The chief executive of the Swiss Bankers Association says rising regulatory costs represent one of the main strategic challenges to the banking sector.
Urs Roth told swissinfo that regulatory requirements now account for up to ten per cent of the work in Swiss banks – with smaller institutions particularly hard hit.
Roth was speaking after the SBA’s annual media conference on Thursday, which also saw the publication of a first-ever survey of the short-term prospects for the sector.
The “Banking Barometer”, prepared in collaboration with BAK Basel Economics, will be published every September.
swissinfo: After a decade of radical change which has slashed the number of Swiss banks and cost some 20,000 jobs, can the sector now look forward to better times?
Urs Roth: I am convinced that this is the case. We are on the upswing again after a marked downturn since 2000-2001. Clearly, 2003 was the turning point. The second half of 2003 saw many Swiss banks achieve some of the best financial results in their history.
This year has started very well, and we expect quite a good full year, despite a slight slowdown. Going forward, I think we will see further stabilisation, though with growth rates perhaps a little weaker.
swissinfo: Does that mean the restructuring process is now largely complete?
U.R.: Restructuring in Switzerland actually started earlier than in many other countries, following the credit crisis in the early 1990s. By 1998, it was already largely complete. I don’t see any large consolidation going forward, although we will see more on a small scale.
swissinfo: A big issue at the moment is cross-border consolidation, with the recent take-over bid for Britain’s Abbey by Spain’s Santander bank. Do you see Swiss banks becoming involved in any such developments?
U.R.: We have already had a few such instances. UBS took over Paine Webber in the US a few years ago and Credit Suisse has also acquired an investment bank in the US.
However, we have not really seen a wave of true cross-border mergers. This is also true at European Union level, although there are now discussions underway about how to facilitate such mergers.
swissinfo: How do you think the Swiss banks now compare with their main rivals abroad, both in Europe and in America, in competitive terms?
U.R.: We should differentiate clearly between the domestic and foreign markets. Our two big global players, UBS and CS, are in a very favourable position concerning further consolidation, concentration and globalisation.
With regard to private banking, we see two developments. On the one hand, off-shore banking is still a fact. We see growing numbers of foreign assets under management in Switzerland, so our competitive position is extremely good.
On the other hand, there is more and more business on-shore, involving international institutions. Among other things, international Swiss banks are opening up subsidiaries and branches in those countries that offer the best opportunities.
swissinfo: What would you say are the major challenges now facing the sector?
U.R.: I believe the burden of regulation is one of the most serious issues that we face. We are in a constructive dialogue with the federal banking commission, our main regulator.
The banks need to be in a competitive position vis-à-vis their competitors abroad, and we therefore need good but affordable regulation in order to serve both our clients and our shareholders better. The Wall Street banks have also been complaining about the ever-increasing burden of regulation.
swissinfo: Can you put any actual figures on that burden?
U.R.: One of the sectors in Swiss private banking, the portfolio management banks, conducted a survey together with the university of Zurich in the past few months. They found that smaller banks in particular bear a very heavy burden.
The survey showed that up to five or ten per cent of staff in banking spend their time dealing with controls and compliance functions. The burden is a little bit less heavy the larger the institution is, because there are more possibilities to distribute it internally.
swissinfo: Technological change is another major driver. What are the implications in concrete terms?
U.R.: IT systems, trading systems and so on are increasingly functions that can be outsourced to specialised institutions. I think we will see quite some changes going forward.
But I also imagine we will have another field of opportunity in Switzerland – building on our own expertise in these back-office functions. We are looking forward to competition.
swissinfo: What do you see as the real implications for the banking sector of Switzerland not being in the EU, and to what extent have the bilateral agreements addressed the major issues?
U.R.: Those Swiss banks that want to do business on an international scale have already established EU subsidiaries, which profit from an EU passport, so to speak. Regarding the position of Switzerland, we are quite satisfied with the new bilateral agreements, namely on taxation of savings, the fraud dossier and Schengen/Dublin. We believe the result serves the interests of both the EU and Switzerland.
swissinfo-interview: Chris Lewis
The SBA said on Thursday that the high point of this year’s global economic rally appeared to have been reached.
Chairman Pierre Mirabaud said rising oil prices and continuing tension in the Middle East had dampened economic optimism.
However, Mirabaud predicted “moderate” earnings growth for the Swiss banking sector over the year as a whole.