7 minute read 11 Jan 2022
Jazz Musician Playing Saxophone

Banking Barometer 2022 – Optimism

Authors
Patrick Schwaller

Managing Partner Audit Financial Services | Switzerland

Reliable and trusted business partner. Gets things done. Pragmatic. Enjoys mountaineering.

Olaf Toepfer

Banking & Capital Markets Leader | Switzerland

Transformation leader. Passionate about shaping the banking industry of tomorrow. Father of three kids.

Timo D’Ambrosio

Director Audit Financial Services | Switzerland

Reliable and passionate auditor. Specialized in Retail Banking. Gets things done. Loves to play tennis.

Corina Gruenenfelder

Financial Services Consulting | Risk & Actuarial | Switzerland

Enthusiastic quant and analytics leader. Passionate about sustainable finance and climate risk modelling. Diversity and inclusiveness advocate. Mountaineer and backcountry skier. Avid traveler.

7 minute read 11 Jan 2022

The Swiss banks are looking to the future with optimism, according to the survey. They are keen to leverage the positive momentum and focus on growth. However, euphoria would be misplaced – structural challenges still need to be overcome.

In Brief
  • For the current financial year, nine out of ten banks are expecting a higher operating result than in the previous year.
  • Two-thirds are expecting that inflation in Switzerland will not exceed 2% in the medium and long term and that interest rates will remain low.
  • As regards sustainability, there are two camps: 45% of the banks view their sustainable investments as the main lever for climate protection, while 43% consider this lever to be their lending business. 
  • Following their previous restraint, more than half are planning to offer investment options for cryptocurrencies in the next three years. 

Optimistic view of the future – despite the COVID-19 pandemic

Swiss banks have shown considerable resilience during the COVID-19 pandemic – which has now been ongoing for almost two years – and achieved solid results. Thanks also to unprecedented government stimulus measures for the national economy, no significant defaults have been recorded in Swiss lending up to now and banks have been able to benefit from the positive mood in the financial markets in the past few months in both their trading and commission business. 

The banks are looking to the future with optimism – but euphoria would be misplaced, since the structural challenges with margin erosion in the investment business and interest rates have not vanished into thin air.
Patrick Schwaller
Managing Partner Audit Financial Services | Switzerland

Confidence regarding operating income

In the light of these developments, it is not surprising that the banks themselves are significantly more positive about their current operating performance than one year ago. 

Financial year 2021

87%

of the institutions surveyed are expecting an increase in operating income for the financial year 2021.

As many as 87% of the institutions surveyed expect an increase in operating income for the 2021 financial year, corresponding to a marked increase of 34 percentage points compared with the previous year. Banks are also optimistic about the future: 87% of the institutions surveyed expect positive performance from the operating business in both the short and the long term. 

The banks are keen to leverage the positive momentum and focus on further growth next year. Time will tell whether they will succeed.
Timo D’Ambrosio
Director Audit Financial Services | Switzerland
Black jazz performer plays the saxophone on stage

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Banks expect limited inflation and low interest rates

The sudden rise in inflation – particularly in the United States and the European Union – has already been worrying the financial markets for a number of months now. Switzerland has so far been spared. If you listen to what the Swiss banks are saying, that's not going to change in future. Two-thirds of the banks surveyed (66%) do not expect inflation of over 2% in Switzerland in the medium to long term.

Inflation

66%

of the banks are expecting that inflation will not exceed the 2% mark in Switzerland in the medium to long term.

Based on this long-term inflation expectation, it is hardly surprising that the banks currently do not expect an about-turn in monetary policy or an end to the low interest rate policy in Switzerland. Passing on negative interest rates to customers will continue to remain a topical issue in 2022. For nearly a quarter of the banks surveyed (23%), customers with assets of as little as CHF 100,000 will have to expect negative interest rates in the form of additional charges. This threshold value was considerably higher in the past.

Low-interest environment

23%

of the banks admit that their customers already have to expect negative interest on assets worth100,000 Swiss Francs or more. This threshold value was considerably higher in the past.

A quick look at foreign markets, however, makes the banks realise that rising interest rates are not just a theoretical risk – they could actually materialise. The considerable rise in rates of inflation in many countries in recent months has resulted in banks focusing more on the potential risk from interest rates rising rapidly and sharply. More than a quarter of the banks (26%), significantly more than in the previous year (13%), view this scenario as the greatest challenge for their interest rate risk management.

