Corporate banking contributes significantly to productivity of the Swiss economy
“Export nation, cutting-edge industries, location for headquarters and other high-productivity activities” are accolades that the Swiss economy has undoubtedly justly received. However, without access to capital and financial services, they would have been hard to come by, as the competitiveness of Swiss companies depends to a great degree on such access.
Swiss companies focus mainly on innovative, high value-added products and services that are comparatively capital-intensive. Because of the country’s high property and labour costs, this is the only way they can compete internationally. However, every factory, every patent and every item destined for consumption must be financed. Companies therefore rely on easy access to financing, which is a function fulfilled by corporate banking. This means that the banks play a key role in the Swiss economy, because the “house bank” remains the most important source of financing for small and medium-sized enterprises (SMEs).
Volume of corporate loans has grown 3.5 times faster than GDP
In 2019, banks in Switzerland had outstanding loans of CHF 607 bn to companies in Switzerland and abroad. More than half of this volume was granted to micro-enterprises, or in other words, companies with up to nine employees (see chart). Over the past decade, the volume of corporate loans has grown around 3.5 times as quickly as the Swiss economy, underscoring the fundamental importance of this form of financing.
Through the COVID-19 loans, the federal government and banks provided bridging loans to Swiss SMEs amounting to around CHF 16.8 bn, thereby cushioning liquidity bottlenecks. In contrast to other countries, Switzerland did not suffer a credit crunch during the financial crisis or the current COVID-19 pandemic. The banks granted sufficient credit at all times, therefore ensuring that companies received financing.
Trade and export-oriented companies rely on transaction banking
In addition to financing, corporate banking also comprises transaction services. Every trading transaction and every service results in an opposite such financial transaction. These range from simple processes such as card payments to tailor-made services for complex international transactions such as documentary credits. For export-oriented companies, retailers and other businesses, access to these types of specific banking services is an important locational factor.
Capital market under strong pressure due to COVID-19 pandemic
Bigger companies in particular rely on access to capital markets, where they can generally access larger volumes at better conditions. In the last decade, the bond market was tapped for up to a net total of CHF 11.5 bn per quarter. This has changed recently, because the uncertainties arising from the COVID-19 pandemic have led to increased financing needs for the government and the private sector. In the second quarter of 2020, CHF-denominated bonds amounting to CHF 20.4 bn were issued by domestic borrowers and the market was tapped for a net total of CHF 13.9 bn. The issuance volume corresponds to approximately double the historical quarterly figure. This shows that, in addition to bank loans, the Swiss capital market is also fulfilling its role as a provider of liquidity in this challenging situation, thereby contributing to the continued prosperity of the Swiss economy. Nevertheless, its role in corporate financing remains small by international standards. This is partly due to regulatory disadvantages, such as stamp duty and withholding tax. The SBA therefore calls for the abolition of the stamp duty and a reform of withholding tax.
The COVID-19 pandemic has underscored the importance of financial services for Swiss companies. Through their corporate clients business, banks make a significant contribution to economic stability and prosperity in Switzerland. It is therefore important that this pivotal function be fostered and that the relevant regulations be made as attractive as possible.