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Banking Barometer 2025 - Balance

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Despite narrowing profit margins and growing challenges, the majority of Swiss banks remain optimistic about future growth, according to the EY Banking Barometer 2025.

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In brief

  • Swiss banks remain optimistic about long-term growth, despite near-term challenges from falling interest margins and stricter regulations in the Swiss financial system.
  • Cost efficiency, the integration of AI in Swiss banking, and compliance with sustainability standards are central as banks adapt to shifting market dynamics.
  • Real estate stability and low credit impairments bolster confidence, though macroeconomic headwinds and risks in the SME loan market require vigilance.

The results of the EY Banking Barometer 2025 reflect a cautious optimism among Swiss banks. While they can look back on another successful financial year, Swiss banks are less confident about the near future than they were a year ago, due to structural changes in the Swiss banking industry. New balances are emerging in the Swiss banking sector, not only as a result of the Credit Suisse takeover.

For Swiss banks, the key topics for the coming years are optimizing their results amid falling interest rates, tighter prudential supervision, and addressing Artificial Intelligence in the Swiss financial market, and bank sustainability.

Balancing growth and cost efficiency

The exuberance of Swiss banks during the 2023 “interest rate boom” has subsided following rate cuts by the Swiss National Bank (SNB) in 2024. Nearly 39% of banks now anticipate declining profits for 2024, with 40% expecting a continued downturn in the Swiss banking industry in the medium term. Despite this, long-term optimism remains high, with 85% predicting eventual revenue growth.

The years of negative interest rates (2014–2021) led to expanded loan portfolios and ballooning balance sheets, particularly among Swiss retail banks. However, these larger balance sheets now constrain further growth. In the coming years, banks will have to strike the right balance between growth and cost discipline to address structural changes in banking. Consequently, 39% of banks say that cost reduction and efficiency improvement are their priorities, reflecting a focus on bank cost efficiency.

The strong growth in the balance sheet in recent years is now increasingly becoming a limiting factor. Banks will become even more selective in their financing business and will have to tie up deposits for longer.

The return of margin erosion

After a brief reprieve, the Swiss banking industry in Switzerland is once again grappling with declining interest margins. The majority (74%) expect narrower margins over the next two years, primarily due to rising refinancing costs. However, only 10% foresee a return to the low-margin levels seen during the negative interest rate era.

The aftermath of Credit Suisse’s exit has fundamentally changed the balance of power in the market, particularly in corporate lending within the Swiss banking sector. While two-thirds of banks report increased demand for corporate financing, only 49% are converting this into higher margins. To counteract ongoing margin erosion, banks are focusing on enhanced customer experiences and a more systematic client acquisition.

Record-low credit impairment expectations

One silver lining of declining interest rates is the stabilization of the real estate market. Valuations of real estate property, the financing of which makes up 77% of Swiss banks’ loan portfolios, continue to rise, reducing credit risk exposure. Consequently, only 7% of banks anticipate higher credit impairments on mortgage portfolios—the lowest level since the inception of the Banking Barometer in 2010.

The outlook for SME loans in the Swiss financial system is slightly less optimistic, with only 33% of banks expecting higher provisions in the short term. Macroeconomic headwinds, including energy costs and potential U.S. import tariffs, could challenge this positive sentiment. Regional banks, particularly cantonal institutions, are more cautious, with 65% predicting increased provisions for SME loans in the medium term.

Long-term optimism
remain optimistic about long-term revenue growth despite short-term challenges.
Cost efficiency
prioritize cost reduction and efficiency improvements for the next financial year.
Narrowing margins
expect profit margins to narrow further over the next two years.
Sustainability and ESG
incorporate ESG criteria into lending decisions.

Enhanced regulatory oversight on the horizon

The collapse of Credit Suisse marks a watershed moment for Swiss financial market regulation and supervision. Increased transparency in enforcement proceedings (Name and Shame) and heightened accountability for senior management (Senior Manager Regime) are among the potentially most effective measures, cited by 28% of surveyed banks.

In contrast, only 13% support expanded supervisory audits by FINMA, Switzerland’s financial market authority. Banks remain wary of potential infringements on operational autonomy, emphasizing the importance of preserving efficiency and freedom in governance.

AI continues to gain momentum

Artificial Intelligence (AI) continues to gain traction within the banking industry in Switzerland. The number of banks implementing AI solutions tripled from 6% in 2023 to 15% in 2024. Key applications include process automation (55%) and compliance (54%). Despite this progress, the industry is not yet prepared for the expected regulatory requirements, with 19% of banks admitting they are unready to meet AI-related regulation.

AI has climbed the priority list from 19th to 6th place among key focus areas for banks. As AI adoption expands, banks must address regulatory concerns and establish robust risk management frameworks to leverage its full potential. The integration of AI in Swiss banking promises to redefine financial innovation and structural change in the industry.

A well-thought-out AI strategy and AI governance are crucial for minimizing the risks of AI and realizing the opportunities.

Sustainability: shifting focus from clients to compliance

While sustainability remains a prominent issue, its significance has waned compared to tech priorities like AI and Big Data. The percentage of banks incorporating ESG criteria into lending decisions has dropped slightly from 72% to 67%. Similarly, sustainable investments are no longer seen as a key differentiator, with only 1% of banks citing them as a competitive advantage.

Instead, regulatory compliance has taken center stage. A third (33%) of banks identify reporting obligations as their primary sustainability challenge, overshadowing client demands, which only 10% consider a top concern. This trend reflects the growing complexity of ESG regulations and the reputational risks associated with greenwashing allegations. Despite these hurdles, the banking sector acknowledges the critical role of Swiss sustainable finance in its long-term strategy.

Banking Barometer 2025

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Summary

The EY Banking Barometer 2025 shows that Swiss banks will not be able to maintain the record profit levels of the past year but remain confident in the long-term outlook of their business model. Now, the focus shifts to driving innovation and efficiency to ensure sustainable success in an evolving financial landscape.

Acknowledgement

A special thanks goes to Fredrik Berglund for his excellent cooperation and valuable contribution to the Banking Barometer 2025.

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