Industry and income structure
Industry structure
The Swiss banking landscape is as diverse as it is unique: regional institutions, national universal banks and multinational financial corporations cover a wide range of specialist fields. This diversity combines tradition, stability and innovation.
With their specialist expertise, sense of responsibility and high level of service quality, the banks and their staff offer a broad spectrum of services from tried-and-tested, conventional retail offerings to bespoke, innovative financial solutions for companies seeking venture capital. Switzerland thus remains a leading financial centre that builds trust and opens up economic opportunities.
Click on the link below to find out more about the various players that make up the Swiss banking industry.
The banks’ net income is broad-based, which is as follows:
The result from interest operations is a financial institution’s net income from its interest-bearing activities. It comprises interest and dividend income from loans, financial investments and trading as well as income from loan commissions, bill of exchange discounting and in some cases also currency swaps used to conduct interest operations. This income is set against interest expenses, i.e. interest due on deposits, loans, mortgages and other forms of financing. Value adjustments due to default risks and losses on interest operations and loans must also be taken into account.
The result from commission business and services is the amount a financial institution earns by providing services and acting as an intermediary for financial products. Components include fees for securities and investment transactions such as custodian, brokerage, issuing, asset management and advisory fees as well as fiduciary services and inheritance or tax advice. Commissions on lending business (e.g. commitment fees and charges for guarantees and advice) are also included here, along with income from other services such as safe deposit box rental, payments and debt collection. This income is set against expenses including retrocessions as well as custodian and brokerage fees
Trading activities are those that involve trading in financial products such as equities, bonds or currencies, either on behalf of customers or for the bank’s own account, with the aim of generating a profit or managing risks. The result from trading activities is a measure of how much a financial institution has made or lost by buying and selling trading positions. It includes in particular capital gains and losses on securities, tradable debt claims, currencies, precious metals, commodities and financial derivatives. Profits and losses on lent trading assets, pre-emption rights and valuation effects in foreign currency positions are also included, as are costs directly related to trading activities, e.g. brokerage, transport, insurance and smelting. Where the refinancing of trading positions is offset, refinancing expenses are included here in addition to interest and dividend income from trading activities. The net result is the income from all trading activities minus the related costs and value adjustments.
The other result from ordinary activities comprises a financial institution’s income and expenses that are not derived directly from interest operations, commission business and services or trading activities but nevertheless form part of its day-to-day business. These include income from the sale of financial investments valued at the lower of cost or market value as well as interest and dividend income on participations. Income from real estate not used for operations, e.g. rental income minus maintenance costs, is also included. “Other ordinary income” comprises positive changes in the value of financial investments and cryptocurrencies for customers, while “other ordinary expenses” are made up of negative changes in value and adjustments due to default risks, such as write-downs on properties as a result of forced sales. The net result is the difference between all these ordinary income and expense items that arise outside the core areas of interest operations, commission business and services, and trading activities.
As shown in Figure 1, the aggregate net income of the Swiss banking industry as a whole shows a balanced structure with two mainstays, namely interest operations and commission business and services. Each of these accounts for approximately a third of overall net income. While the result from interest operations depends heavily on the level of interest rates and the margin trend, that from commission business and services is primarily influenced by market movements and investment activity. Trading activities are more volatile by nature, but they perform well in turbulent market phases.
Chart link: Aggregate net income by banking activity