Swiss banks optimistic about immediate future

Paradeplatz, Zurich's banking centre © Keystone / Gaetan Bally

Swiss banks expect record results for the 2023 financial year. The vast majority of banks are also optimistic about the coming years.

The Swiss banks are doing better than they have for a long time. According to the Banking Barometer 2024 published by consulting firm EY on Thursday, 96% expect a significantly better operating business performance for the 2023 financial year than in the previous year.

“High interest rates, low value adjustments and the resilient Swiss economy will lead to record results for the banks surveyed in 2023,” says Patrick Schwaller, managing partner Audit Financial Services, analysing the development.

However, the bubbling profits do not immediately mean higher interest rates for bank customers. According to the study, the majority of banks want to invest the money in strengthening their own funds and thus in risk provisioning. This was stated by 72% of regional banks and 42% of cantonal banks. The foreign and private banks intend to invest the money primarily in the further development of their business models (38% and 30% respectively).

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The banks were also optimistic about the next one to two years. In this period, 87% expect an increase in operating profit. Looking ahead to the next three or more years, almost 90% even see further growth ahead.

The banks’ bubbling profits are mainly due to the rise in interest rates and the associated higher interest margins. Some 42% of banks expect the interest margin to remain constant over the next one to two years; 16% even expect a further increase. However, two out of five banks are also forecasting a further decline in the interest margin, as interest rates could soon have peaked.

No increased risk expected for property

The banks have good news for property owners. In the short term, only one in five banks expects an increase in risk provisioning requirements for property due to value adjustments. In the previous year, just under a third of banks still expected this.

Even in the long term, only 36% of banks expected a higher need for risk provisioning, compared to 43% in the previous year. According to the authors of the study, this speaks for a solid property market in Switzerland. Prices are being supported by continued high demand, immigration and a decline in construction activity.

Following the emergency rescue of Credit Suisse by UBS last year, the majority of banks expect financial market regulation to be tightened. According to 62% and 40% of banks respectively, the main focus will be on stricter requirements in relation to liquidity and capital adequacy regulations. Two-thirds also expect the Financial Market Supervisory Authority FINMA to step up its supervisory activities.

Just over 100 private, foreign, regional and cantonal banks in Switzerland were surveyed as part of the banking study. Two-thirds of them are based in German-speaking Switzerland and a quarter in French-speaking Switzerland; 7% come from Ticino. EY has conducted the survey annually since 2010.

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