

Coronavirus crisis providing new perspectives on costs and innovation

As everyone knows, in every crisis lies an opportunity. For instance, the coronavirus pandemic has led to an unexpected acceleration in the digitalization of business models and processes. The banks had to switch to working from home in a very short time and, thanks to the investment they have made in IT in recent years, they have mastered this challenge quite successfully and without any significant problems. Bank customers have also increasingly used digital channels to conduct their banking transactions, which has ultimately led to online and mobile banking being much more widely accepted today than before the crisis.

These experiences have brought new perspectives on costs and innovation, which can be of service given the challenges lying ahead. With the threat of loan defaults, gradual margin erosion in the lending and investment businesses, ongoing competition from challenger banks and FinTechs, and a largely saturated domestic market, it is unsurprising that the banks want to focus primarily on cost cutting (at 46%, it is the most frequently mentioned issue in focus) over the next six to twelve months. It is therefore only natural that jobs are increasingly being moved from the expensive centers to the cheaper periphery or to employees’ home, at the same time as the existing office real estate and branch networks are being reviewed.

But savings alone will not be enough to ensure the banks still have the ability to create value in the future. The banks do not therefore only want to focus on the costs side. 44% of the banks cited the topic of “innovation and growth” as the second most important area to focus on. To continue with the expansion of digital channels and to take adequate account of changing customer needs, further investments in innovation are needed, on top of cost-cutting measures.

Sustainability is also gaining importance in the lending business

The topic of sustainability has shifted increasingly into the focus of investors and customers in recent years. There is no stopping the “green wave” in 2020 either, and it has now reached the banks’ lending business. Where last year, 56% of banks said they would not consider sustainability/ESG factors when lending to commercial customers, this year there has been a significant shift in opinion. and only 27% of banks still want to ignore ESG criteria when lending. This significant decrease over the course of just one year underlines the urgency of adequately integrating ESG into the banks’ lending business.