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The financial sector, and particularly the banking sector, is one of the cornerstones of the Swiss economy. It contributes 9.7% to gross value added. As of year-end 2020, there were 243 banks with 2,477 branches and 6,901 ATMs in Switzerland. In addition, banks in Switzerland dispose of 187 branches abroad.
The sector is very diverse with banks differing in size, business model, ownership structure and regional orientation. They include four major banks, 24 cantonal banks, 39 stock exchange banks, one Raiffeisenbank and 59 regional and savings banks. The rest is split between private banks, foreign controlled banks and foreign branches in Switzerland, among others.
Banks contribute to Switzerland’s international top competitiveness rank by catalysing economic development, offering a large number of skilled jobs, paying above-average salaries and having a considerable share of public-sector funding in taxes. The rapid deployment of Covid-19 credits by the Swiss banks in March 2020 was a significant factor to counter the economic downturn caused by the pandemic.
However, the challenges currently faced by banks in Switzerland are in fact manifold: high regulatory costs; shrinking margins; price-sensitive customers; restricted access to foreign markets; rising competition from both financial and non-financial actors and continuing negative interest rates. Overall, Swiss banks remain affected by the negative interest rates. Interest rates on banks’ sight deposits at the Swiss National Bank, which exceed an exemption threshold, remain negative at -0.75%. An end of the low rates’ regime is not in sight due to the upward pressure on the Swiss franc.
Despite considerable headwinds, the Swiss banking sector is in good shape. The stability-related homework is done, service quality meets the highest standards, but profitability needs to be increased. Banks in Switzerland are now primarily focusing on digital innovation in order to develop new business models and to improve internal efficiency and cost structures. Furthermore, the Swiss FinTech landscape has increased significantly, to now over 363 FinTech companies. A third of them are active in the field of Distributed Ledger Technology. In August 2019, the first two blockchain service providers were granted banking and securities dealer licences by the authorities. In 2021, the Swiss Financial Market Supervisory Authority approved the first independent marketplace for digital assets in the world, the first Swiss DLT-based stock exchange and the first Swiss crypto fund.
Almost half of the CHF 7,879 billion (€7,280 billion) assets currently managed by Swiss banks originated abroad. With a market share of 24% Switzerland is the global leader in the field of cross-border private wealth management business.
The banks’ lending business remains key for the economic development of Switzerland, especially for SME which employ around 68% of the labour force in Switzerland. Swiss SMEs that make use of external capital primarily rely on bank financing. Over 90% of the companies that applied for a bank loan received an approval. The total outstanding domestic credit volume in 2020 rose moderately to CHF 1,451 billion (€1,341 billion) of which CHF 1,082 billion (€1,000 billion) are attributable to domestic mortgage lending.
Clients with banks and securities dealers that are authorised by the Swiss financial market authority FINMA, are covered by a depositor protection scheme. If a bank or securities dealer is declared bankrupt, deposits up to a maximum of CHF 100,000 per client, are secured. This applies to all deposits, including those made at foreign branches.
The aggregate balance sheet of all the banks in Switzerland amounts to CHF 3,467 billion in 2020 (€3,204 billion). The economic contribution of banks remains high, since banks are important consumers of goods and services.
Before the Covid-19 pandemic, Switzerland’s economy showed continuous growth and a low unemployment rate. In 2020, real gross domestic product (GDP) declined by 2.4%. Due to the economic effects of the global pandemic the GDP declined sharply in first two quarters, followed by a strong rebound. The recovery was mainly driven by the services sector but also by most other industries. On the expenditure side, both foreign trade and domestic demand supported growth. In 2020, financial services were one of the sectors with the highest growth. Over the last five years, however, banking services grew slower than the rest of the economy. Outsourcing activities and the demand for preliminary goods and services from other sectors, however, lead to orders for companies along the entire upstream value chain. The average unemployment rate for Switzerland in 2020 was 3.1% and, thus, higher than during the previous year.
Alongside the CHF 37.9 billion (€35.0 billion) generated by the Swiss banking sector in 2020, the indirect effects create an additional CHF 20.7 billion (€19.1 billion) of value added in other sectors, leading to a total of 8.5% share of Switzerland’s gross value added.
In 2020, the financial sector paid CHF 17.1 billion (€15.8 billion) in direct and indirect taxes. Approximately 12% of all tax receipts can be attributed to the financial sector.
In 2020, Swiss banks employed 106,631 people (FTE), of which 89,958 were employed in Switzerland. Most of them are employed at one of the four large banks (26%), followed by cantonal banks (20%). The proportion of women employed at Swiss banks stood at 38.4%.
Contributor: Thomas Rühl email@example.com