31/08/22

SWITZERLAND: Banking Year of Record Assets Under Threat.

As published on finews.asia, Wednesday 31 August, 2022.

Last year was a record year for Swiss banks. But the institutions are facing a far stormier environment this year, as an industry barometer shows.

A report published today by The Swiss Bankers Association (SBA) lauded last year's industry performance as the best since the financial crisis, but the first half of this year presented triple challenges from central banks, geopolitical uncertainty, and global supply chain problems. So what is to come?

Last year banks operating in Switzerland expanded their assets under management (AUM) by some 12 percent to 8.8 trillion Swiss francs ($9.6 trillion) but it has indeed come to pass that banks for the most part are reporting sharply lower levels this year. SBA said in its report that in the first half of 2022, the decline in assets brought them "significantly below their peak level."

Results released by Swiss wealth managers so far this year reflect this. Among those being tracked by finews.asia, all but one have reported declines in assets under management during the first half. It remains to be seen if the banks can make up for some of those losses in the second half of the year.

Switzerland remained the world's number one in cross-border wealth management in 2021, and total assets under management grew 10.9 percent last year to around 2.4 trillion Swiss francs ($2.6 trillion), according to the report. Martin Hess, the SBA head of economic policy said he expected this to have declined by about 11 percent in the first half of the year.

But a report from Boston Consulting Group (BCG) in June predicted that in the next four years, Switzerland will fall out of the world's top three financial centers, into the fourth position behind the US, Hong Kong, and the UK. Swiss financial assets are expected to grow 2.8 percent by 2026.

Despite the asset growth, Switzerland is still expected to cede its number one spot according to the BCG report. Hess put this into perspective, noting that asset growth in China has been "phenomenal" and it isn't a case of Switzerland losing its attractiveness but rather that "Chinese are getting faster than Europeans." Also, given economic developments in China, he is curious to see how assets develop further, Hess said.

In June, the Swiss National Bank (SNB) raised its benchmark interest rate by 50 basis points to -0.25 percent, prompting several banks to end their policy of charging clients for cash balances over a certain level. Hess said that the current negative SNB rate "won't remain that way for long" and the end is in sight, but won't mean that we will find ourselves in "a phase of high-interest rates."

Banks seemed to anticipate the change, and increased the duration of fixed-rate mortgages, by 30 percent with a remaining duration of over 5 years. The average domestic mortgage interest rate fell to 1.21 percent from 1.28 percent in 2021, and with that, the "floor has been reached," according to Hess.

Last year, banks expanded their headcount both domestically and abroad, with 325 full-time equivalent positions added domestically and 1,412 abroad, bringing the respective totals to 89,940 and 94,146. Domestically 3,800 left their jobs for one reason or another with 4,125 new additions. Abroad, there were 5,392 leavers with 6,805 new hires, according to the report.

It will be interesting to see at this time next year what the figure will be as Credit Suisse is reportedly considering cutting thousands of jobs as part of a restructuring effort.