- Nearly 90% of Swiss banks surveyed expect operating profit to be higher this financial year.
- Two-thirds of the institutions surveyed expect inflation to remain limited and interest rates to remain low in Switzerland.
- Sustainable investments and loans in banking as the greatest lever for protecting the climate.
- Investment opportunities in the field of cryptocurrencies attractive for every second bank.
The results of the Banking Barometer 2022 from EY in Switzerland show that Swiss banks have come through the coronavirus pandemic in good shape up to now. Views on future performance in the financial markets and on their own business performance are much more positive than a year ago. The banks surveyed also expect that 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 products for investing in cryptocurrencies.
Confidence in operating profit for 2021 and beyond
Banks have shown considerable resilience in the pandemic – which has now been ongoing for almost two years – and achieved solid results. 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 of margin erosion in the investment and interest rate business have not vanished into thin air,” is how Patrick Schwaller, Managing Partner, Audit Financial Services, summarises the current mood.
In the light of these developments, it is not surprising that the banks themselves are positive about their current operating performance. As many as 87% of the institutions surveyed expect an increase in operating profit for the 2021 financial year, up by 34 percentage points from 53% in the previous year – a significant rise. Banks are also optimistic about the future: 87% of the institutions surveyed expect operating performance to be positive in both the short and the long term. Timo D’Ambrosio from EY’s Audit Financial Services team says: “The banks are keen to use the positive momentum and focus on further growth next year. Time will tell whether they succeed.”
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 and Swiss banks do not see this changing in the future. Two-thirds of the banks surveyed (66%) do not expect inflation of over 2% in Switzerland in the medium to long term.
Based on this long-term inflation expectation, it is hardly surprising that the banks also do not expect an about-turn in monetary policy or an end to the low interest rate policy. Thus, the issue of passing on negative interest rates to customers will remain topical in 2022, as almost a quarter of the banks surveyed (23%) intend to pass negative interest rates on to customers with assets of as little as CHF 100,000 in the form of additional charges.
A quick look at foreign markets, however, makes clear to the banks that rising interest rates are not just a theoretical danger – they could actually occur. 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 such a 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 factor for sustainable climate protection by 43% of the banks. “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 factor for a more sustainable real economy,” says Corina Grünenfelder, Expert in Sustainability Risk Management.
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 a quarter of banks continue to categorically rule out taking ESG factors into account when lending – just as in the previous year.
With clear positioning by various countries and supervisory authorities, a distinct trend is evident in regulation. The EY poll 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.
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%).
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 traditional investment products 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 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. Moving further in the direction of customer-focused business models could be the key,” says Olaf Toepfer, Partner and Head of Banking & Capital Markets.
The institutions surveyed share this view: once again this year, the banks are focusing on customers in order to be able to achieve more profitable growth in future. They are keen to be 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 in the long term.
Information on the study
The EY Bank Barometer is based on a survey of 90 managers (executive board members) of various banks throughout Switzerland. The Swiss units of the two big banks were also surveyed. Their views have been drawn on in the general evaluations but have not been included in the evaluations by type of bank. Of the banks surveyed, 29 percent are private banks, 25 percent are foreign banks, 27 percent are regional banks, and 19 percent are cantonal banks. 70 percent of the banks are based in the German-speaking part of Switzerland, 20 percent in Western Switzerland, and 10 percent in Ticino. The survey was conducted in November 2021. The data are collected and analyzed by EY in Switzerland.
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