- Operating income increases by CHF 208 million to CHF 2,752 million
- Classic interest operations benefit from tailwinds due to end of negative interest rate era
- Strong trading income as diversified business model proves successful
- Assets under management reach CHF 400 billion, close to the previous year’s level, reflecting significantly higher net new money inflow of CHF 33.9 billion
- Substantial increase in dividend for the Canton and municipalities
Zürcher Kantonalbank reports net profit of CHF 1,059 million, exceeding the CHF 1 billion mark for the first time
Media release from 10 February 2023 7.00h (Ad hoc announcement pursuant to article 53 LR SIX Exchange Regulation and section 16 BX Swiss)
Zürcher Kantonalbank achieved a 12.3% increase in net profit to CHF 1,059 million in the financial year 2022, exceeding the CHF 1 billion mark for the first time. This good result was driven primarily by interest operations and the trading business, as well as cost discipline, while the commission and fee business maintained the good level of income generated in the previous year despite difficult conditions in 2022. “This strong result shows that our diversified business model, which is focused on continuity, is successful, even in challenging years. We wish to express our gratitude to our clients for their continued trust in our bank during this difficult period. We also owe considerable thanks to our more than 5,000 dedicated employees for their outstanding performance,” stated Urs Baumann, who was appointed CEO of Zürcher Kantonalbank as of September 2022. “When I joined Zürcher Kantonalbank, I took over the reins of a bank that is in an excellent position – a secure, financially successful institution with a strong brand and an excellent reputation among the Swiss public. We will build on these strengths in the coming years as we drive Zürcher Kantonalbank forward.”
In view of the good financial result, the Board of Directors has decided to increase the ordinary dividend for the Canton of Zurich and the municipalities by 14.1% to CHF 491 million. The Canton will therefore receive CHF 320 million in the form of a dividend and CHF 11 million to cover the costs of the endowment capital. The municipalities will receive CHF 160 million. In addition, the Canton will receive CHF 28 million (previous year: CHF 27 million) by way of compensation for the state guarantee, which will be charged to general and administrative expenses.
Tailwinds from historic interest rate reversal
Zürcher Kantonalbank grew its operating income by CHF 208 million to CHF 2,752 million compared to the previous year. This increase was driven primarily by growth in interest operations and the trading business.
The historic interest rate reversal, which was initiated when the Swiss National Bank (SNB) raised interest rates in June and took effect when negative rates ended in September 2022, had a significant impact on interest operations – the bank’s most important income stream. This development had a positive effect on gross interest income, which rose by CHF 134 million to CHF 1,421 million. Rising interest rates in the Swiss franc, euro and dollar areas improved the previously negative margins on the liabilities side. They also brought to an end years of negative interest payments to the SNB. Further, clients’ savings have attracted positive interest again since the start of 2023. Taking into account CHF 18 million of value adjustments for default risks and losses from interest operations (previous year: CHF 39 million), net interest income rose by 12.4% to CHF 1,403 million at the end of 2022.
The mortgage portfolio totalled CHF 96.8 billion at the end of 2022 (previous year: CHF 91.8 billion), an increase of 5.4%, supported by good momentum in the Zurich economic area. As a result of the interest rate reversal, clients took out significantly fewer long-term fixed-rate mortgages, and the demand for short-term SARON mortgages increased. The shortening of mortgage terms led to a reduction in value adjustments for expected credit losses on the mortgage portfolio to CHF 368 million, compared to CHF 376 million in the previous year. The bank achieved strong growth in mortgage volumes while maintaining the same high standards of quality.
Strong inflow of client money
2022 was an exceptionally challenging year for stock markets in which diversification across asset classes had a limited effect, since equities and fixed income both experienced losses. Against this backdrop, the commission and fee business – Zürcher Kantonalbank’s second income stream – generated income of CHF 926 million, in line with the previous year. The bank recorded changes in individual income components, with higher income from the funds business and higher commission income from lending activities, as well as a rise in income from other fee business, which benefited from strong levels of client activity in the cards business together with slightly higher income from real estate services. The market environment led to a reduction in transaction-based income, management fees and issuing commission year on year. Commission expense rose due to higher referral commission. These increases and decreases in income balanced each other out.
Despite significant market losses, client assets managed by the bank declined by only 2.3% to CHF 400 billion. The increased inflow of client assets compensated for four-fifths of the CHF 42.0 billion reduction in assets under management due to negative net market performance. In 2022, the bank attracted CHF 33.9 billion of net new assets, an increase of 31.2% compared to the previous year. Of that sum, the largest proportion (CHF 27.1 billion) comprised investment assets (+17.9%). The number of active private clients rose by more than 1% to 710,000, while the growth in the number of active corporate clients was even stronger at more than 7%, bringing the total to around 70,000 corporate clients.
In the trading business, which represents the bank’s third income stream, the priority was on remaining flexible and ready to take action, while systematically managing risks and seizing emerging opportunities in a highly volatile environment. As a result, trading income grew by a pleasing 17.9% to CHF 409 million. This increase was driven primarily by income from the trading of bonds and interest and credit derivatives, which rose by 66.6% to CHF 148 million, far exceeding the previous year. Trading in foreign exchange, bank notes and precious metals grew by 8.3% to CHF 143 million. Income from trading in equities and structured products totalled CHF 89 million and thus came close to the figure of CHF 93 million for the previous year, as did other trading income of CHF 28 million (previous year: CHF 33 million).
Income rises faster than costs
Operating expenses rose by 5.1% to CHF 1,594 million and thus increased at a much slower rate than operating income. As a result, the cost/income ratio decreased from 58.7% to 57.5%. Headcount rose by 100 employees. This increase, together with higher variable compensation components due to the good financial result, led to a 5.5% rise in personnel expenses to CHF 1,151 million. General and administrative expenses rose by 4.0% to CHF 442 million due to investments in IT projects and marketing expenditure, among other costs.
The charge for value adjustments on participations and depreciation and amortisation of tangible fixed assets and intangible assets decreased to CHF 101 million in the reporting year (previous year: CHF 104 million). The largest component, amounting to CHF 43 million, consisted of depreciation of bank buildings and other real estate, followed by ordinary amortisation of CHF 33 million for the remaining goodwill from the Swisscanto acquisition, which will be written off in full by mid-2023. Depreciation of tangible fixed assets (CHF 12 million) and amortisation of intangible assets (CHF 3 million) declined slightly year on year, while the depreciation on participations rose by 21% to CHF 9 million.
Strong capital position
Zürcher Kantonalbank continues to have an exceptionally strong capital base. The risk-weighted capital ratio to absorb losses incurred during regular business operations was 18.2%, significantly exceeding the current requirement of 13.8% (including the anticyclical capital buffer). 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 (LCR) of 146% in the fourth quarter of 2022 far exceeded the current regulatory requirement of 135%. The bank also comfortably meets the Net Stable Funding Ratio (NSFR) of at least 100%, with an NSFR of 124%.
Outlook: Swiss economy set for positive growth
“The global economic slowdown is continuing. Persistent high inflation and the resulting hikes in interest rates remain a challenge for companies. However, we still expect Switzerland to achieve positive growth in 2023, albeit at a much slower rate, and we don’t see signs of recession,” stated CEO Urs Baumann. “As a universal bank that aims to achieve sustainable success and has a diversified business model with a long-term focus, we are therefore confident that Zürcher Kantonalbank will generate another pleasing result in 2023.”