In 2022 Zürcher Kantonalbank exceeded the billion mark for the first time ever

10 February 2023

Zürcher Kantonalbank achieved a consolidated profit of CHF 1,059 million in the 2022 financial year. This grew by 12.3% and thus exceeded the billion mark for the first time. The main contributors to the good result were the interest business, the trading business and cost discipline, while the commission and service business was able to maintain the good level of the previous year in a difficult environment. «The strong result shows that our continuity-oriented, diversified business model has proven itself even in challenging years. A big thank you goes to our customers, who put their trust in us even in difficult times, as well as the excellent performance of our more than 5,000 committed employees,” says CEO Urs Baumann, who took over the management of the bank in September 2022. «When I started, I encountered an excellently positioned bank: secure, financially successful, with a strong brand and a good reputation among the population. Based on these strengths, we will continue to develop the bank over the next few years.”

In view of the good result, the board of directors decided to increase the ordinary dividend for the canton of Zurich and the municipalities by 14.1% to CHF 491 million. CHF 320 million in dividends and CHF 11 million to cover the cost of the endowment capital go to the canton. The municipalities will receive CHF 160 million. In addition, the canton will be paid CHF 28 million (previous year: CHF 27 million) for the state guarantee at the expense of business expenses.

Tailwind from historic turnaround in interest rates

Zürcher Kantonalbank was able to increase its operating income by CHF 208 million to CHF 2,752 million compared to the previous year. The growth in interest and trading business in particular contributed to the positive development.

The bank’s most important source of income, interest business, is characterized by the historic turnaround in interest rates that the Swiss National Bank (SNB) initiated in June and implemented in September with the lifting of negative interest rates. This had a positive effect on gross interest income, which increased by CHF 134 million to CHF 1,421 million. On the one hand, the rising interest rates in the Swiss franc, euro and dollar areas have improved the previously negative margins on the liabilities side, and on the other hand, the years of negative interest payments to the SNB have ceased. Since the beginning of 2023, customers have also been receiving positive interest on their savings again. After taking into account value adjustments due to default risk and losses from interest operations of CHF 18 million (previous year: CHF 39 million

Supported by the dynamics in the Zurich economic area, the mortgage portfolio grew by 5.4% and amounted to CHF 96.8 billion at the end of 2022 (previous year: CHF 91.8 billion). As a result of the turnaround in interest rates, customers took out significantly fewer long-term fixed-rate mortgages and increasingly opted for SARON mortgages with short maturities. Due to the shorter maturities, the value adjustments for expected losses on the mortgage portfolio fell to CHF 368 million compared to CHF 376 million in the previous year. The bank achieved the growth in mortgages while taking into account its consistently high quality standards.

Strong inflow of customer funds

In an extraordinary stock market year in which the diversification effect did not come into play because both equities and bonds suffered losses in the asset classes, the second income pillar – the commission and service business – achieved success at the previous year’s level with CHF 926 million. There are changes in the individual components of success: there was an increase in income from fund business, commissions from lending business and income from other service business, which benefited from brisk customer activity in the card business and slightly higher income from real estate services. Due to the market environment, transaction-related income, management fees and commissions from the issuing business are lower than in the previous year. Due to higher agent commissions, commission expenses have also increased. The increases and decreases are balanced.

Despite high losses on the markets, customer deposits managed by the bank only fell by 2.3% to CHF 400 billion. Four-fifths of the decline of CHF 42.0 billion due to the poor net market performance was offset by the growing inflow of client funds. The bank received net new money of CHF 33.9 billion last year – 31.2% more than in the previous year. Of this, at CHF 27.1 billion, the largest part is investment money (+17.9%). The number of active private customers rose by more than 1% to 710,000, while the number of active corporate customers grew even more, with an increase of more than 7% to around 70,000.

In the trading business – the bank’s third pillar of income – it was possible to remain flexible and able to act in an environment characterized by high volatility, to manage risks consistently and to take advantage of opportunities that arose. This resulted in pleasing growth in trading income of 17.9% to CHF 409 million. The main reason for this was trading income from bonds, interest rate and credit derivatives, which increased by 66.6% to CHF 148 million, which is well above the previous year. In trading in foreign exchange, banknotes and precious metals, profits increased by 8.3% to CHF 143 million. At CHF 89 million, equities and structured products almost reached the previous year’s figure of CHF 93 million. This also applies to other trading income at CHF 28 million compared to CHF 33 million in the previous year.

Income grows faster than costs

Operating expenses amounted to CHF 1,594 million and, at 5.1%, rose significantly less than operating income. As a result, the cost-income ratio fell from 58.7% to 57.5%. The number of employees increases by 100 employees, together with the higher variable salary components due to the good group result, the personnel expenses increase by 5.5% to CHF 1,151 million. The material expenses increase, among other things, due to investments in IT projects and marketing Expenditure up 4.0% to CHF 442 million

The expense for value adjustments on investments and depreciation of property, plant and equipment and intangible assets fell to CHF 101 million in the year under review (previous year: CHF 104 million). At CHF 43 million, the largest part is accounted for by depreciation on bank buildings and other properties, followed by ordinary depreciation of CHF 33 million for the remaining goodwill from the Swisscanto takeover. This will be fully written off by mid-2023. Depreciation on property, plant and equipment (CHF 12 million) and intangible assets (CHF 3 million) is slightly below the previous year, while depreciation on investments is 21% higher at CHF 9 million.

Strong capitalization

Zürcher Kantonalbank continues to be extremely well capitalized. At 18.2%, the risk-weighted capital ratio for absorbing losses in regular business activities is well above the current requirement of 13.8% (including the countercyclical capital buffer). The leverage ratio, which corresponds to the unweighted capital requirement, remains constant at 6.2%. As a systemically important bank, Zürcher Kantonalbank is also subject to stricter liquidity regulations: the short-term liquidity ratio (Liquidity Coverage Ratio, LCR) was 146% in the fourth quarter, well above the current regulatory requirements of 135%. The bank comfortably meets the net stable funding ratio of at least 100% at 124%.

Outlook: positive growth of the Swiss economy

“The global economy continues to weaken. Persistently high inflation and the associated interest rate hikes remain a challenge for companies. For Switzerland, however, we continue to expect positive growth in 2023, albeit at a much slower pace. We don’t see a recession,” says CEO Urs Baumann. “As a sustainable universal bank with a diversified and long-term oriented business model, we are confident that the bank will again generate an attractive result in 2023.”

Source: Zürcher Kantonalbank