Even with negative interest rates, Swiss banks post positive results

There were 248 banks in Switzerland with more than 90,000 staff last year. Keystone / Martin Ruetschi

In spite of ups and downs in the stock market and negative interest rates, Swiss banks finished 2018 with an increase in operating income and profits. As regards the future, bankers say they are concerned about the worsening political and economic situation in the world, but do not expect further cuts to banking jobs.

The prosperity of the banking sector is being affected more and more by the negative interest rates applied by the National Bank of Switzerland (the country’s central bank) to prevent the franc from increasing too much in value.

This eats away at the banks’ profit margins and room for manoeuvre, and in many cases they see themselves with no choice but to pass on the negative rates to their own customers.

Last year the financial institutions paid negative interest rates to the tune of CHF2 billion ($2 billion), as is detailed in the Banking Barometer 2019, an annual industry survey by SwissBankingExternal link, the Swiss bankers’ association.

“Negative interest rates are likely to become the norm in the years ahead. That kind of situation could slow capital investment and therefore the growth of the economy and the banking sector itself,” warns August Benz, deputy CEO of SwissBanking.

All things considered, though, the Swiss banking sector did not do too badly in 2018. The operating income of banks licensed to operate in Switzerland rose 4.6% over the previous year and reached CHF65.3 billion. Furthermore, consolidated profit registered an increase of 17.3%, rising to CHF11.5 billion. These data show that the sector has made a solid comeback following the 2008 financial crisis.

Assets managed by Swiss banks dropped by 4.8%, however, with a total of CHF6,943 billion.

This drop was mainly due to the decline in the stock markets at the end of last year, which reduced the amount of managed assets. About a third of this amount involves management of foreign wealth, a sector where Switzerland remains at the top of world rankings, with a market share of 27%.

Having signed up to international standards on automatic information exchange, the Swiss government last year told 36 foreign states for the first time what funds their citizens have in Swiss banks. This practice will soon be extended to 37 other partner jurisdictions.

Despite the anxieties that were stoked for years, the end of banking secrecy did not result in a run on deposits by foreign customers.

Between 2013 and 2018 the total volume of foreign assets deposited here actually rose from CHF1,970 to 2,270 billion. Only the European market saw a decline of CHF95 billion. But the value of assets even of European customers increased in this period, due to things going well in the markets.

For the current year, SwissBanking sees a few clouds on the horizon.

They are concerned about the slowdown of economic growth, especially in the euro zone, and tensions gathering around the trade dispute between the US and China, not to mention Britain’s Brexit plans.

After years of restructuring and staff cuts, bankers are now optimistic about the employment outlook: almost two thirds of the financial institutions asked said they expect there to be stability as regards jobs in the second half of the year.

Translated from Italian by Terence MacNamee