The Swiss and Liechtenstein private banking sector has experienced remarkable growth, with asset management figures surpassing significant thresholds, according to a recent report released by the consultancy firm PwC. In 2024, the performance of these private banks reflected a strong upward trajectory, bolstered by encouraging market developments and robust net new money (NNM) inflows. This analysis of the banking landscape highlights how these institutions navigated a complex environment to achieve double-digit growth in assets under management (AuM).
The report, published on Thursday, categorizes the 74 private banks studied into three segments: small banks with AuM below CHF 5 billion, medium-sized banks with AuM ranging from CHF 5 to 50 billion, and large banks managing over CHF 50 billion. Notably, large private banks achieved an unprecedented milestone, collectively surpassing CHF 3 trillion in managed assets for the first time. Despite this significant increase, the contribution of NNM to their overall asset growth was relatively modest, recorded at 2.2 percent. In contrast, smaller and medium banks outperformed their larger peers, catching attention with NNM inflow rates of 4.5 percent and 4.9 percent, respectively.
Several factors contributed to this robust performance, according to PwC experts. The optimism driving investor sentiment in the United States played a crucial role in fostering a positive market environment. All examined banks reportedly benefited from favorable market conditions, with several achieving record-high customer asset levels. The considerable influx of new money, associated with increased market confidence observed throughout 2024, significantly supported this volume growth.
PwC highlighted that various strategic measures by individual institutions contributed to the substantial inflows. These strategies included successful acquisition of clients from larger banks, effective customer engagement driven by a differentiated business model, and targeted geographical strategies. However, the auditors also caution that the situation may shift in early 2025 due to anticipated market turbulence. Despite the general expectation that net new money inflows will persist across all bank categories, they foresee potential moderation in inflow rates due to intensified competition in the private banking sector.
The profitability landscape for private banks has changed dramatically over the past year. In 2023, rising interest rates had propelled a significant increase in interest income. However, starting in March 2024, a decline in interest rates has altered this trajectory. This has led to a diminished reliance on interest income, causing a decrease in the previously high operational margins. As a result, banks have increasingly pivoted towards fee-based income and service revenue as their primary sources of earnings—historically the most vital component for private banking profitability.
Although the margins in terms of managed assets remained stable, the overall absolute figures for non-interest fee income (NFCI) rose across all banking groups, largely compensating for the decline in interest revenue. Statistical analysis revealed that the three-year average of customer deposits relative to total assets showed small banks maintaining a higher ratio at approximately 16 percent, in contrast to medium-sized banks at 11 percent and large banks at 10 percent. This suggests a stronger dependency on interest income among smaller banks, further evidenced by the loan proportion within their business volumes, averaging 8 percent compared to just 5 percent for larger banks.
While all banking categories displayed stable margins in terms of fee income relative to AuM, the report underscores an alarming trend: a stagnation in NFCI margins since 2022. This stagnation reflects an environment characterized by price-sensitive clients and fierce market competition—conditions that threaten profit margins across the industry.
The private banking sector in Switzerland is on the cusp of transformative changes driven by increasing IT expenditures, evolving customer expectations, digitalization, and new regulatory demands. These forces are exerting significant pressure on traditional business models, necessitating substantial investments that will affect operating costs across the board.
Additionally, the number of banks concentrating on wealth management has sharply declined from over 150 to fewer than 90 in recent years. PwC anticipates this trend toward consolidation will continue, projecting that the number of private banks specializing in wealth management could fall below 60 in the next few years. This consolidation may not necessarily be detrimental; rather, it could signify a market where fewer, but more resilient banks endure. The surviving institutions must demonstrate an ability to adapt their business models effectively to navigate a rapidly changing landscape.
Looking ahead, while the near-term outlook for the sector remains positive, the intricate balance of sustaining growth amidst intensified competition poses ongoing challenges. As Swiss and Liechtenstein private banks prepare for the potential implications of market fluctuations and regulatory changes, their strategies will likely reflect a broader ambition to secure their positions not just in terms of assets under management, but through innovation in services and client engagement that aligns with the evolving financial ecosystem.
In conclusion, the private banking landscape in Switzerland and Liechtenstein stands at a critical juncture. The notable increases in managed assets and net new money inflows underscore the sector’s resilience. However, the shift in the profitability paradigm from interest income to service-based revenues, amid growing competition and regulatory pressures, signals a need for continual adaptation and strategic foresight. The evolution of these banks will serve as a bellwether for the future of wealth management in a global market increasingly driven by technological advances and changing consumer dynamics.