The profits of Swiss banks have increased sharply in recent years, but their ability to create value is expected to fall significantly this year. In the longer term, the industry may also lose a high number of jobs.

Researchers at the Basel research institute Bak Economics are projecting that real gross value creation in the Swiss banking sector will fall by 4.3 percent this year. In 2022, the sector managed to create value worth 41.3 billion francs, according to a study (German only) of the financial sector.

In their calculations, the economists excluded certain factors such as the nominal increase in interest rate margins.

Disappearing Interest

The main reason why value creation levels will fall is due to declining levels of service exports abroad, which will prompt a decline in assets under management and related commission income in 2023.

In the medium term, that trend should normalize and reverse, according to the study. In the immediate term, economists believe the effect of the recent rise in interest rates will fall, with many predicting the first cuts in rates next year. 

Any shortfall in interest income should be readily substituted by the improvement in fee income, prompting the economists to predict a significant recovery, with value creation expected to rise by 4 percent in 2024.

Fewer Jobs

The number of employees in the financial sector should not change perceptibly this year as a result of UBS's integration of Credit Suisse after the government-prompted rescue of Switzerland's second-largest bank in March. It is much more the case that IT capacities will increase, with a forecasted plus of 0.7 percent.

The negative consequences on employment will first become visible in 2024 when the number of jobs (FTE or full-time equivalent roles) is expected to fall by 0.8 percent. Between 2025 and 2028 they expect the declines to continue, the the total number of jobs in the sector falling by o.6 percent a year on average. As a reminder, the BAK did cause widespread consternation in March when it predicted that 12,000 jobs were at risk because of the UBS-Credit Suisse integration.

As a small note, the total number of FTEs in the industry was 154,300 in 2022.

Stable Insurance Sector

In 2022, value creation in the insurance sector totaled 29.6 billion francs. Insurers are active in a very solid market defined by limited offerings and high demand.  The authors say institutions are benefiting from increased premium volume and are solid sources of stable growth. As a result, value creation is seen rising 3.3 percent this year, something that will compensate for the declines seen in the banking sector. In 2024, they predict that value creation will remain at 3 percent.

The total number of jobs in the insurance sector will be 80,600. Their forecast is for a 1.9 percent increase in the number of roles this year and an additional 1.3 percent gain in 2024. Between 2025 and 2028, the growth should be 0.6 percent a year on average.

Economic Pillars

The study again underscored the central importance of banks and insurers for the Swiss economy. The economists maintained that the financial sector as a whole is a pillar of the domestic economy, providing significant impulses for other sectors. When the impact of that is included, the value created by the industry was more than 100 billion in 2022, with total employment at 450,000.

Direct and indirect tax payments by the sector added up to 18 billion francs in 2022, corresponding to 12 percent of all tax revenues.

The BAK Economics was commissioned by the Swiss Banking Association (SBA) and the Swiss Insurance Association (SVA).