BankFocus

BANKFOCUS RESEARCH
12 August, 2024
ABOUT
Link to researchContact link
AUTHORS
Irakli Pipia
Director, BankFocus Research
Enoc Pinto Perez
Product Manager, BankFocus Research

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Swiss domestic banks show stable performance and improved
profitability. Capitalization remains robust albeit withhistorically low internal capital creation. However, there arenotable variations among Swiss entities in their financial
metrics.

SUMMARY→
Overall, the aggregate total assets of the Swiss peers
contracted year-on-year. However, most of this contraction was
in non-lending related assets.
→
However, the loan book growth rates painted morepositive picture for the same period. The average loan growthrate for the Swiss peers was positive at 2%, with three Swissbanks reporting loan growth rates above 10% since end-2022.
→
The majority of the Swiss peers improved their net
profitability with the average ROAA increasing to 0.6% at end2023 from 0.4% at end-2022. This is a notable increase with twobanks in particular pushing up the average, BANK VONTOBEL
and EFG BANK.
→
Impaired loans of the Swiss peer group increased
marginally by 30 basis points from 0.5% a year earlier. But withthe average impaired loans to gross loans ratio at 0.8% as at
end-2023, overall asset quality remains robust.
→
In addition, provisioning coverage ratios were adequate
for most of the Swiss peers and on average exceeding 80% at
end-2023.
→
However, despite improvement in net profitability the
Swiss peers internal capital generation rate declined to 2% in
2023, from already a low level in the prior year.
→
Despite low internal capital creating rates, the majorityof the Swiss banks had their CET1 ratios above 15%, with theaverage peer group ratio stable year-on-year.
→
The majority of the Swiss banks had ample customer
deposits to fund their loan books with the average loan-to-

Swiss banks: improved profitability has little impact on low capital creation.

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deposit ratio under 90% as at end-2023. This level of deposit funding reduces refinancing risk for
the Swiss banks.

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Contraction in assets vs growth in loan books

4

Profitability improved across swiss peers

5

Asset quality remains stable with adequate provisioning coverage

6

Internal capital generation improved from low levels

8

Capitalization remains stable across swiss peers

9Loan portfolios are funded by customer deposits

10

Appendix

12

Research methodology and scope

14

Principal Ratio definitions

14

List of the Swiss banks in the research

14

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CONTRACTION IN ASSETS IS COUNTERED BY GROWTH IN LOANBOOKS
In this report we analyzed 11 domestically focused Swiss banks and compared their recent
financial indicators for the last year.
We excluded the largest Swiss bank – UBS – from the peer group due to its significantly
larger scale and predominance of international activities in its operations.
Overall, the aggregate total assets of the Swiss peers contracted year-on-year. However,most of this contraction was in non-lending related assets.
BANK VONTOBEL and EFG Bank reported the largest asset contraction rates since end2022, with total assets reducing by more than 10% since end-2022.
Six out of 11 Swiss entities reported growth in total assets for the same period. However, asset
growth rates were moderate, mostly below 5% since end-2022. Consequently, the average asset
growth rate was negative at 2.3% for the Swiss peer group for this period.
However, the loan book growth rates painted more positive picture for the same period. The averageloan growth rate for the Swiss peers was positive at 2%, with three Swiss banks reporting loan
growth rates above 10% since end-2022.
The majority of Swiss banks contracted their loan books but at a moderate rate – less than 5% since
end-2022. Consequently, the average loan growth rate was positive, influenced by BANK JULIUS
BAER, UBP SA and VONTOBEL.
FIGURE 1 Total Assets and Gross Loans to Customers CAGR (%), YE 2022 to YE 2023

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PROFITABILITY IMPROVED ACROSS SWISS PEERS
The majority of the Swiss peers improved their net profitability with the average ROAA increasing to
0.6% as at end-2023 from 0.4% as at end-2022. This is a notable increase with two banks inparticular pushing up the average. BANK VONTOBEL improved its profitability significantly and EFG
BANK turned to profit from a net loss in 2023.
BANK JULIUS BAER was an outlier in the Swiss peer group whose ROAA declined from 0.7% to 0.2%
during 2023. The main drivers for the decrease in profitability were the contraction of net interest
income by 13% and fees and commissions by 5%, which resulted in an overall decrease of 23% inoperating profit year-on-year.
FIGURE 2 ROAA (%), YE 2022 to 2023

