Liechtenstein’s banking sector: Facts & Figures
Updated September 2019 – 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 June 2019. With an increase of 8.5%, 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 2.6% in 2018. The average unemployment rate fell to 1.8%.
By the end of 2018, there were 13 fully licensed banks operating in Liechtenstein. Five of them are subsidiaries of Swiss, Austrian, Luxembourgish and Chinese institutions. The banking centre recorded one M&A transaction between a Liechtenstein bank and a smaller subsidiary of a Swiss banking 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 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 44.2% of total assets, whereas the share of both loan types is more or less equal. Residential mortgages amount to 79% 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 42.6 billion and domestic households account for more than 35 % 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. 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 has continuued to increase.
A demanding environment encompassing negative interest rates, volatile financial markets and costly regulation continued to challenge the sector further on. But despite the 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 2018.
The consolidated AuM reached a new peak once again (up 3.7% to CHF 305.2 billion) whereas in Liechtenstein a slight decrease of -5.8% to CHF 159.1 billion was recorded particularly due to the negative market impact. Even more important is the fact that net new money could be attracted, CHF 3.8 billion by Liechtenstein banks and CHF 33.4 billion on consolidated level. Total balance sheet assets increased to CHF 67.3 billion (up 2.3%).
The result from normal business activity rose by 17.6% to CHF 390.3 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 around 20%. The high average liquidity coverage ratio (LCR) of more than 170% 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 28% to Liechtenstein’s GDP and 16% to the workforce. The banks continue to be important employers. More than 150 full-time positions were created in 2018. The banking industry employs a total of 2,125 people (full-time equivalents) and offers 57 apprentices an attractive entry into their careers, with a share of women exceeding 50%. With a stake of around 43% of total corporate income tax revenue, the outstanding importance of the financial sector would be even more highlighted.
Contributor: Liechtenstein Bankers Association email@example.com