The private banking industry in Switzerland is encountering major challenges such as low profit margins and poor cost-income ratio amidst various technological and economic uncertainties, according to a study by consulting firm KPMG Switzerland.
The study, conducted in collaboration with the University of St Gallen, noted that Swiss private banks’ median cost-income ratio jumped to 84.4% in 2016, its worst level in the last seven years. The median operating income margin of Swiss private banks during this period dropped to 89 basis points, its lowest level ever, driven by lower net commission income from extremely cautious clients and more fierce competition.
In 2016, Swiss private banks failed to increase their return on equity, with the median value for the assessed banks standing at 4.1%.
However, banks in the region posted “significant increases” in their assets under management (AuM) since 2010, but the rise was mainly due to acquisition activity. Also, net new money contributed only 15% to the rise in AuM.
The local private banking industry also reported a sharp decrease in consolidation activity in 2016. Only two of the 11 deals in 2016 reported last year were takeovers of Swiss private banks versus nine of the 15 deals in 2015.
Overall, the study unveiled a sharp decline in the total number of private banks in Switzerland since 2010. Smaller banks were found to have been hit the worst by the industry upheavals, with 80% of banks disappearing or pulling off from the local market over the past few years being in this category.
On the other hand, the local market also witnessed the emergence of a few small-sized niche banks. These niche players were found to register extremely positive performance and constituted almost half of the “strong performers” at the end of last year.