Banks Benefit from High Interest Rates as Borrowers Partially Repay Mortgages

The Swiss National Bank (SNB) raised key interest rates in several steps over the course of the past year. Due to the higher level of interest rates, the banks’ earnings are increasing and they are reporting high profits. The eastern Swiss regional bank Arevis is also benefiting from the higher interest margins. Pure interest income rose by 57.2 percent to CHF 35.6 million in the first half of 2023. The fact that the National Bank pays interest on bank deposits plays an important role. This resulted in income of around 4 million Swiss francs for Acrevis. “The SNB currently has to do this in order to maintain interest rates,” says Arevis CEO Michael Steiner. However, it can be assumed that this will not remain a permanent situation.

Half-year profit increases by 25.4 percent

The higher income is offset by higher interest but also higher expenses. Interest expenses rose by almost CHF 6 million to CHF 7.3 million. And because the higher interest rates also increase the risk of default on loans, the bank increased its precautionary provisions for loan defaults by a good CHF 1.3 million to CHF 1.6 million. Nevertheless, the interest business resulted in net income of 27.4 million, 30.3 percent more than in the same period of the previous year.

This success is also mainly responsible for the almost 3.3 million increase in business success of 16.2 million francs. Higher income from the trading business contrasted with lower commission income. In the case of the 3 million increase in operating expenses, the higher personnel expenses are particularly striking. This is due to additional employees but also to wage increases, according to the bank’s statement. Acrevis reported half-year profits at 13.9 million, around a quarter more than in the same period last year.

Customers amortize flexible mortgages

The higher interest rates not only led to higher profits thanks to the “long overdue improvement in the interest margin”, as the bank continues. The volume of loans to customers fell for the first time in a long time. Those who have a flexible Saron mortgage felt the higher mortgage interest rates very directly. “That’s why some customers have decided to partially repay their mortgages,” says Steiner. A probably unique effect, but a significant one: Customer loans fell by a total of 42 million. “At the same time, we granted more new mortgages than in the first half of 2022” – although interest rates are also making new mortgages more expensive.

In the last few months, this has led to Saron mortgages in particular being granted, says Steiner. But the growth continues. “The real estate market in eastern Switzerland remains robust. Demand has fallen a bit, but it’s still outstripping supply.”