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Booming equity markets give a boost to Swiss private banking industry

posted onAugust 23, 2018

All things considered, 2017 was a good year for Swiss private banks although the main contribution to the improved situation was the positive development of the financial markets, says KPMG.

“After years of struggling with structural change stemming from the financial crisis, the tide has begun to turn” reads the annual study by the consultancy firm and the University of St Gallen.

This follows a difficult few years that saw the number of private banks in Switzerland fall from 163 in 2010 to the current number of 107.  

The report, titled Clarity on Performance of Swiss Private Banks, analysed over 90 private banks in the alpine nation and considered their profitability, growth and cost efficiency. 

Swiss private banks achieved a net profit of CHF 2.8 billion in 2017, which is an 18.7% increase from 2016 and actually twice as high as 2015. Around two-thirds of the private banks operating in Switzerland managed to improve their return on equity in the past year on the back of this.

The total equity invested across the sector generated a reasonable return of 7.1% accordingly, although it should be noted that this average owes much to the excellent performance of the very biggest private banks.

In 2017, the total assets managed by Swiss private banks increased by 7.8% to CHF 2,616 billion, compared with growth of 5.1% the previous year. Global equity markets grew in excess of 20% contributing 87.4% to the growth in assets under management. . Over half of banks (54%) recorded net new money.  

swissmprivet banking 2010-18

Despite the comparatively rosy picture, the report expressed concern that not all banks are positioned to make hay while the sun starts to shine again on the industry and only a number of them are in a position of strength and delivering outstanding performance.  

Operating costs are still too high at many Swiss private banks, with personnel expenses still out of control. Higher IT and communications expenses were responsible for the 6.6% increase in total general and administrative expenses during 2017.  

Although Swiss private banks are in much better shape than during the past decade, they are steadily losing market share. By contrast, foreign financial centers are enjoying rapid growth in terms of assets under management. Net new money for 2017 remained disappointing at just 0.9% of assets under management. Half of Swiss private banks still have a long way to go – and too many of them are still facing an uncertain future. 

It is worth remembering though that Switzerland is currently better placed as an offshore financial center than during the past decade. A group of very strong private banks have now emerged (“strong performers”) and account for around a third of the sector. 

“If markets suffer a downturn, many private banks will find themselves back in trouble,” KPMG concludes.