After its record year in 2023, Banque Cantonale Vaudoise (BCV) has slowed down somewhat. The semi-annual report released on Thursday shows that the group’s net profit, at 221 million francs, is 8 percent below the figure for the first half of 2023.

Nevertheless, operating income, at over 580 million francs, remains at last year's level. In the interest business, which is crucial for cantonal banks, BCV managed to keep net income (interest income minus interest expenses including changes in value adjustments) stable at 290 million francs, in contrast to most of its competitors. The bank explains that the unfavorable interest rate environment was offset by the increase in business volume.

Trading Business Affected by Interest Rate Environment

The environment was more favorable in the financial markets than in interest rates. Due to the associated high transaction volumes in the retail customer segment, income from commission and service fee business rose by 7 percent to 181 million francs.

BCV faced a setback in the trading business, where income shrank by 15 percent to 89 million francs. The bank explains that this was primarily due to the fact that the active management of the balance sheet proved to be less profitable in the current interest rate environment, showing that the bank was not entirely immune to the interest rate reversal implemented by the Swiss National Bank.

Personnel Costs Rise Sharply, OECD minimum Tax a Burden

The expense side is less stable than revenue, with business expenses rising by 5 percent to 284 million francs. The significant increase in personnel expenses by 7 percent to 194 million francs is attributed by BCV to an increase in staff in the areas of IT and cybersecurity, as well as to «projects to further develop the bank, particularly in asset management.» In contrast, material expenses only rose by 1 percent to 89 million francs, and depreciation amounted to 39 million francs (+8 percent).

Operating profit amounted to 258 million francs, down 6 percent from the previous year. Despite the lower taxable profit, the tax burden remained the same at 37 million francs, BCV notes, because the tax rate increased following the adoption of the OECD minimum tax proposal for companies in June 2023.

Repayment of Covid Loans Offsets Corporate Sector Growth

Net new money inflows were rather modest at 1,1 billion francs or 1 percent. Together with the increase in value due to investment performance (3,2 billion francs), assets under management grew to 117,2 billion francs (+4 percent).

In lending, BCV benefited from a «dynamic real estate market.» The mortgage volume rose by 5 percent to 33,3 billion francs. Other loans remained almost unchanged at 6,1 billion francs. The Vaud bank apparently issued more loans to companies, but this increase was offset by ongoing repayments of Covid-19 loans.

Refinancing also Through Mortgage Bonds

On the liabilities side, customer deposits increased only slightly by 1 percent to 36,7 billion francs. The second most important source of refinancing for BCV's lending business is the funds raised through mortgage bond central bonds, which amounted to 8,9 billion francs (+5 percent). Liabilities to banks also rose sharply to 7,6 billion francs (+28 percent).

The balance sheet total now stands at 60,5 billion francs, 3 percent higher than at the end of 2023. For the full year 2024, BCV expects business activity similar to that of recent semesters, but with results below the record level of 2023—information that is likely to be of interest to investors in BCV's registered shares.