Liechtenstein’s banking sector: Facts & Figures
Updated September 2018 – For earlier editions of Facts & Figures click here
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 2018. 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 grew by 3.6% in 2017. The average unemployment rate fell to 1.9%.
By the end of 2017, there were 14 fully licensed banks operating in Liechtenstein. Six of them are subsidiaries of Swiss, Austrian, Luxembourgish and Chinese institutions. A former Austrian-owned subsidiary was sold to a Hong Kong 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.
Owing to the very limited home market, the Liechtenstein banks are very internationally-oriented and have representations in more than 20 countries. Their activities traditionally focus on private banking and wealth management. They do not engage in investment banking and carry comparatively low risks. However, smaller banks, in particular, are engaging more in other business areas, such as Bank Frick which has built up a high level of competence in e-commerce/payment solutions over the last few years.
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.
Due to the narrow business model of the Liechtenstein banking sector, the lending business focuses on mortgages, which increased by 3% compared to the previous year, and Lombard loans. Total loans increased to CHF 30.0 billion and amounted to 45.5% of total assets, whereas the share of both loan types is more or less equal. Residential mortgages amount to 75% and are mainly secured by Liechtenstein or Swiss real estates. The average loan-to-value for residential mortgages is about 50%. Commercial loans do not have a significant share of the loan portfolio of Liechtenstein banks.
Deposits increased to CHF 42.7 billion and households 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.
Sustainability has become an integral part of the corporate culture of banks in Liechtenstein. The LGT Group is one of the pioneers in this area, not just in Liechtenstein, but also worldwide. Consequently, the positive trend towards sustainable investments has continuously continued over the last years whereby the percentage of sustainable investments meanwhile have increased up to 10%. According to a study carried out in 2016 more than 50 equity funds domiciled in Liechtenstein received excellent environmental, social and governance (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 despite 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 very successful year in 2017.
The AuM reached once again a new peak, both in Liechtenstein (up 23.5 % to CHF 168.9 billion) and on a consolidated basis (up 25.3% to CHF 294.3 billion), i.e. including the banks’ activities abroad. Even more important is the fact that net new money could be raised from CHF 3.0 to CHF 17.6 billion (globally CHF 40.1 billion, two times higher than the previous year). Total balance sheet assets increased to CHF 65.8 billion (up 6.5%).
The result from normal business activity rose by 3.6% to CHF 331.9 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 20%.
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 around 16% of total tax revenue, the outstanding importance of the financial sector would be even more highlighted.
Contributor: Rafik Yezza Rafik.Yezza@bankenverband.li