Banks have significantly widened their interest margins in 2023
Published: Thursday, Jun 6th 2024, 08:50
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Swiss banks benefited from rising interest rates last year. Virtually all bank groups were able to expand their margins in the interest rate differential business in 2023, with the cantonal banks achieving the largest increase, as an analysis by mortgage broker Moneypark shows.
According to Moneypark's calculations, banks in Switzerland generated a net interest margin of 1.40 percent in 2023, compared to 1.23 percent in the previous year. Banks receive interest payments from their loan and mortgage customers, but they in turn pay interest to their savers for their deposits - the difference is the bank's margin.
Exception big banks
According to the analysis, the cantonal banks achieved the highest net interest margin among the individual bank groups at 1.43% (previous year: 1.18%). With an increase of 25 basis points, they also achieved the largest margin expansion. According to the analysis published on Thursday, they also owe the increase to their strategic positioning and the "skillful management of their mortgage portfolios".
The big banks were an exception with an unchanged margin of 1.36% compared to the previous year. Moneypark explains the stagnation with the turbulence surrounding Credit Suisse. Because savers withdrew large amounts of money from the big bank, which has since been taken over by UBS, it had to refinance itself at high cost. This led to a slump in its net interest margin. However, the outlook for 2024 is good: thanks to a high proportion (45%) of mortgages with short terms, which can be adjusted more quickly to changes in interest rates.
High proportion of long-term mortgages
In contrast, Raiffeisen banks are somewhat more vulnerable, despite the sharp increase in their net interest margin last year to 1.41% (1.20%), according to Moneypark. The reason for this is that around 85% of their mortgages have a term of more than one year. Although long-term mortgages ensure a stable earnings situation for institutions, they also make the banks concerned "sluggish and vulnerable" in the event of unexpected interest rate changes, Moneypark CEO Lukas Vogt is quoted as saying in the press release.
For the study, the mortgage broker analyzed the annual reports of 60 banks in Switzerland, which together cover over 95 percent of the mortgage market. Specifically, the net interest margin is defined in the study as the ratio of net interest income to average "interest-bearing assets" - i.e. mortgage receivables and other receivables from customers.
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