Environment and trends
As a retail bank, the Raiffeisen Group operates in a dynamic environment. Both the state of the economy and various social and sector-specific trends have an impact on Raiffeisen’s activities over the medium to long term. Macroeconomic developments, increasing geopolitical tensions and sustainability were particularly dominant themes in 2022.
Dynamic economic and market environment
The year 2022 saw many fundamental changes in the economic and market environment. The strained energy situation and the turnaround in interest rate policy in particular were major factors in the market.
A challenging economic environment
The war in Ukraine, the pandemic and rising geopolitical tensions were the forces driving the world in 2022. Against this background, strong demand for goods due to a post-pandemic catch-up, disruption in global supply chains and, last but not least, the energy price shock as a consequence of the war in Ukraine have increased price pressure worldwide. Inflation has led to monetary tightening in 2022.
After some hesitation, many central banks finally raised key interest rates quickly, despite the downside risks to the economy. The European Central Bank (ECB) and the Swiss National Bank (SNB) have started to move away from low interest rates. This has also led to a rapid rise in long-term interest rates due to higher interest rate expectations. The subdued price pressure in Switzerland has led to more moderate tightening of financing conditions compared to other countries.
The catch-up effects after the pandemic gave a strong boost to consumer spending in Europe until late summer. The Swiss economy also continued its robust recovery, with gross domestic product (GDP) increasing by around 2% this year. Yet higher energy prices and weakening global demand increasingly left their mark towards year-end. Higher inflation, coupled with moderate income growth, put pressure particularly on the purchasing power of lower-income households. At an annual rate of 2.8%, inflation in Switzerland was moderate by international standards.
Due to the challenging environment and the high degree of uncertainty on the markets, Raiffeisen banks are seeing an increased need for information and advice,especially among clients who are facing important financial decisions about home ownership or personal pensions.
Despite interest rate hikes, residential housing prices remain stable
Since mid-last year, the Swiss National Bank has raised its key interest rate several times, making even money market mortgages noticeably more expensive. Even before the interest rate hike, the interest rates on long-term fixed-rate mortgages had risen faster than those on money market mortgages as the market priced in the expected increase in interest rates. Despite the higher financing costs than before the interest rate hike and related affordability challenges, the demand for private residential property remains stable. As the supply of residential property has also been scarce for a some time, there are no signs of a major correction in house prices.
As intended, Raiffeisen’s mortgage business has grown at market level in recent years. The principle of prioritising security over profitability and growth applies here. The Raiffeisen banks pursue a prudent lending policy. The affordability calculation is based on an imputed interest rate of 5%. These rules apply unchanged to the process of obtaining a mortgage. This ensures that mortgage borrowers can afford the financing costs even if interest rates rise.
Positive market outlook – some questions remain
The volatile markets and economic uncertainties significantly slowed down the high growth in the pension and investment business in particular. Overall, however, the outlook for retail banking remains positive. For example, the recovery in interest operations compensates for the lower income from the pension and investment business. In the residential sector, interest margins remain under pressure due to continued high levels of competition, while volume growth is expected to be slightly lower next year due to higher financing costs.
New neobanks also continue to enter the Swiss market, despite the unclear prospects for success. They are becoming more prominent and are helping to change client expectations.
Market developments and trends
Retail banks have been undergoing change for some time. The advance of digitalisation means that client needs are changing fundamentally. Competition is increasing. Non-bank competitors such as insurance companies and pension funds are getting involved in the mortgage business. Neobanks are raising client expectations with their digital products. Raiffeisen is responding to these trends with its Raiffeisen 2025 strategy.
Expectations in terms of transparency, corporate responsibility
and sustainability are rising
Client behaviour is changing. Clients are increasingly using self-service digital solutions and getting information in the digital sphere. The greater transparency, comparability and variety of products do have consequences: clients are more price sensitive and increasingly willing to change their main bank. To meet the client demand for digital solutions, Raiffeisen is investing substantial amounts in the expansion of online client access and self-service. By 2025, all digital services will be available through one app.
