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.