The retail banks play a central role in the Swiss banking market. Of the total of 253 banks in Switzerland, more than a third are retail banks. The backbone of domestic banking in Switzerland continues to perform well. Nevertheless, the Swiss banks face various challenges: The pressure on margins in the core business of mortgage lending continues to be high, the income streams of the banks are still not very diversified and new regulations are difficult to implement. Moreover, digizitation requires substantial investments.
Saving costs through digitization
In times of further declining interest margins, cost savings are becoming increasingly important for banks. As the study shows, however, the heterogeneity among the banks surveyed is immense, especially in terms of process design and process costs in the mortgage sector. Even banks with the same core banking system have different processes and efficiency values. All analysed banks showed a large optimization potential. Figure 1 shows the optimization potential of the different steps of the mortgage process among Swiss retail banks. The study shows that the income of banks generated by new mortgages could be increased by on average 3 percent if processes were optimized. Prof. Dr. Andreas Dietrich, author of the study, emphasizes that it is essential for banks to know their processes better, to define them more clearly and to continuously optimize them.
Why mortgage customers choose their bank
There are various reasons why customers choose a certain bank. When taking out a mortgage, however, it is not only low interest rates that are crucial, but also good quality advice and personal contact with a relationship manager. This is shown by a survey of around 220 customers conducted as part of the Retail Banking Study 2018 (see box) by the Institute of Financial Services Zug IFZ, part of the Lucerne University of Applied Sciences and Arts.
Extending mortgages online – online mortgage market on the rise
More and more banks in Switzerland are offering the option of getting a mortgage online. For the vast majority of survey participants, however, this is not an important criterion for their decision. Nevertheless, more than half of those surveyed can imagine taking out a mortgage online. 94 percent of these respondents indicated that a pure online process would be an option, especially for a mortgage extension. Accordingly, the current volume of the online mortgage market in Switzerland of around CHF 4 billion can be expected to increase further.
above: Key figures of Swiss retail banks (only in German)
Board of Directors and Executive Boards of retail banks still male dominated
The study also analysed the corporate governance of all major retail banks in Switzerland. The proportion of women on the Board of Directors and the Executive Board remains low (19% and 8% respectively). This is only a small increase compared to previous years. Many banks have set themselves the goal of increasing the proportion of women on their Board of Directors. The average gross compensation of Board of Directors members is CHF 73’000. The compensations for Executive Board members are very heterogeneous, ranging between CHF 187’000 and 1.6m.
IFZ Retail Banking Study 2018
The "IFZ Retail Banking Study 2018" from the Institute of Financial Services Zug IFZ, a part of the Lucerne School of Business, focuses on five topics: The first part of the study deals with digitization in the mortgage process based on an in-depth analysis of mortgage processes together with Swiss banks. The second part analyses the decision criteria of mortgage customers based on a survey of 220 people. The third part deals with asset and liability management and the adapted disclosure obligations of banks in this area. The fourth part analyses the key figures of Swiss retail banks and shows, which banks performed best. Finally, the fifth part deals with the corporate governance of Swiss retail banks.
The study is available in German only and can be ordered at firstname.lastname@example.org (CHF 290.-) Further information: www.hslu.ch/retailbanking