Fresh industry figures show that while there are some grounds for cheer, 2012 was generally a tough one for Switzerland's banking sector.

Swiss banks continued to feel the pinch in 2012, as industry figures showed balance sheets and staffing declining slightly last year from the previous 12 months, while aggregate operating profits held steady. Meanwhile, one of the sector's leading figures stressed the need to accept change.

The Swiss Bankers Association issued data yesterday showing a sector coming to terms with an uncertain global economic environment, strong Swiss franc exchange rate, rising regulatory costs and continued overseas pressure on the country’s historic bank secrecy laws. A few days ago, Switzerland and the US, for example, penned a sweeping accord to draw a line under a long-running tax wrangle between the countries over wealthy Americans’ use of offshore Swiss accounts.

Separately, the World Economic Forum has reported that Switzerland retains its status as the world's most competitive economy.

In its 2013 Banking Barometer report, issued yesterday, the SBA noted that the aggregate operating profit of Swiss banks held steady at SFr59 billion ($62.9 billion); while the overall balance sheets of banks contracted slightly by 0.5 per cent to SFR2.778 trillion, and staffing levels fell 2.7 per cent to 105,166 employees. There was a further 0.7 per cent drop in employment in the first half of this year, the SBA said, and employment is expected to continue falling, it said. The static profit performance comes after two years of positive growth (2009: +10.8 per cent, 2010: 13.3 per cent) and then a flat result in 2011.

Interestingly, there has been no change in the share of total profits by type of bank. The largest banks held 47 per cent of profits; foreign banks (18 per cent); cantonal banks (14 per cent); private bankers (4 per cent); Raiffeisen banks (4 per cent); regional, savings banks (3 per cent) and other banks (10 per cent). (“Other” banks include wealth management banks, merchant banks, microfinance institutions and all other banks.)

Aggregate net profit in 2012 was SFr186.1 million, a slight drop from the previous year; overall, 254 banks logged a profit last year and 43 posted a loss. The total credit made available to banks rose last year from the year before by 4.7 per cent to SFr1.15 billion; the volume of mortgages rose by 5.8 per cent.

“Despite the confident mood on the financial markets and increasing value creation in the banking sector at the start of 2013, there is still uncertainty about how the economy will perform. And the pressure on profit margins – especially in the interest margin business – will continue. In the commission and services business, the higher transaction volumes on the Swiss stock market should have a positive impact,” the report said. To put some of the figures in a macro-economic context, the Swiss economy logged growth of 2.2 per cent in 2011, just 1.0 per cent in 2012 and the country’s government predicts 1.4 per cent growth this year.

Patrick Odier

In a speech to the SBA, meanwhile, Patrick Odier, the organisation's chairman, pointed out that for all its challenges, the Swiss banking sector has a global share of wealth management at over 25 per cent; lending to businesses has risen by more than 13 per cent since the start of the financial crisis, compared with 8 per cent falls in Germany, France and the UK, and Swiss banks have an exposure of just 1.8 per cent to borrowings of problem countries in the eurozone.

"These are facts we can be proud of. We can build on them. They should give us courage and fill us with optimism. Facts like this provide a foundation for further growing our activities and our specialisation in a business rich in tradition, both in Switzerland and abroad, whether it be in retail banking, lending or private banking. They are also a good basis for developing further areas of activity such as alternative asset management in alternative areas, trade finance, commodity trade financing and global currency trading," Odier said. 

Commenting on the recent US-Switzerland agreement, he said: "The programme brings with it painful consequences for the banks in Switzerland. The fines in particular are at the upper end of legally acceptable and economically bearable levels. It is, however, the sole remaining solution for enabling the banks to resolve the legal problems with the US conclusively, and for creating legal certainty."

"In future, we should always use lessons from the past to help us going forward.  It was no more illegal to accept untaxed assets in Switzerland than it was to pick the wrong business strategy. On the other hand, being right does not always mean being vindicated," he continued.

"Much more important is the insight as to which mistakes were made by our industry, be it wrong risk assessments, inadequate internal and external compliance systems, or violating local laws in foreign markets. It turned out that living on the assumption everything not forbidden is permitted was a misunderstanding of the conditions we operate in," Odier said.