The pandemic has come to be viewed as a catalyst for the digital transformation of Swiss banking. The change won't come that easy though, because banks are going to carry the financial burden of the crisis and yet will be forced to make the necessary resources available to implement the change.

Swiss banks and other financials survived the crisis with flying colors. And, what's more, the pandemic has shown that the financial market has already been through a fair bit of digital change. After all, bankers were able to complete all the important tasks remotely, from their home office – and, in fact, are still doing so to a very large degree.

But banks won't rest on their laurels. Shifting staff from offices to their homes isn't what the digital transformation is all about.

Corona: Additional Ressources and Money

And, what's more, the pandemic has been shaping new realities in the financial market. Resources and money will be required to cope with those realities, money that is urgently needed for investments in change. In other words, corona hasn't helped the transformation, it has hindered it as the «Swiss Banking Report 2020» by Oliver Wyman consultancy showed.

The study authors concur with the view that banks in Switzerland have coped well with the challenges posed by the pandemic. The companies had done a good job securing operations, quickly expanding digital offerings, and in their reaction to a surge in cyber- and conduct-risks. And even in terms of their profitability, banks have not been left stranded in the first half of 2020.

Struck at the Very Heart

Still, the authors also say that the pandemic has struck at the heart of Swiss domestic banking.

This assertion is based on an accumulation of factors and developments. Corona as such contributed to a massive increase in default risks. Oliver Wyman expects a total need for provisions worth 3 to 4.6 billion Swiss francs ($3.3 – $5 billion) until 2022. The number of loan defaults will rise from 0.6 percent to 2.4 percent and as much as 3.5 percent – independent of the question of whether a second lockdown will become necessary.

The loan risk and balance sheet problem is only the visible top of the structural problems besetting the Swiss domestic industry: stagnating business, lower margins in the mortgage business, increasing competition from challenger banks, platforms, and portals. Oliver Wyman expects a drop in revenues by 5 to 15 percent in domestic banking in the medium term.

Securing Profitability Won't Suffice

The immediate operational challenges posed by the combination of corona-risks and a structural squeeze of revenues are manifold. It won't do to just cut costs in a bid to safeguard profitability and balance-sheet adjustments.

In the loans business, risk management has to be tightened and the know-how in loans- and asset-recovery boosted. Compliance has to be improved if the permanent home office isn't to become a source of risk after all. No to be forgotten are the organizational, operational, and communication measures needed to maintain the corporate culture.

The measures are what Oliver Wyman says are management actions necessary to maintain banking's profitability and balance sheets over the coming 12 to 18 months.

Accelerating the Transformation

The transformation however doesn't stop to give the industry a break. While the management of banks will have their hands full dealing with the described measures, there will be a lack of resources and capacities to deal with the right choices going forward. Oliver Wyman urges banks to take decisions and accelerate their transformation agendas.

Banks will fundamentally focus on the needs of their clients, with a clear focus on an improvement in profitability. It won't suffice to match client needs by the provision of digital channels and hybrid high street branches. A bank only becomes more profitable if it manages to make the whole value chain digital. Which entails an investment in IT and core-banking systems.

Writing Off the Legacy-Systems

The costs for these investments is less important than the huge amount of money banks will have to forego by writing off their legacy systems.

Conclusion: Swiss domestic banking is in for a double challenge. Meeting the financial and operational consequences of the pandemic and accelerating the strategic transformation at the same time.