Banking and Finance Institutions

ABT: the banking sector is holding up well

12 December 2024

Edited by the Editorial Staff

The Cantonal Statistical Office regularly analyses the results of the economic survey conducted by the KOF of Zurich among Swiss banking institutions. The trend in recent years is positive even if profit margins tend to narrow. The Ticino banks are also holding up well

Monetary policy SNB

In the first part of the year, the global economy grew at a moderate pace, and inflation in many countries continued to exceed central bank targets. However, inflation has fallen in recent months, and as a result, several central banks have lowered their key interest rates again.

The Swiss National Bank (SNB) also lowered its key interest rate in September by a further 0,25 percentage points to 1,0%, and sight deposits held by banks at the SNB will be remunerated up to a certain limit at the key rate, and those above this limit at an interest rate of 0,5%. The SNB also reiterated its willingness to act on the foreign exchange market if necessary to curb the strengthening of the Swiss franc.

According to Franco Citterio, Director of theTicino Banking Association (ABT), the SNB's monetary policy is having a major impact on the banking sector's activity and results. The reduction in the key interest rate erodes margins on interest operations and therefore weighs significantly on profits. On the other hand, with low interest rates, commercial and investment activities should also pick up. It is therefore reasonable to be cautious about the evolution of the situation on the business front. In particular, the real estate market has slowed down in recent quarters, but, according to the SNB, critical points persist, especially in some areas of the country.

Business situation

According to the latest data collected in September, the business trend is once again judged positively by a large majority of the players in the banking sector. Furthermore, as has now been the custom for over a year, the balance recorded south of the Alps was higher than the national one.

A little less positive, both in Ticino and in Switzerland, are the data regarding the evaluation of business in the last three months. In this case, the curve showed a significant decline in the first half of the year, while the results of the last few months are back in a positive trend. In any case, these indices also appear solidly positive. Just as positive are the indices relating to expectations regarding the evolution of business in the next six months. In this case, the continuous improvement of the balance recorded at the cantonal level is a little surprising, while the items collected at the national level are more stable and relatively more prudent.

Application for banking services

The positive reading of the business situation finds valid support in the opinions expressed regarding the evolution of demand, which are also positive and recovering. At a national level, the index relating to private customers was already the most positive, and has also shown growth again in the latest surveys. The index relating to business customers, after a period of decline, also shows a clear recovery from the July survey. Positive trends are also confirmed by the index relating to demand from abroad, which until a year ago was often negative.

It is also interesting to note how expectations regarding the evolution of demand in the next three months always appear rather cautious. In the case of domestic customers, especially looking at private customers, the balance of the trend of the situation in the last three months seems to follow and corroborate that of the forecasts. In the case of foreign customers, in the face of a relatively neutral prospective index, an improvement in the balance with respect to demand in the last three months is measured.

bnVolumes and income situation

In Ticino, as in Switzerland, the balance relating to capital volumes and that relating to securities trading on behalf of third parties remains largely positive. At the national level, the balance relating to new credits is also largely positive, in this case a clear decline in the index cantonally can be noted, an unchanged trend also according to the latest data from July, when the reference rate had already been adjusted downwards twice by a quarter of a point (in March and June). In Ticino, the increases in the reference interest rate decided by the SNB between 2022 and 2023 would therefore seem to have had a greater impact.

Finally, given the decrease in interest margins, it is not surprising to find the balance relating to the income situation decreasing and in negative territory. Expectations for the next three months indicate on the one hand an increase in expenses and on the other a decrease in revenues. In this case, the results collected at the cantonal level follow, more or less, the trajectory outlined at the national level.