Investing and lending to protect the climate and a desire for regulation

Almost half of those surveyed (45%) state that sustainable investment is the best way for them to protect the climate effectively. Lending came just behind in second place, rated as the main lever for sustainable climate protection by 43% of the banks.

In lending, just under half of the banks surveyed said that they take sustainability factors into account when lending to commercial customers. While a rapid move towards more sustainable lending has been seen in the past few years, a status quo now seems to have become established; only one-quarter of banks continue to categorically rule out taking ESG factors into account when lending – just as in the previous year.

Regulation

44%

of the banks surveyed would like to see existing regulations substantiated with regard to sustainability.

With clear positioning by various countries and supervisory authorities, a distinct trend is evident in regulation. The Banking Barometer shows that 44% of the banks surveyed this year want existing regulations to be made more specific in order to meet rising expectations, exploit potential and avoid “greenwashing”.

Expectations that the Swiss banks will make their contribution to climate protection are rising all the time. That's why banks are increasingly taking sustainability criteria into account in their lending as a lever for a more sustainable real economy.
Corina Gruenenfelder
Financial Services Consulting | Risk & Actuarial | Switzerland

Majority planning investment products for cryptocurrencies

While Swiss banks have so far largely held off providing investment opportunities in cryptocurrencies, more than half of the banks surveyed now plan to launch a range of crypto investment products within the next three years (55%).

Cryptocurrencies

55%

of the banks surveyed are planning to launch offers for investments in crypto assets within the next three years.

Private banks in particular are showing great interest in this new asset class (68%). More than half of the banks surveyed (55%) expect cryptocurrencies to become established as an asset class like equities and bonds in the long term. The sustainability goals also do not appear to prevent banks from building up a suitable range of crypto products. More than half of all banks (54%) take the view that providing investment opportunities in cryptocurrencies does not run counter to their bank’s sustainability goals.

Focus on customers to take advantage of the momentum

Having come through the crises of recent years in good shape, Swiss banks are now in a position of strength and are feeling optimistic despite a challenging environment. But further changes are inevitable to keep up with the speed of developments in the sector. 

Following a phase of resilience, the crucial question for banks is how to overcome rigidity and take advantage of market opportunities for profitable growth in a more agile way. The key may lie in the further refining of customer-focused business models.
Olaf Toepfer
Banking & Capital Markets Leader | Switzerland

The institutions surveyed share this view – once again this year the banks are focusing on customers to be able to achieve more profitable growth in future. They are keen to become systematic about acquiring, developing and retaining customers (42%), gain a better understanding of their customers (38%) and improve the customer experience (37%).
These are the developments and objectives the banks have to take into account if they are to retain their ability to generate value added.

Summary

  • Optimism prevails in the Swiss banks.
  • In the second year of the COVID-19 pandemic, the banks once again proved to be extremely resilient and knew how to exploit the favourable market environment.
  • The general future prospects and own business performance are clearly rated more positively than one year ago.
  • The banks surveyed expect inflation will be limited and interest rates will stay low in Switzerland.
  • Sustainability remains a key issue for the majority of banks; at the same time, more than half of them are planning new investment products in the area of cryptocurrencies.
  • The banks are keen to leverage the positive momentum and focus on their customers by providing personal consultation.
  • However, the optimistic attitude is no reason for euphoria – structural challenges still need to be overcome with margin erosion in the investment business and interest rates.

About this article

Authors
Patrick Schwaller

Managing Partner Audit Financial Services | Switzerland

Reliable and trusted business partner. Gets things done. Pragmatic. Enjoys mountaineering.

Olaf Toepfer

Banking & Capital Markets Leader | Switzerland

Transformation leader. Passionate about shaping the banking industry of tomorrow. Father of three kids.

Timo D’Ambrosio

Director Audit Financial Services | Switzerland

Reliable and passionate auditor. Specialized in Retail Banking. Gets things done. Loves to play tennis.

Corina Gruenenfelder

Financial Services Consulting | Risk & Actuarial | Switzerland

Enthusiastic quant and analytics leader. Passionate about sustainable finance and climate risk modelling. Diversity and inclusiveness advocate. Mountaineer and backcountry skier. Avid traveler.