Martin Hess believes Swiss banking fortunes can lift despite ongoing challenges (Keystone) - Click to enlarge
The Swiss banking sector shrank once again last year in terms of banks, profits, share of offshore wealth under management and number of employees. The Swiss Bankers Association (SBA) nevertheless believes there are positives to be found amidst the bleak figures.
“In an environment where banks have to cope with negative interest rates, strict regulatory requirements and strong international competition, this can be considered a positive result,” said SBA chief economist Martin Hess on Thursday. “This speaks for the resilience of the banks in Switzerland and their ability to adapt.”
The raw figures show that Swiss banks continue to retrench under the weight of strong negative pressures. These include the impact of an ongoing global anti-tax avoidance crusade, the rise of Asian wealth management centres, economic malaise in the European Union that is dragging down interest rates and pressuring the franc, and political uncertainties surrounding Brexit and United States policy.
Fewer banks
The number of banks operating in Switzerland shrank from 266 in 2015 to 261 last year, mainly as a result of foreign institutions closing down branches. The most notable recent loss was when the scandal- plagued BSI bank was taken over by EFG (a deal completed this year).
2016 was by no means a remarkable year for bank brands exiting Switzerland compared to the past. The number of banking companies has shrunk by a fifth since the pre-financial crisis year of 2007, the SBA revealed at a press conference in Zurich. This period also saw a significant fall in the number of private banks in Switzerland.
But this phenomenon is not confined to Switzerland. In the same 10-year period, France saw a 46% reduction in banks, Germany a 17% decline and Britain 11.5% fewer banking institutions, the SBA said.
Job and profit losses
The shrinking Swiss bank sector has been accompanied by a loss of jobs. The number of staff employed by Swiss banks worldwide fell by more than 3,000 last year to 120,843. The number of people employed by all banks in Switzerland shrank 1.6% to 101,382.
Perhaps of greater concern to banks was the fall in profits – the result of ongoing difficult trading conditions – and a further dent to Switzerland’s reputation as the world’s largest offshore wealth centre.
Some 226 banks reported a combined CHF11.8 billion profit last year, but this was down by a whopping 40% on 2015. The main causes were a rise in operating expense, as banks grapple with new regulations, continued low interest rates and low risk appetite among investors amid ongoing global economic concerns.
Asia looming, fintech booming
Despite ongoing anti-tax evasion and money laundering demands, Switzerland did manage to attract CHF83 billion in net new assets from the wealthy (for a total of CHF6.65 trillion). But foreign clients continued to shift their offshore assets eastwards. With a quarter of global cross-border assets under management, Switzerland remains the king of offshore banking, but some analysts believe Singapore and Hong Kong will swipe this Swiss record in the next few years.
One potential solution for the ailing traditional banking sector is its growing collaboration with fintech (financial technology) startups, according to Hess. “This allows both sides to benefit from each other: fintech companies offer an ideal framework for developing new business ideas and can implement these faster than established banks. By collaborating with startups, the banks can expand their service offering and realise efficiency gains,” he said.
The latest advances in digital financial technology promise increased efficiencies, reduced costs and relief from mounting regulatory challenges.
But securing access for Swiss banks to the European Union market remains the most urgent challenge to the sector, according to the SBA.
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