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ASSET QUALITY REMAINS STABLE WITH ADEQUATE PROVISIONING
COVERAGE
Impaired loans of the Swiss peer group increased marginally by 30 basis points from 0.5% a year
earlier. But with the average impaired loans to gross loans ratio at 0.8% as at end-2023, overall asset
quality remains robust.
BANK JULIUS BAER had the worst performance and one of the highest impaired loans ratio at 2.1%,
similar to EFG BANK as at end-2023.
All the rest of the Swiss banks posted broadly stable asset quality indicators during the last year.
FIGURE 4

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Provisioning coverage ratios were adequate for most of the Swiss peers and on average exceeding
80% as at end-2023.
A few banks had unusually low coverage ratio such as EFG Bank with 7% as at end-2023 (notincluded in the chart below). As per the bank’s financial statements this was due to the high level ofcollateralisation of their portfolio. The bank held collateral of CHF 204.1 million, against the stock of
CHF 211.8 million of non-performing loans.
On average, the impaired loans provisioning coverage ratio of the Swiss peers exceeded acomparable ratio for European and UK banks. (See Insights article on UK Challenger Banks.)

FIGURE 5

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INTERNAL CAPITAL GENERATION IMPROVED FROM LOW LEVELSThe Swiss peers internal capital generation rate declined in 2023, from already a low level in theprior year. The decline was principally due to BANK JULIUS BAER, whose profitability dipped during
the year.
RAIFFEISEN SCHWEIZ GENOSSENSCHAFT and ZUERCHER KANTONALBANK were ahead of theirpeers on this metric.

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CAPITALIZATION REMAINS STABLE ACROSS SWISS PEERS
Despite low internal capital creating rates, the majority of the Swiss banks had their CET1 ratios
above 15%, with the average peer group ratio stable year-on-year.

UNION BANCAIRE PRIVEE, UBP SA and BANK VONTOBEL AG were ahead of their peers with CET1 ratio
comfortably exceeding 23% for the last two years.

FIGURE 7 CET1 ratio (%),

However, Unadjusted leverage ratio (defined as - Tier 1 / Total on and off balance sheet items) of the
Swiss banks had somewhat different distribution of the Swiss peers with CLIENTIS AG leading thepeers with a ratio of 9%. The average ratio for the Swiss peers was broadly stable at 6%, indicating
comfortable position on non-risk weighted capital metrics.

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FIGURE 8 Unadjusted Leverage ratio (%),

LOAN PORTFOLIOS ARE FUNDED BY CUSTOMER DEPOSITS
Majority of the Swiss banks had ample customer deposits to fund their loan books. The averageloan-to-deposit ratio remained just under 90% as at end-2023. This level of deposit funding reduces
liquidity and refinancing risk for the Swiss banks and their reliance on wholesale markets.
However, UNION BANCAIRE PRIVEE, UBP SA and EFG Bank were outliers with loan-to-deposit
ratios notably below the peer average.

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FIGURE 6 Gross loans & advances to customers / Customer deposits, 2022-2023

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Appendix 1

Appendix 2

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Appendix 3

Appendix 4

Bank
CLIT
UBP
RSG
BEKN
VONN
SGKN
ZKB
BCVN
VTN
BAER
EFGN

Y.E 2022
Ranking
based on
CET1 andleverageratio
combined
1
2
3
4
5
6
7
8
9
10
11

Y.E 2023
Ranking
based on
CET1 andleverageratio
combined
1
2
4
5
6
8
3
7
9
10
11

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2022
CET 1
ratio

20.2%
26.7%
18.8%
17.1%
25.3%
15.7%
16.8%
17.6%
16.0%
17.6%
13.3%

2022
2023
Unadjusted CET 1
leverage
ratio
ratio

20.4%
28.8%
19.5%
17.3%
22.8%
15.4%
17.4%
17.9%
16.0%
17.8%
15.1%

8.8%
5.4%
5.9%
6.5%
5.3%
6.6%
6.4%
5.4%
6.4%
4.3%
3.9%

2023
Unadjusted
leverage
ratio

9.0%
6.0%
6.1%
6.7%
5.4%
6.6%
6.7%
5.6%
6.5%
5.1%
4.5%

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Research methodology and scope.

Principal Ratio definitions

List of the Swiss banks in the research

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