Frédéric Papp, Editor at finews.ch

Eight years after the financial crisis, interest rates haven’t returned to normal yet. Central banks, with the European Central Bank (ECB) taking the lead, have kept key rates negative hoping to boost economic growth – with little success so far.

The Swiss Central Bank has to copy the rate regime dictated by the ECB to avoid the Swiss franc to become even more overvalued. A measure with dire consequences for the Swiss bank: they are forced to pay a negative rate of 0.75 percent on their deposits at the central bank.

The SNB has generated a profit of 500 million francs on the franc deposits in the first quarter of 2017 alone. The bank made the majority of it with negative interest on sight deposit accounts, the monetary authority recently said.

Making Savers Pay

Banks increasingly are making their clients pay for these costs. Migros Bank for example in March said it will charge clients with more than 1 million Swiss francs on its accounts 0.75 percent interest on their holdings. UBS announced it will ask European clients to pay a punitive interest on their euro holdings.

The low interest rates also leads to exaggerations among investment classes that still return a yield, for example real estate, bonds with an inferior credit rating and alternative investments.

But the historically unique situation is also generating opportunities – for banks in particular.

Unique Opportunity for Innovation

Like never before, they are forced to become innovative, to develop financial products and solutions with an adequate risk-return-profile. Private equity and private debt markets provide lucrative opportunities for banks and investors. Some emerging markets also are worth a consideration.

The times when client portfolios contained 60 percent bonds and 40 percent equities – mostly Swiss – are a thing of the past.

Relationship managers therefore are under pressure, almost like never before. They have to generate returns for their customers and they also have to be careful not to invest in overheated markets.

Need for Dialogue

The dialogue with clients is as important as ever and an opportunity to better get to know the customers – a duty that hasn’t been emphasized adequately in the past, but also to this day.

It would be so easy: customers, in particular the wealthier ones, demand for advice because of the low rates. Advice that focuses on the benefit of the client makes the ties to the bank stronger and thus may engender more demand in return.

Clients at the Center of Attention

It is also worth looking at the mass of affluent clients and those below. There is a lot of potential still waiting to be exploited in respect to the quality of advice, as finews.ch has reported earlier.

Instead of threatening to apply negative rates, banks are well advised to do the job properly. The importance of putting the customer at the center of its activities is something that a majority of Swiss banks seem to have acknowledged only recently. And that entails a comprehensive and competent advice, without forcing the sale of financial products which benefit the banks the most. The low interest rates are providing a unique opportunity for this.

 Frédéric Papp is an editor at finews.ch. He previously worked for «cash.ch». He studied philosophy, economics and political science at University of Zurich. Before starting his studies, Papp made an apprenticeship as a banker at Swiss private bank Rahn & Bodmer.