Turbulent financial markets made 2022 an extremely challenging year. The effects were felt across Switzerland’s private banking sector, which remains highly dependent on market movements. This led to a performance-driven fall in assets under management (AuM), limited M&A activity, and lower net new money (NNM) – seeing AuM fall back to 2020 levels. Higher interest rates proved to be a savior for many banks, providing a much-needed boost to interest income and profitability.

As banks seek to achieve the next level of profitable growth, they must contend with the cost and complexity of cross-border business, a shortage of talent, lack of sizeable M&A opportunities, and ongoing geopolitical tensions. Strengthening their ability to generate organic growth will be key. Incremental performance improvements are becoming more difficult, but banks must find a way to overcome the hurdles and achieve greater profitability and growth.

Read more about how Switzerland’s private banks performed, and what the future might hold for the strongest and weakest among them.

Key findings

Switzerland's Big 8 private banks were hit hardest by last year's challenging conditions, but still put in strong performances. Some small banks also did well, seeming to have turned their businesses around in recent years by keeping costs stable and limiting a decline in commission income. The number of small banks classed as weak performers fell from 15 in 2021 to nine last year.

A rise in interest income saved many poorly performing banks from making losses or being classed as weak. Poor C/I and RoE persists at 97% and 0.1% respectively at weak banks, however. While many have escaped consolidation for the moment, they may not be able to avoid it for much longer.

As commission income fell significantly amid last year's turbulent financial markets, the rise in interest income will have come as a relief. It jumped by more than 50%, or about CHF 1.4bn, overall. The median interest margin rose from 10bps to 18bps, returning to pre-financial crisis levels of 18bps in 2007 and 19bps in 2008.

In many cases, interest income more than compensated for a number of other difficulties: AuM that has fallen by more than 10% back to 2020 levels, declining mandate penetration, limited client activity alongside deleveraging, and clients holding more in cash. 

Despite 2022 delivering massive turmoil and challenge, it caused little structural change. The number of private banks decreased from 92 at the end of 2021 to 89 at the end of March 2023, with the disappeared banks being exclusively small weak banks. Most M&A activity involved Independent Asset Managers, with only minor impacts on industry AuM.

As banks seek to improve profitability, medium-sized banks in particular are struggling and some may need to look for a buyer or strategic partner. This will lead to more M&A going forward, as will the fact that we expect more weak small banks to exit the market. Activity will rise also as larger banks look for opportunities abroad to reignite growth.

Industry NNM hit its lowest level since 2018, following a record high of CHF 131bn in 2021. Its fall to CHF 45bn in 2022 was driven by a dramatic CHF 80bn drop in NNM at large banks. By contrast, small banks performed impressively. Despite holding only 6% of the industry's AuM, they generated 17% of its NNM last year. 

Given Switzerland's status as a safe haven, this fall in NNM was unexpected in such turbulent times. As the wealth of the world's richest continues to grow, Swiss banks are struggling to capture their fair share. 

Despite last year's fall in AuM, small and medium-sized banks posted resilient profits, and were even able to significantly increase gross profit as a whole. Median C/I also rose, however, from 80.6% to 81.3%. This remains stubbornly at the higher end seen in recent years. C/I varies significantly between clusters, such as 60.6% at strong banks and 97.2% at weak ones, but has stayed surprisingly stable for most clusters over the past five years. 

Considering whether banks have reached their tolerance on C/I, the question is whether they can improve further by adapting their business models. Whether this could be through growth, economies of scale or greater efficiencies to unlock their upside potential is open to debate, but one thing is clear: it may require more radical changes that the incremental steps we have seen in the past few years. 

HSG's deep-dive into performance over the past 12 years

For the 12th year in a row, HSG has contributed to our study “Clarity on Swiss Private Banks” and has produced their detailed analysis of Swiss private banks that complements and reinforces our own. This year, it focuses on the longer-term performance of banks over the disruptive period 2010-2021. Looking at key indicators including return on equity and cost-income ratios, it distinguishes the performance of Switzerland's eight largest private banks from smaller clusters.

Containing some fascinating insights into how Swiss private banks have developed over the 12 years, and how differing strategies have led to different degrees of success, the publication also draws a connection between banks' number of FTEs and average profitability.

KPMG Digital Benchmarking Tool

Our proprietary digital benchmarking tool contains data from 82 private banks across Switzerland and Liechtenstein. Banks can use the tool to undertake a detailed comparison with their peers using unique KPI drill-down capabilities.

Ours experts are pleased to help you identify areas of performance enhancement for your bank and how they can be delivered practically and efficiently.

Meet our experts

We would be happy to share our thoughts on the implications for your organization. Contact us to discuss our findings.