EY Banking Barometer 2023 – turning points

Banks show resilience and are optimistic

Banks in Switzerland have certainly shown resilience, in other words the ability to react to crises and even seize them as an opportunity. According to the latest EY Banking Barometer, around three-quarters of the banks polled expect operating profit for the financial year just ended to be positive.

There is uncertainty about how the economy will perform as a result of current macroeconomic events, and higher interest rates are increasing the risk of credit defaults – especially on residential mortgages and SME loans. But above all, the inflection point in interest rates marks a return to higher margins in the key interest margin business and in the longer term can be seen as a return to normality. In the short term, though, it may trigger the occasional correction. Virtually all the banks surveyed expect a positive performance in their operating business in the longer term.

Growth and innovation topics were dominant in the preceding years, while cost optimisation was somewhat less significant. New market players with a decentralised and heavily digitalised business model have forced traditional institutions to adopt more innovation and growth strategies. As a consequence of the highly uncertain environment at present, it would seem banks are now keen to again focus more closely on cost-cutting programmes and efficiency improvements. Almost twice as many participants as last year (36%, up from 19%) stated that they will be focusing on these issues this year. 

Structural change requires skills to be developed on an ongoing basis

Customer needs and expectations are seen as the most important driver for structural change. Advisory services should place greater emphasis on the added value for customers. Only around one-quarter (26%) of the banks polled support the view that shifting from producer-centric advice to an approach based on needs and expectations is a primary lever for profitable income growth.

Sustainability, and increasingly also the shortage of skilled staff, are issues that have been very high on banks’ strategic management agenda for some time now. 

Just 5% of the institutions polled claimed to have no difficulty recruiting skilled workers. The survey indicates that it is mainly corporate culture and the quality of management that affect a company’s attractiveness as an employer and its ability to retain staff for the long term, rather than purely monetary incentives.

Sustainability criteria in lending and the investment process have become more important. 96% of banks say they integrate sustainability in their investment advice. Only 4% (down from 11% the previous year) state that they do not take account of sustainability aspects when providing investment advice. Despite the ongoing wave of regulation, only 34% of Swiss banks now feel that the status quo in terms of regulations governing sustainability is satisfactory (compared with 40% a year earlier). 66% of the banks are keen to see the existing regulations fleshed out further given the lack of comparability and differing interpretation and implementation from bank to bank.