Troubled Swiss banking sector sees drop in profits

Developments on the financial markets took their toll on Swiss banks last year. According to the Swiss Bankers Association (SBA), the profits of the local financial institutions clearly declined.

But thanks to the turnaround in interest rates banks are looking ahead with confidence.

Specifically, aggregate annual profits fell by 16.3% to CHF6.5 billion ($7.3 billion) in 2022, according to the SBA Banking Barometer. By contrast, aggregate operating profit declined only slightly, by -0.9% to CHF70.3 billion.

“Considering the circumstances, this is a solid result,” is how Martin Hess, Head of Economic Policy at the SBA, sums up the 2022 banking year.

The lower profit figures were due to the turnaround in interest rates, negative developments on the stock markets and the shifting of client funds in the run-up to the takeover of Credit Suisse by UBS, according to the report published on Tuesday.

The aggregate balance sheets of banks declined (-6.9% to CHF3,340 billion) and assets under management (-11.2% to CHF7,847 billion) also fell in the same period compared with the previous year.

Meanwhile, staffing levels at financial institutions increased in size. The number of employees rose for the third year in a row, by 1.6% to more than 92,000 full-time equivalents: “This is highest figure since 2017,” said Hess. In addition, the unemployment rate in the financial sector is slightly below that of the overall economy at 2%, he added.

But the trend of “bank deaths” continues, leaving the Swiss financial centre with 235 banks at the end of 2022. However, Hess explained that the declining number of banks has not impacted business performance over the years. Moreover, this is not a Swiss phenomenon, but can be observed worldwide.

For the current year, banks expect that the interest rate turnaround, leading to significantly higher rates, will have a clearly positive impact on profits, according to the SBA survey of members.

The recovery on a broad front is “in full swing”, said Hess, but there is “still a long way to go before we reach the significantly higher margins we once enjoyed.”

According to Hess, banks see some risks, for example, in the cost of IT systems and regulatory measures. In addition, there are possible reputational risks that could pose a “potential threat” to customer confidence.

• The original article was updated at 1100 to include more detail