The Swiss banking sector saw profits tumble by 36 per cent last year to a four-year low of SFr12.5 billion.
Swiss banks, whose business collectively accounts for around 12 per cent of gross domestic product (GDP), saw profits fall by SFr7 billion last year to reach their lowest levels since 1997.
In a statement released on Wednesday to coincide with the publication of its annual report into the state of the nation's banking sector, the Swiss National Bank (SNB) said the lower profit margins were the inevitable consequence of an "economically less favourable environment".
"In the wake of declining stockmarkets, commission business, services and trading [showed] markedly lower net results," it said, adding that interest income declined only slightly by 3.6 per cent.
Assets under management held at domestic bank offices dropped from SFr3,716 billion in 2000 to SFr3,400 billion last year.
Big banks worst hit
Worst affected by the economic downturn were the country's largest financial institutions as well as the private banking sector.
Switzerland's largest banks registered a 43.6 per cent fall in profits last year, while the private banking sector recorded a decline of 39.1 per cent over the same period.
The report reveals that the country's cantonal banks ended the year in better financial health, recording a loss in profits of only 16.7 per cent.
The number of people employed by the Swiss banking sector rose slightly last year by 3.3 per cent to 120,439. But the number of financial institutions registered in Switzerland fell slightly from 375 in 2000 to 369 last year.
Profits pick up
Bankers are optimistic that improving market conditions will lead to better prospects for this year.
Switzerland's two biggest banks - UBS and Credit Suisse - saw their profits recover in the first quarter of 2002, with the former filing better than expected results.
In May UBS reported net profits for the first three months of SFr1.36 billion, a 14 per cent fall compared with the same period last year, but higher than the SFr1.106 billion recorded in the fourth quarter of 2001.
Last month, Credit Suisse reported first-quarter net profits of SFr368 million, down from SFr1.43 billion a year earlier, but again an improvement on the net loss of SFr830 million reported in the fourth quarter of 2001.
swissinfo with agencies