Sustainability-related requirements are also increasing. Society increasingly expects visible and credible corporate responsibility initiatives from companies. Both neobanks and the established banks have responded to this change. In retail banking, the focus is primarily on sustainable investment products, home ownership advice, and measuring CO2 and compensating for it. In the lending and issuing business, too, financial service providers are increasingly aligning themselves with sustainability criteria.
Sustainable Finance is seen as a huge opportunity by the Swiss Federal Department of Finance, while the Swiss Confederation would like to position Switzerland as a responsible and sustainable international financial centre. As part of its sustainability strategy, Raiffeisen supports the Paris Climate Agreement and climate-neutral Switzerland. Currently, around 95% of the total volume of all Raiffeisen funds is invested sustainably.
Fiercer competition for the client interface
Financial service providers are investing more heavily in payment solutions. Neobanks and technology companies are using the new technological possibilities to expand their payment services. In addition, non-banks such as large retailers are increasingly using “embedded finance” approaches. In other words, financial services such as payment processing, instalment payments or insurance are seamlessly integrated into the offer at the product purchase stage. A loan for buying furniture is available directly from the furniture dealer, for example, or car dealers offer insurance during the purchase of a new car.
Moreover, banks and institutional competitors such as insurance companies or pension funds in particular continue to expand their client access in the residential sector through new alliances. Overall, however, the momentum in the networking of financial service providers and real estate specialists has declined again to some extent. Consolidation of platforms is to be expected for the Swiss market in the coming years. Raiffeisen offers various tools and services to cover all needs relating to private home ownership. In real estate marketing, Raiffeisen works together with Raiffeisen Immo AG. Raiffeisen Immo AG provides comprehensive support and assistance to clients throughout the process of selling their private residential property.
Increasing digitalisation of sales and service models
New digital approaches to sales and service are increasingly establishing themselves in the Swiss banking market. Both video-based advisory sessions and the use of private short message channels are becoming increasingly popular among clients. Client interaction at any time or place will complement existing channels and formats in retail and corporate client business.
When offering digital investment solutions, “robo advisors” continue to play only a marginal role. Several providers have announced hybrid investment solutions (digital asset management combined with advice in person) in recent months. Based on the needs of its clients, Raiffeisen expanded its services last year and now offers a comprehensive range of pension and investment solutions. In addition to conventional asset management, Raiffeisen offers, for example, a digital asset management product “Rio”, which is an investment solution that can be used from an investment volume of CHF 5,000.
Technology: focus on IT infrastructure and automation
Major technological leaps failed to materialise in 2022. Disruptive technology trends such as blockchain have not yet gained widespread acceptance. Cryptocurrencies also came under even more regulatory pressure last year due to the recent price slumps. Digital currencies have been subject to fierce criticism since they were introduced, as they are volatile and use a lot of energy.
Banks continue to invest systematically in optimising their IT infrastructure and automating basic processes. This creates cross-sectoral technical interfaces that should enable efficient exchange of data within a regulated framework in the future.
Digitalisation is creating a new, changed world of work
The Swiss economy has proved to be very robust, especially on the labour market. The unemployment rate in Switzerland is at a very low level, with the result that the available labour pool is small at present. This exacerbates the shortage of skilled workers that has existed in Switzerland for years. It affects a range of sectors such as healthcare, hospitality, information and communication technology, and finance. IT specialists in particular are very important for implementing banks’ extensive digitalisation projects.
Digitalisation and social change are also transforming the world of work. Employers are faced with two developments: they must meet the challenges posed by digitalisation as well as the individual demands of employees for meaningful work. This change affects the corporate culture, the perception of management and the handling of skills that are needed for the new world of work. As part of the Group strategy, Raiffeisen has developed its management principles through a shared cultural development process.
Regulatory requirements remain high
Increasing changes in regulation require additional expertise and resources. The capital, liquidity, and compliance requirements for banks are continuously being tightened, with additional requirements for Raiffeisen as a systemically important banking group. Raiffeisen relies on efficient, technology- and data-based implementation when it comes to regulatory changes and invests in the automation and digitalisation of compliance processes. The Raiffeisen Group is very well capitalised. It exceeds both the current regulatory standards for systemically important banks and those that will apply from 2026, primarily with the highest quality of capital.