The past year has highlighted the vulnerability of even Swiss banks, as evidenced by the decline of Credit Suisse. The industry must therefore increasingly face structural change, focusing primarily on customer loyalty and higher value retention, as shown by the latest banking barometer from consulting firm EY.
“We will see a series of record results,” said Patrik Schwaller, Managing Partner and responsible for auditing financial service providers at EY, at the presentation of the industry study EY Banking Barometer in Zurich. “The interest rate turnaround had a significant influence on the results.”
However, for banks, the higher interest rates are both a curse and a blessing, Schwaller continued. The institutions were able to benefit from the higher interest rates of the Swiss National Bank (SNB) and increase mortgage rates.
The flip side of the coin is the higher financing costs and higher returns and falling prices for fixed-income investments. This was also the trigger for the turbulence at US banks.
The market environment has changed accordingly. From September 2022 to May 2023, according to EY, around 250 billion francs flowed out of local banks due to reallocation and withdrawal of customer funds, 210 billion francs of which were from foreign customers. However, the resilience of the Swiss market is high, and bank managers are optimistic in the short and long term, Schwaller said.
Furthermore, customers in the Swiss domestic market are rather sluggish, as Olaf Toepfer, head of banking and capital markets at EY, explained. So far, not much has been felt of an interest or fee competition.
“The new offer from Zürcher Kantonalbank with a free account and advice is of course a challenge.” However, the offers of the so-called challenger banks (such as the foreign banking app Revolut) have so far mostly not been much more than pinpricks.
Increasing innovation pressure
“In Switzerland, banking actually only starts with customers who can be described as ‘affluent’. And the wealth management sector is a growth market,” Toepfer continued.
Nevertheless, Swiss banks must also face the structural change in the industry in the medium term. This involves increasing customer loyalty and increasing value retention. This will create pressure for innovation. Although customer visits to branches will continue to decrease. But when there is a need for advice, it is usually about more complex problems.
And this also increases the volatility in the number of customer contacts.
High immigration
The change is driven by the customers, Toepfer continued. It can already be seen that banks abroad are working more on customer models.
Compared to foreign institutions, Swiss banks would benefit from a more stable environment, the consultant continued. Interest rates and inflation are lower here than in the EU or the USA. Immigration remains high, and construction activity is decreasing, which together supports property prices. This is of great importance for the banks: 75 percent of loans in Switzerland are for mortgages.
Tightened regulation expected
Although Toepfer expects that provisions for loan defaults could increase, but from a very low level. And there are currently no alarm signals from the economic development or the labor market.
Furthermore, the stricter regulation expected by the banks, such as an increase in liquidity and equity requirements, does not pose any insoluble tasks. For the major systemically important institutes, the requirements will soon increase anyway, the EY expert said, and the other banks are generally well capitalized.
This News Article was automatically generated by Bob the Bot (AI)
| Information | Details |
|---|---|
| Geography | Europe |
| Countries | 🇨🇭 🇺🇸 |
| Sentiment | neutral |
| Relevance Score | 1 |
| People | Patrik Schwaller, Olaf Toepfer |
| Companies | Revolut, Credit Suisse, Schweizerische Nationalbank (SNB), Zürcher Kantonalbank, EY |
| Currencies | None |
| Securities | None |
