Zürcher Kantonalbank achieves record profit of CHF 942 million for 2021

Zürcher Kantonalbank generated a net profit of CHF 942 million in 2021 – the highest in its history and 8.9% above its result for the previous year. This record result was driven primarily by strong growth in income in the commission and fee business as well as a consistent performance in interest operations. “Our record result is based on strong organic growth in our core and specialised segments – combined with consistently high risk discipline and cost discipline,” stated Martin Scholl, CEO of Zürcher Kantonalbank. “I am especially pleased about our exceptionally high net inflows of new money. I wish to express my sincere thanks to our clients for the trust they have placed in us at this challenging time.”

In view of the good 2021 result, the Board of Directors has decided to increase the ordinary dividend for the Canton of Zurich and its municipalities by 21% to CHF 431 million. This brings Zürcher Kantonalbank’s cumulative distribution to the Canton and its municipalities over the last ten years to CHF 2.8 billion and CHF 1.2 billion, respectively. Over the same period, additional payments of CHF 1.2 billion were made in connection with the bank’s public service mandate, which is enshrined in law. Further, with retained profit of CHF 4.0 billion, around half of the profit generated within the last decade has been used to strengthen the bank’s equity.

Record operating income due to excellent performance in the commission and fee business

Zürcher Kantonalbank reported CHF 31 million growth in operating income to CHF 2,544 million in 2021. This increase was driven primarily by the commission and fee business as well as interest operations. Together, these two key income streams more than offset the decline in trading income. “This shows how well our diversified business model is working,” said CEO Martin Scholl.

With a 14.8% rise in income, the commission and fee business generated the highest income growth – achieving stronger momentum in the second half of 2021 than in the first half of the year. This reflected the very positive development of income from the funds business as well as from management and advisory fees. Commission income from lending activities was also significantly higher than in the previous year due to increased income from the settlement of trade finance transactions (letters of credit). Commission expenses rose by 23.6% as the marked increase in the fund business also gave rise to increased brokerage and agency commission.

Assets under management reached a record CHF 409.2 billion (+13%) at the end of 2021. This increase was mainly driven by a record net inflow of new money totalling CHF 25.9 billion (+17%), of which 40% stemmed from individual clients and 60% from institutional clients. It also reflected excellent market performance of CHF 21.3 billion. At the end of 2021, the pension app “frankly” had around 50,000 clients, with pension assets totalling CHF 1.1 billion.

In interest operations, Zürcher Kantonalbank’s most important income stream, gross interest income rose by CHF 30 million to CHF 1,287 million. The bank is also performing very successfully in this area thanks to growth in mortgage volumes and various opportunities in the money market. Net interest income rose by 2.4% to CHF 1,248 million. This includes CHF 39 million of value adjustments for default risks and losses, consisting of changes in individual value adjustments for impaired loans as well as changes in value adjustments for expected losses, which now have to be recognised.

At the end of 2021, the mortgage portfolio totalled CHF 91.8 billion (previous year: CHF 87.7 billion). This corresponds to a net increase of 4.8%. The gross increase – excluding value adjustments for expected losses introduced on 1 January 2021 – was 5.2%, up 1.2 percentage points compared to the previous year. The main drivers of this increase are the favourable interest rate environment as well as the attractiveness of real estate investments. The bank achieved strong volume growth while maintaining the same high standards of quality.

Income from trading operation, which represents the bank’s third income stream, totalled CHF 347 million – exceeding the long-term average. Overall, this represents the fourth-highest result to date. Compared to the exceptionally good result for the previous year, which was strongly influenced by corona-related market volatility, income from trading operations declined by 24.4% or CHF 112 million. The largest proportion of this decrease was attributable to a sharp decline of CHF 102 million in the trading of bonds, interest and credit derivatives. Thanks to the high level of investor interest in financial products, income from trading in equities and structured products increased. Trading in foreign exchange, bank notes and precious metals accounted for the largest proportion of income.

Rigorous cost discipline

Reflecting a rigorous approach to cost discipline and the non-recurrence of one-off effects, operating expenses decreased by 4.0% to CHF 1,517 million. The strongest reduction was recorded in general and administrative expenses of CHF 425 million, which were down by 6.6% year on year. This was due to lower marketing costs; with “frankly” for example, marketing expenses have decreased significantly compared to the previous year when it was launched. Further, occupancy costs have decreased following the centralisation of workspaces in Zurich West in the previous year.

Personnel expenses decreased by 3.0% to CHF 1,092 million, primarily reflecting the non-recurrence of the one-off anniversary payment of CHF 46 million made in 2020. Further, variable compensation rose due to the very good annual result and costs for family and child allowances increased, while headcount decreased by –0.7% to 5,145 full-time equivalents. The cost/income ratio improved to 58.7% (2020: 60.1%) and was thus at the lower end of the 58%-64% target range.

Depreciation decreased from CHF 117 million in 2020 to CHF 104 million, mainly reflecting lower depreciation on bank buildings and other real estate. The line item “Changes to provisions and other value adjustments” showed a net release of CHF 28 million (compared to the net creation of CHF 14 million of provisions in the previous year). Of this sum, CHF 19 million related to the end of the US tax dispute and CHF 7 million related to the net release of provisions for default risks. After taking these two items into account, an operating result of CHF 951 million was recorded for 2021 (previous year: CHF 801 million). At the end of 2021, due to new regulatory requirements, the balance sheet included value adjustments and provisions for expected losses of CHF 502.2 million for the first time. Of this sum, CH 460 million was recognized at the start of the year without affecting income through the release of retained earnings reserves.

Higher ordinary distribution and strong capital position

Zürcher Kantonalbank will distribute an ordinary dividend of CHF 431 million to the Canton of Zurich and its municipalities for the financial year 2021. This represents a 21% increase, reflecting the good business result. In the previous year, the ordinary dividend totalled CHF 356 million – with an additional one-off special coronavirus dividend of CHF 100 million.

The Canton will therefore receive CHF 280 million in the form of a dividend and CHF 11 million to cover the cost of the endowment capital. In addition to the distribution, the Canton will receive CHF 27 million (+17.4%) by way of compensation for the state guarantee. The municipalities will receive a dividend of CHF 140 million. Payments relating to the public service mandate will rise by 11.9% to CHF 141 million. As was the case in the first year of the pandemic, the bank continued to fully support its sponsorship partners in 2021, irrespective of the services they provided.

Zürcher Kantonalbank continues to have an exceptionally strong capital base. The risk-weighted capital ratio to absorb losses incurred during regular business operations was 18.5%, significantly exceeding the current requirement of 12.9%. The leverage ratio, which corresponds to the unweighted capital requirement, was unchanged at 6.2%. As a systemically important bank, Zürcher Kantonalbank is also subject to stricter liquidity requirements: The Liquidity Coverage Ratio of 160% at the end of 2021 far exceeded the current requirement of 135%. The bank also comfortably meets the Net Stable Funding Ratio (NSFR) of at least 100%, which has applied since July 2021, with an NSFR of 118.2%.

Outlook

“The banking industry is once again faced with a challenging operating environment in 2022 and we anticipate that competition will intensify further,” said CEO Martin Scholl. “Nevertheless, we expect to achieve a pleasing result based on our universal bank strategy, our diversified business model and strong client loyalty. We will also focus on the sustainable development of our business activities,” he added.

Further information

Media release with earnings (PDF, 2 MB)

Presentation media conference (PDF, 1 MB)