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As a member of the European Economic Area (EEA), the Liechtenstein economy takes part in the European single market and due to the customs and Swiss Franc currency union, the country 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 end of May 2021 despite the pandemic. In 2020, direct exports of goods by Liechtenstein companies fell sharply and employment had stagnated. The average unemployment rate increased slightly to 1.9% (+ 0.4%), but is still at a comparatively extremely low level. The latest export development points to a catch-up effect.
By the end of 2020, there were 13 fully licensed banks operating in Liechtenstein. Four of them are subsidiaries of Swiss, Luxembourgish and Chinese institutions, the others are Liechtenstein banks. 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, 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 as well as in blockchain banking over the last few years.
Liechtenstein is also affiliated to the Swiss payment systems and, together with Switzerland, switched 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 2.5% compared to the previous year, and Lombard loans. Total loans are stable around CHF 30.0 billion and amounted to 40.0% of total assets, whereas the share of both loan types is more or less equal. Residential mortgages amount to 80% of total mortgages and are mainly secured by Liechtenstein or Swiss real estates. The average LTV for residential mortgages is less than 50%. Commercial loans do not have a significant share of the loan portfolio of Liechtenstein banks.
Deposits were stable at CHF 44.7 billion and households account for more than 25 % of total domestic 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 so-called Roadmap 2025 with an emphasis on growth through sustainability and innovation. LGT is one of the pioneers in this area, not just in Liechtenstein but worldwide as well. Consequently, the positive trend towards sustainable investments from the last years onwards has persisted, and the percentage of sustainable investments continuously increased.
A demanding environment encompassing negative interest rates, volatile financial markets and costly regulation continued to challenge the sector. Even in time of pandemic uncertainties and the restraint shown by investors, the banks attained stable net profits and assets under management (AuM). To sum up, the banking sector can again look back on a successful year in 2020.
The consolidated AuM reached a new peak once again (up 4.4% to CHF 365.4 billion) whereas the growth in Liechtenstein amounts to 2.9% (CHF 179.2 billion). Even more important is the fact that net new money could be attracted, CHF 5.5 billion by Liechtenstein banks and CHF 17.7 billion on a consolidated level. Total balance sheet assets increased to CHF 73.7 billion (up 3.1%).
The result from normal business activity slightly decreased by 11.8% to CHF 304.3 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 (CET 1 ratio) of more than 20%, both at individual and consolidated level. The high average liquidity coverage ratio (LCR) of more than 190% shows that security and stability are very important for the banks.
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 22% to Liechtenstein’s GDP and 17% to the workforce. The banks continue to be important employers. More than 40 full-time positions were created in 2020. The banking industry employs a total of 2,246 people (full-time equivalents) and offers 59 apprentices an attractive entry into their careers, with a share of women exceeding 50%. With a stake of around 44% of total corporate income tax revenue, the outstanding importance of the financial sector would be even more prominent.
Contributor: Liechtenstein Bankers Association email@example.com