After a dry period, Swiss banks hope for good years again

Thomas Jordan (59), President of the Swiss National Bank (SNB), gave a gift to banks when ending the negative interest period last year. Banks no longer have to pay to deposit their reserves with the Central Bank.

Consulting firm EY’s “Banking Barometer” shows that Swiss banks are more optimistic than ever thanks to a move away from negative interest rates: 98 percent (86 percent in the previous year) expect positive business development over the long term.

The milestone enables banks to sustainably improve the margin in the interest spread business that is central to them. EY partner Patrick Schwaller said in a statement that this will have many positive effects in the long run.

act in the short term

However: The end of negative interest rates in the short term will also negatively affect the banking business. Finally, the renewed interest rate hike is likely to have ramifications for the lending business: 31 percent of surveyed banks undertake higher value adjustments for residential construction financing in the short term, after 12 percent the previous year. In addition, 59 percent (36 percent in the prior year) expected a significantly higher risk provisioning requirement for SME loans.

Looking at the short-term outlook for the next 1-2 fiscal years, banks’ “barometer of optimism” dropped to 78 percent from 87 percent last year. In particular, wealth management banks, which have suffered from the stock market plunge and the consequent decline in managed assets, have been more cautious.

The Banking Barometer also concluded that despite the Ukraine war, high inflation and the end of the negative interest rate regime, Swiss banks are “remarkably resilient” in the turbulent 2022 fiscal year. EY surveyed 100 institutes for the study. Three quarters of banks saw positive profit development for 2022. However, this share was even higher at 86 percent last year. (SDA/sfa)