Zürcher Kantonalbank achieves strong half-year result with net profit of CHF 677 million
Media release from 31 August 2023 7.00h (Ad hoc announcement pursuant to article 53 LR SIX Exchange Regulation and section 16 BX Swiss)
- Operating income increases by 25.5% and half-year profit by 25.2%
- Interest operations and trading operations generate significant increases in income compared to the first half of 2022
- Cost/income ratio decreases to 48.7%
- Client assets grow by 7.6% to CHF 430.4 billion; pleasing net inflow of new money totalling CHF 19.3 billion
- Good result allows for strengthening of reserves, increasing the capital position compared to the
prior-year period; capitalisation significantly exceeds regulatory minimum requirements
Zürcher Kantonalbank generated a net profit of CHF 677 million in the first half of 2023 (first half of 2022: CHF 541 million). This strong result was driven by significant growth in income from interest operations, a pleasing result in trading operations and a stable performance in the commission and fee business. “After years of negative interest rate margins in the client deposits business, these margins are now returning to normal due to the interest rate reversal, contributing to our strong half-year result,” stated Urs Baumann, CEO of Zürcher Kantonalbank. “As a stable universal bank, we have always been a safe haven − especially in turbulent times. The increased net inflow of new money is a sign of client confidence in our bank. I wish to thank our clients for their trust in us. I also wish to thank all our employees for their outstanding contribution in this intensive half-year period.”
Change in interest rates boosts operating income
In the first half of 2023, Zürcher Kantonalbank grew its operating income by 25.5% to CHF 1,687 million (first half of 2022: CHF 1,344 million), reflecting contributions from all of the bank’s major income streams. This includes the particularly positive performance of its main income stream: In interest operations, gross income rose by 40.8% to CHF 939 million, driven by the rapid interest rate reversal with two further rate hikes by the Swiss National Bank (SNB) in the first half of 2023 alone. Operating conditions have altered significantly compared to the prior year: The years of negative interest on SNB deposits have come to an end, and instead of charging negative interest rates or paying zero interest, the bank is now once again able to offer clients an attractive interest rate on savings, cash bonds and time deposits. In addition, the interest rate environment has created opportunities in the money market that the bank was able to harness. Since value adjustments for default risks also decreased year on year, net interest income grew by CHF 296 million to CHF 946 million.
The bank’s second-largest income stream was stable: At CHF 475 million, commission and fee income was almost unchanged compared to the first half of 2022 (CHF 473 million). Commission income from securities trading and investment activities declined on the back of lower transaction volumes and a reduction in management fees. These decreases were offset by higher commission income from lending activities and other services, as well as a slight reduction in commission expense. Assets under management grew by CHF 30.4 billion to CHF 430.4 billion compared to the start of the year. The net inflow of new money totalling CHF 19.3 billion (first half of 2022: CHF 17.8 billion) contributed to this increase. In addition, market effects of CHF 11.8 billion reflected positive market developments, unlike in the prior-year period. “We attracted a large number of new clients but overall, this had no significant impact on income in the first half of the year. The net inflow of new money is broad based and is largely unrelated to events surrounding Credit Suisse,“ stated CEO Urs Baumann.
Trading operations, which represent the bank’s third income stream, produced a strong result: Income grew by 19.6% to CHF 252 million. This increase was driven by continued strong excess demand in the bond market as well as the volatile environment in the foreign exchange market, which led to high levels of turnover and income in bond, foreign exchange and money market trading.
Cost/income ratio decreases
Operating expenses totalled CHF 818 million, up by 6.9%. This increase was attributable on the one hand to a 7.0% rise in personnel expenses to CHF 594 million, reflecting a year-on-year increase in headcount of 197 FTEs to 5,337 FTEs (adjusted for part-time positions). On the other hand, general and administrative expenses rose by 6.9% to CHF 225 million − mainly due to higher IT expenses related to further developments in this area. The impact of inflation was also visible in the form of higher license fees and rising energy costs. Since income grew much more strongly than expenses, the cost/income ratio decreased to 48.7% (previous year: 56.2%).
Value adjustments and depreciation and amortisation also declined: Value adjustments on participations and depreciation and amortisation of tangible fixed assets and intangible assets totalled CHF 43 million, down by CHF 11 million year on year. Of that sum, CHF 8 million related to the amortisation of goodwill from Swisscanto that expired in the first quarter of 2023. The line item “Changes to provisions and other value adjustments and losses” included a net release of CHF 5 million (first half of 2022: net release of CHF 12 million). At CHF 831 million, the operating result increased by 54.7% year on year, exceeding expectations. It was therefore possible to allocate CHF 150 million to the reserves for general banking risks. The net result was a profit of CHF 677 million for the first half of 2023. The return on equity (RoE) rose to 10.4% (first half of 2022: 8.7%).
Strengthening of capital base
Conditions in the real estate market in the Zurich economic area remain robust. The mortgage portfolio on the balance sheet rose by 2.1% to CHF 98.9 billion compared to the end of the year. The bank increased its mortgage volumes while maintaining the same high standards of quality. On the liabilities side of the balance sheet, client deposits grew by CHF 1.1 billion to CHF 104.4 billion. These client deposits cover 94.6% of the bank’s lending (first half of 2022: 91.6%), positively impacting its refinancing position. Total assets increased by 1.5% to CHF 202.9 billion compared to the beginning of the year. The structure of the balance sheet is largely unchanged.
The increase in the reserves for general banking risks has strengthened the bank’s equity and capital position. The risk-based capital ratio (going concern) was 18.0% at 30 June 2023 (30 June 2022: 17.6%) and therefore significantly exceeded the capital requirement of 13.8% that applies to Zürcher Kantonalbank as a domestic systemically important bank. The leverage ratio (going concern) of 6.2% was also higher than the requirement of 4.5%. With its continued strong liquidity reserves, Zürcher Kantonalbank reported a liquidity coverage ratio of 147% (30 June 2022: 149%). Zürcher Kantonalbank has been assigned a rating of AAA or Aaa by the rating agencies Fitch, Moody’s and Standard & Poor’s. On a stand-alone basis, excluding any state support, the bank ranks as one of the world’s most secure universal banks with a rating of aa- from Standard & Poor’s.
Outlook
“The Swiss economy is proving more resilient than expected. Despite the recent decrease in inflation, the risk of second-round effects nevertheless persists. This could lead to a further interest rate hike by the SNB this year to maintain price stability over the medium term. With its diversified and solid business model, Zürcher Kantonalbank is well equipped to deal with this situation,” stated CEO Urs Baumann. “We expect income momentum to slow in the second half of the year. However, I am confident that with our strong half-year result, we have created a good basis to deliver a pleasing result for the full year 2023.”