Zurcher Kantonalbank's profits are up by a quarter for the first half of the year, with higher interest rates contributing significantly to increased income at Switzerland's largest state-owned bank.

The Zurcher Kantonalbank (ZKB) reported a consolidated profit of 677 million Swiss francs ($770.5 million) for the first half of the year,  an increase of 25 percent compared to the same period last year, according to results released Thursday.

The result was based on a significant increase in the interest business, favorable trading results, and stable commission and services business. «After years of negative interest rate margins in the client deposits business, these margins are now returning to normal due to the interest rate reversal, contributing to our strong half-year result,» said CEO Urs Baumann.

Substantial Net New Money

Operating income grew nearly 26 percent year-on-year to 1.69 billion Swiss francs. In ZKB's interest business, gross income rose 41 percent to 939 million francs. Value adjustments for default risks were lower than in the previous year, net income in the unit grew by 46 percent to 946 million.

Net fee and commission income remained stable at 475 million Swiss francs, while net trading income was 20 percent higher at 252 million Swiss francs.

Assets under management rose to 430.4 billion francs through the end of June, an increase of 30.4 billion compared with the beginning of the year, with net new money of 19.3 billion flowing in, compared to 17.8 billion in the same period last year.

 «The net inflow of new money is broad-based and is largely unrelated to events surrounding Credit Suisse,» Baumann said. 

Improved Cost/Income Ratio

Operating expenses rose by 6.9 percent to 818 million Swiss francs. On the one hand, this was due to a 7 percent increase in personnel expenses to 594 million francs, as ZKB further writes. Full-time equivalents (FTE) rose by 197 to 5,337 FTE within the year.

General and administrative expenses increased by 6.9 percent to 225 million francs. This reflects higher IT expenses in connection with further developments, higher license fees, and rising energy costs. The cost/income ratio (CIR) improved to 48.7 percent from 56.2 percent in the previous year.

Revenue Momentum Will Slow

 «We expect income momentum to slow in the second half of the year,» Baumann said, adding that he's confident «that with our strong half-year result, we have created a good basis to deliver a pleasing result for the full year 2023.»