The bulk of Swiss banks made a profit of some kind last year but gains varied considerably between small and large banks. The central bank also urged the two "big banks" to improve leverage ratios to curb risk exposure.

While the country’s banking industry has been under relentless pressure because of Switzerland’s bank secrecy laws, official data showed that for those making a profit, the amount made rose last year from a year earlier. The data contains huge variety of fortunes between bank models, however.

In a separate report (see below), the Swiss National Bank, the central bank, also praised the country’s two “big banks” – UBS and Credit Suisse – for their improved capital position last year, but called for them to improve leverage ratios to deal with potential financial shocks.

In 2013, 235 of 283 banks tracked by the SNB, logged an annual profit of SFr11.9 billion (13.3 billion), up from SFr7.1 billion a year earlier. The data also suggests that on an average basis, those banks making a profit would have made just SFr50 million each – in reality some banks barely broke even while others made far larger sums.

Profit from ordinary banking operations (gross profit) increased by SFr2.1 billion to SFr19.5 billion. In the balance sheet, domestic business grew in importance compared to foreign business on both the assets and the liabilities side, the SNB said in a statement.

Among fiduciary funds, there was a drop of SFr17 billion to SFr120.7 billion – about a quarter of the peak value that was recorded in 2007, the report said. Funds of the kind invested in euros suffered the biggest drop, by SFr6.7 billion to SFr20.9 billion. Fiduciary funds invested in dollars fell by SFr1.2 billion to SFr74.3 billion, but their share of the total continued to rise, by 6.8 percentage points to 61.5 per cent.

Excluding the arrival of PostFinance to the classification of a bank last year, total staff numbers in banks fell by 4. per cent to 123,718 (in terms of full-time equivalents). Within Switzerland itself, jobs dropped 2.7 per cent to 102,316 jobs.

There are, for the purpose of the SNB classification, two “large” banks (presumably UBS and Credit Suisse); 24 cantonal banks; 70 regional and savings banks; one Raiffeisen bank; and 181 “other” banks. Among the others are 49 stock exchange banks, 9 “other savings institutions”; 123 foreign-controlled banks; 33 branches of foreign banks; 14 private bankers. The total is 325.

The two “big banks” made total profits last year of SFr3.818 billion; by contrast, the 154 “other banks” made total profits of SFr4.354 billion, highlighting how, in graphical form, the share of profit between the two largest institutions and the rest resembles a sharp mountain peak and a very long tail.

Financial stability
“Over the past year, the Swiss big banks have further improved their capital situation. Their ratio of going concern loss-absorbing capital to risk-weighted assets either already exceeds or is close to the 13 per cent set down in the ‘too big to fail’ capital requirements that will apply from 2019,” the SNB said.

“They also meet or are very close to meeting the corresponding leverage ratio requirement of 3.1 per cent. In terms of total capital, both big banks have also substantially improved their ratios, although they have yet to meet the corresponding requirements applicable from 2019,” it continued.

“The SNB recommends that they continue to improve their resilience and, in particular, their leverage ratios. This is important for two reasons. First, the loss potential for the Swiss big banks - estimated under the different adverse scenarios considered - continues to be substantial relative to their capitalisation. For financial stability in Switzerland, it is important that the big banks remain adequately capitalised in the event of such scenarios occurring,” the SNB said.

"Second, an international comparison reveals an uneven picture of the Swiss big banks’ capitalisation, depending on which capital measure one examines,” it said.

As a general statement aimed at the banking sector as a whole, it said: “The current situation with banks’ high exposure to interest rate risk and the Swiss real estate market, coupled with the imbalances on this market, calls for a prudent lending policy, both to limit banks’ future loss potential and to help prevent a further build-up of imbalances.”