Banking Sector: Stronger Growth In 2013

BMI View: The Swiss banking sector weathered the turmoil in the nearby eurozone in 2012 and is now set to post stronger growth in 2013. A recovery in domestic demand and improvement in the global economic backdrop support our relatively more optimistic assessment for the industry this year. We forecast total industry assets to expand by 3.5% in 2013 and 4.2% in 2014.

The escalation in the eurozone sovereign debt crisis in 2013 proved a testing time for the Swiss banking sector as a result of heightened economic uncertainty and exposure to European assets. However, with the crisis lurching from an acute to a more chronic phase, the pressure on Swiss banks will ease. The improvement in financial stability and recovery in domestic and global growth will underpin a stronger expansion in industry assets in 2013.

A More Optimistic Assessment For 2013
Switzerland - Banking Sector Assets

According to the latest data provided by the Swiss National Bank (SNB) total bank assets contracted by 0.3% in January compared to the same month a year earlier. This marks the first negative year-on-year reading since August 2011 and follows six months of slowing growth. However, as the chart below shows, in nominal terms industry assets continue to edge higher on a monthly basis which bodes well for the remainder of the year. A breakdown of the aggregate bank balance sheet data reveals that the total stock of outstanding loans, which account for around 20% of total assets, actually increased by 7.6% y-o-y in January. Similarly, the value of bond holdings increased by 6.5% in the same month. The deterioration in the headline asset reading can be partly explained by the fall in 'other assets' and money market instruments.

Going forward, we maintain our view that industry assets will expand in 2013 on the back of the recovery in demand. We forecast the Swiss economy to expand by 1.5% in 2013, accelerating from the 0.7% outturn notched up in 2012. This improvement will occur alongside a recovery international trade and global demand, with world economic growth of 2.9% pencilled in for this year. As we point out elsewhere, the central bank will maintain its accommodative stance over the foreseeable future which will help pin down bank funding costs and support profit margins. Indeed, given that the economy is not sufficiently robust to withstand a tightening in policy, and in light of the risk of further capital inflows, the SNB will continue to pursue a zero interest rate policy.

In terms of our core forecasts, we project total industry assets to expand by 3.5% in 2013 following a 0.7% increase in 2012. At the same time we forecast the stock of outstanding loans to grow by 2.0% this year. On the back of a strengthening domestic and global economic recovery, we expect the banking sector to find a firmer footing in the coming years, which underpins our more optimistic 4.2% and 5.1% asset growth projections for 2014 and 2015 respectively.

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Geography: Switzerland