Mid-year reports from Swiss banks show some striking cost trends. The institutions are often pursuing a dual strategy.
The prospect of normalization in their interest rate businesses has improved the mood among banks to the point they're opening up their wallets and spending money. There's hardly a financial institution not reporting shelling out more on IT, digitization, or hiring.
It indicates a desire to invest to keep pace with competitors or improve their position. The downside is that a persistently higher cost level could be a burden if things turn sour again.
Higher Costs Nearly Everywhere
At Swissquote, operating expenses in the first half of the year were a whopping 30 percent higher than the previous year, as it spent on new IT hires and foreign subsidiaries. At EFG, overall expenses rose 11 percent, driven by a 14 percent increase in personnel costs, whereas non-personnel costs remained mostly stable.
The private banking sector also has to contend with higher personnel costs, as seen with EFG, where costs climbed by 14 percent for staff, while operating expenses remained stable. Overall, expenses at the Zurich-based bank rose by 11 percent.
Although a cost-cutting program is underway at Vontobel from the effects of the accounting changeover, a wealth manager recruiting program caused costs to rise by 8 percent. Julius Baer is also pursuing an expansion strategy aimed at a bigger presence in growth markets, more top talent, and more spending on innovation and technology as the watchwords. Nevertheless, expenses remained within limits with a 2 percent increase in general and administrative expenses and a 5 percent increase in personnel.
Costs Rise at Cantonal Banks
The trends in IT and personnel investments were also noticeable among cantonal and regional banks. Costs at the Cantonal Bank in Appenzell went up by 16 percent, while those in Thurgau grew 9.4 percent, and 6.8 percent at St. Gallen. At the Cantonal Bank in Aargau, costs rose 10 percent for both IT and personnel. At regional bank Clientis, costs were up 7 percent
In contrast, the Cantonal banks in Bern and Vaud, reported increases of 3 percent, roughly matching the general level of general inflation.
Staff Inflation Compensation
This is due in part to several institutions initiating at least partial inflation wage compensation, not to mention lingering Corona effects. During the pandemic, marketing costs were slashed, and a return to physical general meetings also affected costs.
For smaller banks in particular, strategic projects such as systems upgrades or new digital offerings for customers can lead to fluctuations. Construction projects, such as new administrative buildings or branches, also often result in distortions.
Zuercher Kantonalbank's plans to spend hundreds of millions of francs on modernizing its 51 branches between 2024 to 2030 illustrate this.
In addition to the expansion of digital channels, it's noticeable that customers' need for personal advice in particular is being taken seriously. In addition to IT staff, customer advisors remain in demand.
