The penalties paid by Swiss banks for cash holdings at the central bank are rising each year. This makes it all the more urgent for the companies to take a decision most of them have avoided taking so far.

2.2 billion Swiss francs ($2.2 billion): this is how much Swiss banks will have to pay the Swiss National Bank (SNB) for holding their cash in 2019, according to an estimate published by Fintech Deposit Solutions on Thursday. In the four years through the end of 2018, the total amounted to 6.3 billion francs, the study showed.

As banks increasingly use up the maximum amount theyre allowed to hold, the pressure is mounting – and this year, the negative rate compensation will likely reach a record. The central bank wont budge anytime soon, with the Fed and the ECB both indicating that they are likely to make money cheaper again. Hence the need for the Swiss National Bank to stick to its negative rate policy to keep the franc from appreciating.

The central bank next week, on June 13, will hold its half-year press conference and publish the quarterly monetary policy assessment. No change of rates is expected.

New Record Low

The banks can't thus expect the SNB to help them out and their margin for manoeuvre is narrowing. When the central bank in 2015 cut the rate to the present level, retail banks upped mortgage rates in what looked like a concerted effort to defend their margin. But since those days, the prices paid for mortgages have fallen further and online comparison service Moneypark only just reported that the 10-year mortgage had reached a new record low of 1.25 percent on average.

The main reason for this decline seems to be the entry of new competitors, bankers say. Insurers, pension funds and fintechs have started rivaling the banking industry in one of the industries that still guarantee a steady return without too much risk. It is unlikely that they will allow the banking industry to take back market share they lost.

Uncharted Territory

Devoid of options to boost their steady income, banks likely will have to resort to other options – including charging interest on savings accounts. The only bank to do so today is Alternative Bank Schweiz, while some banks are charging customers for large cash holdings. Banks don't want to penalize their customers because they fear a sudden exodus of assets.

But this approach seems to lose allure. UBS, the biggest bank in Switzerland, cut the already tiny interest it paid on savings accounts to zero starting this month. Other banks are likely to follow suit now that the biggest bank has taken this key decision.

With such a development imminent, it looks certain that interest on savings soon will fall below zero. A step into uncharted territory and one that isn't easily reversed.