The Swiss National Bank's commitment to keeping interest rates at zero through late 2027 is dealing a heavy blow to the country's banks, with net interest income already down by CHF 3.2 billion in just one year. Lending profits, once the backbone of banking revenue, are shrinking as banks struggle to increase rates without risking customer backlash.
In 2024, Swiss banks saw their aggregate net interest income fall from CHF 24.3 billion to CHF 21.1 billion, reflecting the harsh realities of borrowing costs stuck at zero amid inflation hovering around 0.6%. The scenario feels painfully familiar, recalling the 2011-2015 period when net interest margins contracted substantially, from 1.4% to 1.1%, as the SNB previously maintained ultra-low rates.
Because charging negative rates on retail savings is off the table politically, banks are left absorbing the costs on cheap liabilities they can't reprice effectively. Economists warn this squeeze could deepen, expecting another CHF 660 million drop in net interest income as rates remain unchanged. This means Swiss lenders will need to lean heavily on fee-based services like wealth management and advisory to counterbalance shrinking lending margins.
material is informational and not financial advice
