Sentiment Among Swiss Regional Banks Deteriorates
This year’s industry analysis of regional and cantonal banks by OTC-X Research shows a slight decline in sentiment. However, the authors conclude that the sector is far from pessimism or concern.
The industry analysis of regionally active Swiss banks indicates a shift in the assessment of the market situation across several areas. Even if regional banks are not at the center of the global customs storm, the global turning point casts its shadow into every corner, according to the survey published on Thursday.
The surveyed banks have their finger on the pulse of companies, payment flows, write-downs, and impairments. Layoffs and short-time work, consumer demand, and credit risks influence their business policies.
When assessing the current situation, the 28 banks that participated in the survey were somewhat more critical. On a scale from 1 (low) to 10 (high), the stress resistance of their own institution in a crisis scenario was rated at 7.22 points – the lowest average since 2015. Last year, the figure stood at 7.57.
The assessment of the overall situation, both for the industry as a whole and for the individual bank, also appears less positive. After four years with average values comfortably above 7 and at times 8 points, this year saw a significant drop to 6.96 points for the industry and 7.46 for the respondents’ own bank. “The deterioration does not indicate a crisis level, but rather that the tailwind is fading,” according to the study’s authors.
The impact of possible impairments and write-downs on the formation of reserves and provisions, as well as profitability, is considered even lower than in recent years. The financial health of private clients has tended to improve somewhat. In addition, the institutions rate themselves as well prepared for possible price changes in the residential real estate market. Almost unanimously, this is assessed as “good” or even “very good”, citing low loan-to-value ratios and conservative lending policies as key factors.
Cyber Risks, Regulation And IT Costs as Main Concerns
Accordingly, the impact of potential impairments and write-downs on reserves, provisions, and profitability was rated lower, declining to 3.92 points from the previous 4.30.
The biggest concerns identified are cyber risks (8.29 points), regulation (8.11 points), and IT costs (7.96 points). Other challenges have fallen to multi-year lows: volatility in the real estate market (3.82 points), intensifying competition (5.68 points), product & service development (4.43 points), and further development of corporate culture (4.68 points).
Raiffeisen as Main Competitor
Regional and cantonal banks perceive Raiffeisen as their strongest competitor. The group, also rooted primarily in the mortgage business, scored 7.85 points. It was followed by other regional banks with 6.42, UBS with 4.69, and ZKB with 4.15 points. Insurers and pension funds scored around 3 points.
In terms of growth expectations, diversification plays the most important role. Specialization and positioning also gained weight.
Expectations for the mortgage business in terms of growth and margin development over the next three years are surprisingly positive, according to the authors. Around 30 percent of participants see an increase, while 48 percent expect the level to remain unchanged. Only about 19 percent expect a decline.
Interest Margin Expected to Narrow
Over the next three years, two-thirds of respondents expect narrowing interest margins, 11 percent expect an expansion, and 22 percent foresee no change.
The question of whether the financial regulator FINMA sufficiently understands and considers the concerns of regional banks was again assessed somewhat more negatively. The approval rating for the satisfaction with the Swiss National Bank’s (SNB) work and mandate fulfillment over the past 15 years fell slightly to an average of 7.57 points. Nevertheless, this remains within a range of high appreciation.
Little Interaction with AI and Crypto
On the major industry topic of artificial intelligence, the surveyed banks currently report almost no interaction. Responses included: “currently still minimal”, “we are in the build-up phase”, “AI is slowly being learned and applied”, “test cases at all levels, cautious with clients” or “internal initiative with working groups”.
Crypto also plays only a minor role among the surveyed banks. “Of the 19 respondents, 14 said they do not offer crypto investments” One added “unfortunately”. One respondent offers Bitcoin and ETH (Ethereum), while three others provide indirect exposure through ETFs or funds.
Interest Rate Policy and the Swiss Franc
On SNB interest rate policy, the majority (48 percent) expect no change, followed by “moderate increase” (30 percent) and a decrease (22 percent).
Furthermore, 48 percent of survey participants expect the Swiss franc to appreciate by more than 5 percent against the euro over the next two years – the second-highest figure since 2020.
The survey results were presented on Thursday as part of the “Branchentalk Banken” organized by “schweizeraktien.net””schweizeraktien.net” at the SIX Convention Point in Zurich.
