Banks face tough times ahead

Smaller banks are expected to suffer over the next five years Keystone

Top bankers in Switzerland warn that the banking sector is likely to shrink by 15 per cent over the next few years and that salaries will be pegged back.

They also predict that the importance of banking secrecy to the country’s position as a leading financial centre will diminish by 2010.

They say legislation in other countries will gradually undermine the sacred cow of Swiss banking and any competitive advantages it brings.

Switzerland has been under almost constant pressure in recent years, notably from the European Union and the Organisation for Economic Cooperation and Development (OECD), to relax its banking rules.

The issue was a key sticking point during two years of negotiations over a second set of bilateral accords between Bern and Brussels, which were finally wrapped up last month.

Time for change

Professor Beat Bernet, director of the Swiss Institute of Banking and Finance at the University of St Gallen, told swissinfo that the function of banking secrecy and its significance had to change.

“I think banking secrecy will become weaker. Because we know that it could become weaker, we have to change the importance of it for our industry and that’s exactly what’s happening,” he said.

“Banks are seeing that… competitive advantage cannot be built only on banking secrecy,” he added.

Attempts by other countries to put pressure on the Swiss are already bearing fruit.

Germany has imposed restrictions on Swiss banks operating on its soil in an attempt to limit cross-border banking transactions between Switzerland and Germany.

Unless an appropriate banking licence is applied for in Germany, with the associated subordination to German financial supervision, Swiss banks can no longer legally provide services customers.

Increased regulation

A survey conducted among 180 senior managers of Swiss banks also found that many respondents were concerned about increased regulation in the banking sector.

The study – carried out by the St Gallen institute and consulting firm Accenture – revealed that the crackdown on economic crime, money laundering and the financing of terrorism came with a heavy price tag.

“We’ve had so many regulations to implement in our industry that most of the banks feel that the burden is becoming too hard for them,” said Bernet.

Bernet added that rising costs would impose a “serious financial burden” on medium-sized and smaller private banking institutions.

This in turn might force some institutions to abandon their banking status and in future operate purely as asset managers.

Private banking

More than 80 per cent of those questioned believe the Swiss banking sector will shrink from the 840 institutions operating in 2002 down to 730 by the end of the decade.

Around 20,000 jobs are expected to be lost over the same period. The sector currently employs 160,000 people.

On the plus side, compliance – and the presence of a strong regulatory framework – would give Switzerland a competitive advantage, added Bernet.

Among its other findings, the study found that Switzerland would maintain its position as a centre for private banking in the face of strong global competition.

Switzerland manages at least a third of the world’s private and international offshore funds, estimated at $2 trillion (SFr2.5 trillion), making it the market leader in international private banking.

“I think that tradition and reputation play an important role here,” said Bernet.

“As long as we can keep our level of performance – not only in terms of profitability and returns, but also social performance – we will be able to maintain our competitive position in the world.”

swissinfo, Robert Brookes in Zurich

Key facts

The study, entitled “The Swiss Banking Industry in the Year 2010”, looked at the direction the industry is likely to take over the next five years.
The authors conducted two surveys with 180 senior managers of Swiss banks.
They say the results are representative of banks in all sectors with around 50 employees or more.

In brief

A new study of the Swiss banking sector foresees a weakening of banking secrecy.

It predicts that the trend for increased regulation in the industry will continue, with both positive and negative results.

But it says Switzerland is set to maintain its position as a centre for private banking.