Domestic banks are looking forward to higher interest rates, while foreign banks are hoping for better times. At least in the short term, everything still speaks for the cantonal banks and for Raiffeisen.
The sun is shining in St. Gallen: domestic banks like the Raiffeisen Group can look back on an excellent first half of 2022 and are also optimistic about the coming months.
The Swiss banking center can look back on an excellent 2021, but 2022 will be rockier: That is the main statement that can be drawn from the Swiss Bankers Association’s banking barometer presented on Tuesday.
In the previous year, all types of banks had benefited from the good economy and brought record tax revenues of 2.6 billion Swiss francs to Switzerland. In 2022, on the other hand, a trend will intensify that has continued with interruptions since the financial crisis of 2008: the cantonal and Raiffeisen banks continue to grow steadily, the large, foreign and, to some extent, private banks are under pressure and have to watch their costs.
This is impressively reflected in the development of the number of employees in the banking sector: Overall, domestic employment fell from 108,100 to 90,600 full-time positions in the last decade, with the decline occurring almost exclusively at the two big banks and the foreign banks. Even if the banks stated in a SBA survey that they also increased their personnel budget by 325 people in Germany in the first half of 2022, no new employment miracle is to be expected.
Mortgage market boom continues
In the coming months, the gap between Swiss banks could widen even further. The earnings of domestically focused banks depend heavily on the Swiss mortgage market, which has known almost only one direction since the late 1990s: upwards. In 2021, according to the Bankers Association, the mortgage volume granted by Swiss banks rose again by 2.8 percent to CHF 1,112 billion, in line with the increase in value of the local real estate portfolio. The semi-annual figures of the cantonal banks and Raiffeisen have recently shown that this trend is continuing unabated.
The foreign-oriented asset management banks, on the other hand, are suffering from the stock market environment because they calculate their fees largely on the basis of the assets under management. If things go badly on the stock exchange, these assets shrink.
The sharp turnaround in interest rates is increasing the drifting apart, at least in the short term. Only last week, at their traditional meeting in Jackson Hole, the leading central bankers reiterated that they intend to fight inflation vigorously. Even the ECB was rather harsh in tone.
In the short term, a tough monetary policy is leading to falling share prices, while domestic banks are benefiting from the turnaround in interest rates: According to figures from the Bankers Association, the banks’ margin on new mortgage transactions has soared from around 1 to 1.9 percent in just a few months. Despite the emergence of digital comparison platforms, the competition between banks has evidently not intensified enough for homeowners to benefit from the rising interest rate environment.
According to Martin Hess, Head of Economic Policy at the SBA, almost 30 percent of the portfolio of the Swiss banks now consists of fixed-rate mortgages that have a term of more than 5 years. This means that the higher margin in new business will only slowly make itself felt in the earnings and profit figures. But the outlook for Raiffeisen and its ilk improves for years to come – provided there is no real estate crash in Switzerland.
EU access and withholding tax reform
The foreign-oriented banks, on the other hand, have to hope for the long term; firstly, that customers in Europe continue to trust the Swiss financial center and bring their money here. Second, that asset prices are recovering. Better market access in the EU, one of the SBA’s key demands on politicians, would be very convenient for the asset management banks. “There is no reason to always talk about free markets and to close the door on financial services, of all things,” says Hess. But he concedes that for political reasons there will be little change in this dossier in the near future.
According to Hess, the withholding tax reform, which will be voted on on September 25, would also help the banking center and could increase local employment in the sector. Because of the withholding tax, Swiss companies generally issue their bonds abroad, especially in Luxembourg, “but not because the Luxembourg bankers do the job better than we do,” says Hess.