Many of Switzerland’s remaining 114 private banks are facing serious problems, as growing competition and a continuing global crackdown on tax evasion erode their profitability, a report published by KPMG finds.
Even cutting costs and merging operations with other players in the market won’t be enough to save some of them, the researchers conclude, so great has the change to the way global wealth is held been in recent years.
“Many banks are struggling to reduce costs, in line with falling operating income margins,” the report’s authors note at one point.
“The result is the cost-income ratio rising to 84% – its highest level in the past seven years. This indicates the radical change needed.”
Later, they write: “Aggregated [assets under management] of our 85-bank constant sample grew by 38% over the past six years, largely due to [merger and acquisition] activity at large consolidator banks.
“Profitability developed at a much lower level, however, with gross profit falling by 10% and net profit growing by 10%.”
The report, described by KMPG as the latest in a series of annual studies into the Swiss private banking market that it has conducted in collaboration with the University of St Gallen, looked at 85 out of 114 Swiss private banks. Two of Switzerland’s largest banks, UBS and Credit Suisse, were not included in this year’s study.
Commenting on their findings, the report’s authors, Philipp Rickert and Christian Hintermann, both of whom work for KPMG’s Swiss operations, note that 2016 “should have been a year of change for Switzerland’s private banks”, but that the need to address rapidly-declining profitability “was not matched by appropriate action on
the ground” by the country’s private banks.
“Too many banks focused on defensive cost reduction measures, or improving existing business and operating models.
“In doing so, they overlooked what is really needed: a more profound, radical transformation that will allow them to use their core competencies to generate competitive advantage and sustainable growth.”
They concluded by noting that although “a small minority of banks did take significant steps” in the right direction, their analysis had delivered “a very clear message”.
“More banks need to grasp the challenge of materially transforming
their businesses, rather than [the] incremental steps currently
being seen,” they said.
“Nothing less than radical action will reverse the decline.”
To read more about the KPMG report and its findings, click here.