Private banks benefit from strong interest rate business
Published: Monday, Oct 30th 2023, 07:20
Updated At: Tuesday, Oct 31st 2023, 00:53
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Swiss private banks are also benefiting from changes in the interest rate environment. In particular, smaller private banks have been able to significantly improve their revenues in the first half of 2023 thanks to a strong interest rate business, according to a study published by the consulting firm KPMG on Monday.
In Switzerland, private banks have seen a marked shift in their revenue structure away from commission-based business and towards interest-based business, according to KPMG's half-year analysis. This shift is particularly pronounced among smaller institutions: In the first half of 2023, these institutions saw 41 percent of their total revenue come from interest income, compared to 24 percent in 2021. The share of the traditionally more significant commission-based business also stood at 41 percent, compared to 58 percent in 2021.
More Foreign Exchange Transactions.
Smaller private banks have also benefited from an increase in trading revenues this year, according to the study. This is mainly due to increased foreign exchange transactions as customers try to take advantage of higher US dollar interest rates, according to KPMG.
The medium-sized and large private banks also increased the share of interest income in their total revenues, although not as strongly as the small institutions. According to the analysis, interest income accounted for around one third (2021: 16 percent) of the revenues of medium-sized banks in the first half of 2023 and around one quarter (2021: 13 percent) of the revenues of large institutions.
Record results for small banks? Small banks have seen record results in recent years, with many reporting increased profits and customer satisfaction. This is due to a combination of factors, including improved technology, better customer service, and a focus on providing tailored financial solutions to meet the needs of their customers. Consumers should be aware of the benefits that small banks can offer, as they may be able to provide more competitive rates and services than larger banks.
In the first half of 2023, small private banks have seen an extremely positive performance. Their gross profit has already reached almost the same level as the total of 2022. According to the study, the return on equity of the small institutions was 10.7 percent in the first half of the year, compared to 3.9 percent in the previous year.
For the year 2023, the study authors expect record results, especially for small banks. However, it should not be overlooked that the more negative financial markets seen in the second half of the year will likely have a negative impact on managed assets and commission revenues.
There have been few takeovers.
In the current year so far, there have been few mergers and acquisitions in the private banking sector, excluding the Credit Suisse takeover by UBS. This situation is expected to remain unchanged until early 2024, according to KPMG banking expert Christian Hintermann in the study. However, many banks are currently trying to benefit from the integration of Credit Suisse into UBS by strengthening their business with local advisors and teams.
KPMG has conducted a study of the half-year results of 37 private banks operating in Switzerland, representing 42 percent of the total 89 Swiss private banks.
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