Liechtenstein’s banking sector: Facts & Figures
The Principality of Liechtenstein is a constitutional hereditary monarchy on a democratic and parliamentary basis. The country is situated between Switzerland and Austria, with 37,000 inhabitants and an equal amount of persons employed, of which more than half are commuters.
Due to the customs and Swiss Franc currency union, Liechtenstein is strongly linked to the Swiss economy. Generally, Liechtenstein’s economy is on a moderate path to growth with optimistic outlook and Liechtenstein’s AAA-rating with stable outlook was confirmed by Standard & Poor’s in January 2017. With an increase of 4%, the direct exports of goods from Liechtenstein companies have recovered for the most part after the sharp decline in the past year, which was highly affected by the revaluation of the Swiss Franc in 2015. Employment has grown significantly in 2016 (+ 2%). Both the industrial sector with 0.6% and the services sector recorded growth of 2.5%. The average unemployment rate decreased once again and amounts to 2.1%.
By the end of 2016, there were 14 fully licensed banks operating in Liechtenstein. Five of them are subsidiaries of Swiss, Austrian and Luxembourgish institutions. A former Swiss-owned subsidiary was sold to a Chinese non-financial group. The others are Liechtenstein banks whereas the LGT Group is the largest private banking group owned by the princely family and the LLB Group listed on the Swiss Stock Exchange but majority-owned by the Liechtenstein government.
The activities of the Liechtenstein banks traditionally focus on private banking and wealth management. They do not engage in investment banking and carry comparatively low risks. Owing to the very limited home market, the banks in Liechtenstein are very internationally-oriented and have about 60 representations in more than 20 countries.
Liechtenstein is also affiliated to the Swiss payment systems and, together with Switzerland, will switch in 2018 to the new ISO 20022 payment transaction standard. Liechtenstein is also a SEPA participant and the Liechtenstein Bankers Association (LBA) is member of the European Payments Council (EPC). All banks have online banking services in place. Some have separate mobile banking applications. Digitalisation is an integral part of the long-term strategy of the banking association, the Roadmap 2020, and strategic importance to the banking sector.
Due to the narrow business model of the Liechtenstein banking sector, the lending business focuses on mortgages, which increased by 2.6% compared to the previous year, and Lombard loans. Total loans increased by 3.5% to CHF 23.5 billion and amounted to 40% of total assets, whereas the share of both loan types is more or less equal. Residential mortgages are mainly secured by Liechtenstein or Swiss real estates. The average LTV for residential mortgages is about 50%. Commercial loans do not have a significant share of the loan portfolio of Liechtenstein banks.
Deposits decreased by 3.2% to CHF 35.8 billion and individuals account for nearly 30% of total deposits. Sustainability has always been at the core of the Liechtenstein financial centre’s values and culture and is a key pillar of its long-term strategy.
The Liechtenstein Bankers’ Association (LBA) together with the Liechtenstein Investment Fund Association and the Association of Liechtenstein Non-profit Foundations, initiated before the end of last year an environmental, social and governance (ESG) market report to measure and compare the portfolio quality of equity funds domiciled in Liechtenstein against the ESG criteria. The report aimed at providing more transparency for investors across the range of investment products. More than 50 equity funds domiciled in Liechtenstein received excellent ESG fund ratings, with 60% of the equity funds listed in the ESG Market Report, rating Liechtenstein “A” or higher.
A demanding environment encompassing negative interest rates, volatile financial markets and costly regulation continued to challenge the sector. But in spite of the uncertainties and the restraint shown by investors, the banks attained substantially higher profit and growth in assets under management (AuM). To sum up, the banking sector can look back on a successful year in 2016.
The AuM reached to a new peak, both in Liechtenstein (+3.9 % to CHF 125.9 billion) and on a consolidated basis (+12.1 % to CHF 234.8 billion), i.e. including the banks’ activities abroad. Even more important is the fact that net new money could be raised (globally with CHF 20.3 billion, more than twice higher than the previous year). Total balance sheet assets were kept stable at CHF 60 billion.
The result from normal business activity rose by 43.4% to CHF 320.3 million compared to the previous year.
Liechtenstein banks are distinguished by their financial strength and stability. They have solid and high-quality equity capital resources with an average core capital (Tier 1 ratio) of more than 21% (year-end 2016). They are thus among the best capitalised banks in Europe and worldwide.
A Member State of the European Economic Area (EEA), Liechtenstein has traditionally stood for political stability, debt-free national budget and conditions favourable to business. The national economic significance of the financial centre is disproportionately high, compared with other countries. It is one of the central pillars of Liechtenstein’s national economy. The financial sector contributes a total of 24% to Liechtenstein’s GDP and 16% to the workforce. With a stake of more than 14% of total tax revenue, the outstanding importance of the financial sector would be even more highlighted.