- Very good operating performance driven by solid income of CHF 2,320 million and strong cost discipline
- Significant growth in operating profit of 14% to CHF 892 million
- Strong net inflow of new money totalling CHF 18.0 billion, with pleasing inflows across all business areas
- Customer assets increase to CHF 295.2 billion
- Capital position remains extremely strong with total capital ratio of 20.2% and leverage ratio of 6.8%
- Canton and municipalities to receive CHF 345 million, in line with the previous year
2018 net profit rises to CHF 788 million
Press Release from 8 February 2019
In the financial year 2018 - after the allocation of CHF 200 million to reserves for general banking risks - Zürcher Kantonalbank generated a net profit of CHF 788 million, an increase of 1% compared to the previous year. This was driven primarily by solid income growth as well as continued strong cost discipline. The Canton of Zurich and the municipalities will receive CHF 345 million, in line with the previous year.
Commenting on the financial result, Martin Scholl, Chief Executive Officer of Zürcher Kantonalbank, stated: “In a challenging environment, we delivered a very good operating result for the financial year 2018. This once again demonstrates the value of our broadly diversified business model and our strategy, which places an emphasis on continuity."
Turning to the outlook, Martin Scholl added: "With increasing signs of an economic slowdown, as well as numerous geopolitical uncertainties, it is difficult to provide a reliable forecast for the current year. However, we are confident that even in a continued challenging environment, we can generate a pleasing result thanks to our strong position, our balanced business model and our universal bank strategy."
Solid income growth
Operating income totalled CHF 2,320 million in the financial year 2018, following a record result of CHF 2,336 million in the previous year. The slight growth in income from interest operations and in net commission and fee income in 2018 did not fully offset the decline in trading income. Other ordinary income increased significantly on the back of higher investment income.
Net interest income totalled CHF 1,213 million in the financial year 2018, corresponding to an increase of 1%. This includes a charge for changes in allowances for defaults and losses from interest operations of CHF 10 million (previous year: CHF 9 million). Volumes in the mortgage business – the main income stream – increased by 2.7% and thus grew somewhat more slowly than the market as a whole. At the end of 2018, mortgage loans therefore rose by CHF 2.2 billion to CHF 81.3 billion.
Following significant growth in the previous year, a further increase in net commission and fee income to CHF 776 million (+1%) was recorded in the financial year 2018. While turbulent market conditions had a negative impact on customer assets and therefore also on income, the launch of the new Investment World had a positive effect. Income from the other service business also improved significantly, especially in the area of payment transactions.
The market environment, which was impacted by geopolitical risks, led to subdued levels of client activity in the trading business. Against this backdrop, trading income declined by 14% to CHF 286 million compared to the previous year. Market risks in the trading book (Value-at-Risk with a 10-day holding period) averaged CHF 12 million, and thus remained at a low level.
Continued strong cost discipline with a stable cost/income ratio
Driven by continued strong cost discipline, operating expenses declined slightly to CHF 1,430 million, compared to CHF 1,434 million in the previous year. The slight increase in other operating expenses, which rose to CHF 428 million (+1%), was more than offset by lower personnel costs of CHF 1,002 million (-1%). At 61.4%, the cost/income ratio remained at a good level for this type of business model.
Impairments on participations as well as the depreciation of tangible fixed assets and intangible assets rose by CHF 72 million to a total of CHF 192 million. The increase was primarily attributable to an extraordinary goodwill amortization at Swisscanto in connection with the sale of Swisscanto Funds Centre Ltd.
In contrast, changes in provisions and other impairments and losses had a positive impact totalling CHF 194 million on the income statement, driven mainly by the reversal of provisions recorded in connection with the settlement of the US tax dispute. Against this backdrop, operating income rose by 14% to CHF 892 million in line with the previous year.
Extraordinary income grew by CHF 95 million to CHF 103 million compared to the previous year. This was mainly attributable to the sale of Swisscanto Funds Centre Ltd. in London to Clearstream. The creation of reserves for general banking risks reduced the bottom line by CHF 200 million.
This resulted in a net profit of CHF 788 million (+1%).
Stable dividend for the Canton and municipalities
The Canton of Zurich and the municipalities will participate in the profit generated by Zürcher Kantonalbank with a dividend totalling CHF 358 million. This represents a slight decrease (-1%) compared to the previous year. However, this is due exclusively to a lower share of the cost of capital: The sum paid to the Canton to cover the cost of capital decreased by CHF 5 million compared to the previous year to CHF 13 million. Excluding the share of the cost of capital, the Canton of Zurich and the municipalities will receive CHF 345 million, in line with the previous year. Of this sum, a dividend of CHF 230 million will be paid to the Canton of Zurich and a dividend of CHF 115 million to the political municipalities.
In addition, the Canton received CHF 22 million for the state guarantee (previous year: CHF 23 million).
Pleasing increase in customer assets due to very good net inflow of new money
Customer assets rose to CHF 295.2 billion at the end of 2018, corresponding to an increase of around 2% compared to the end of 2017. This growth was driven by the strong net inflow of new money, which totalled CHF 18.0 billion. All business areas contributed to the pleasing generation of new money, particularly the Corporate Clients business, which recorded very strong inflows. In contrast, negative market developments reduced customer assets by CHF 11.6 billion.
Extremely solid capital position
Zürcher Kantonalbank further strengthened its capital base in the financial year 2018. Eligible capital totalled CHF 12,658 million at the end of 2018, compared to CHF 12,019 million at the end of 2017. The total capital ratio was 20.2%, compared to 18.8% in the previous year, and the common equity tier 1 (CET1) ratio was 17.8%, compared to 16.5%. The leverage ratio was unchanged at 6.8% at the end of 2018.
With its extremely solid capital position, Zürcher Kantonalbank significantly exceeds all regulatory requirements. This is also the case for the additional gone-concern requirements that entered into effect at the start of 2019 for systemically important banks focusing on the Swiss market. These additional requirements have to be met by 2026.