Ladies and gentlemen, welcome to the BCV 2023 full year results conference call and live webcast. I'm Andre, your conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may submit their questions or comments in writing via the relative field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. For the call today, the speakers will refer to the slides, which are available for viewing on the IR section on the BCV website since this morning. At this time, it's my pleasure to hand over to Pascal Kiener, CEO. Please go ahead, sir.
Thank you very much. Good afternoon, everybody. Good morning for those of you calling from the US. Let me jump directly on page four. So you see, the four key messages we are trying to communicate this morning to the press as well as to you, the financial community. So basically, good business activity at BCV in a very resilient economy. Our revenues are up 12%, mostly driven by the normalization of interest rates, if I can speak, so, and you see a record financial result, being at operating profit level or the net profit of CHF 469 million, 20% up.
According to those, or based on those results, I should say, also based on the fact that we are quite confident in the future, we have decided, first, to increase the dividend 2023 to CHF 4.30, and to increase the interval target for the next year. Thomas Paulsen will go into more details on this topic. I will go directly on page seven, because I think all those numbers, you can read them for yourselves. You see that we carry on having good financial rating as well as ESG ratings. I'm not going to comment all of those, but I think this is also so...
First of all, the quality of BCV in term of level of equity, in term of quality of balance sheet, as well as our effort in the last five years in terms of sustainable economy, a sustainable bank, trying also to help our clients to become more sustainable. Retail banking. I mean, retail banking, basically, for mostly influenced by interest rates, of course, and you see that, we see that in the number, in the revenues and operating profits. In term of volume growth, mortgage book is continuing growing by 3%-4%. This year is 3%.
I think there was a slow decline, or let's say, in the first half of 2023, in the Swiss market, in terms of speed of growth, and basically, we are now back probably for the end of 2023, as well as 2024, on average growth of 4% for the market as well as for BCV. But here, the impact of the first half of 2023 make the number a bit lower than the 4%, i.e., 3%. Otherwise, quite stable. Customer deposit is slightly up. Corporate banking, again, here, the number on the left, I mean, the important to look at, but this is a composite of many different businesses. So let me start with SME.
Basically, you see here that the slight increase in loans, if we don't consider the COVID-19 bridge loans, so this facility that was issued by several banks in Switzerland as well as the federal government of Switzerland, basically you see that there is a continuous payback of those loans by the customer. So basically, 70% have been bought back or reimbursed. That means basically, this means that to the customer, Sorry, the loans, the increase in loan without those 23%, otherwise there is a slight decrease, and deposit is like basically retail, slightly up. Real estate, everything is up, which is not surprising given the mortgage market doing well and also the real estate market, where this is driven by the strong immigration in Switzerland.
In terms of large corporate, there is an effect of single customer, a treasury withdrawal at exactly the end of December, making the number appear negative, but except that customer, there is a slight increase, I mean, 15%. So it's slight, but basically this is very volatile, so those numbers change every month. So as you know, we are not looking at volume effect in large corporate, but rather on profitability. So the volume number change according to our pricing policy and what the customer can find in the market. Trade finance, again, we are down here, but this is a voluntary strategy. We want to be careful, given the geopolitical situation. We have reduced our stake, as you know, to zero in Ukraine and Russia, which is quite normal.
And in addition to that, we are careful in other parts of the world where there are, or there might be some geopolitical issue that could affect really the trade of goods and have clearly increased risk in some markets. So here we are quite careful. Overall, if you take the loan book, I mean, this is very, very solid. The main part of the book, basically, the canton Vaud, is in good shape, and we have a very limited need for new provisions. So this has been the case for the last 10 years now, and there is no significant change to be anticipated. In terms of wealth management, here in the numbers, you have several things.
You have Piguet Galland , which is our subsidiary focusing on private banking. You have the private banking at the mother company, and you have also the institutional asset management at the mother company, targeting pension fund and large institutional. Basically doing quite well. Again, given the mix of the businesses here, the main increase in revenue and profit is also due to interest rates, not only, but it is influenced by the increase in interest rates, because those customer, especially in private banking, they have also simple deposit or let's say, savings account. Trading is basically stable, CHF ± 1 or 2 million . Basically, again, I repeat, this is a Forex-driven trading, and this is a customer-driven trading. They are very limited own position.
There is no own trading or prop trading, as we call it. Now, I'm going to hand over to Thomas for the more financial part of our presentation, and I come back slightly at the end to look forward.
Okay. Thank you, Pascal. Hello, everybody. I'm on page 13. Well, this is our PNL statement. We'll go more into the details. Just to mention that there is, besides the key numbers, nothing special to mention, be it on provisions or extra income. So let's dig into the numbers. Well, on page 14, it's quite interesting to see that, well, of course, you have the strong increase of net income, which is driven by the evolution in interest rates, which is but because the normalization, interest rates have become positive and they have become quite quickly positive. So as already mentioned on how one relies, we basically went through the best scenarios, also with regard to liability pricing within the market.
It's interesting to see that we are back to kind of proportions which we had before the negative interest context, meaning 2014. Interest income is again more than 50% of total income, which is the typical size, keeping in mind that we are rather diversified as the most diversified bank with regard to the kinds of income we have. Now for you, it's always interesting to understand what's really going on behind the interest income development, what is really coming from interest rates and from business, and what is coming out of our treasury, our balance sheet management with regard to the opportunities also given by the Swiss National Bank. Now you can see it here in more detail on the bottom of page 14, on the left-hand side.
The pure interest income with client activity is basically up CHF 152 million, from CHF 502 million to CHF 645 million. But right, there was a charge induced by balance sheet management, which then had its income for balance sheet management in the trading rubric with regard to accounting, and so which then generated net income for balance sheet management of CHF 31 million. And that is actually down, and that is quite interesting, right? And that's also because maybe some of you had a tendency to overestimate the second half of 2023, right? Because the market conditions are such that this, what we call in French, arbitrage, this balance sheet management provides less opportunities, right?
The interbank market found itself quite close to the interest rates paid by Swiss National Bank. So there was less opportunity, less volumes to be made with the spread between interbank rates and what the Swiss National Bank paid. So that is key element to understand for the revenue dynamics, which we've seen and which we might see going forward. Now, with regard to the other kinds of interest income, sorry, commission fees are stable, right? We have here different elements, obviously, as a universal bank, where we have transaction commissions from, in particular, individual clients, which are quite good, which are up. And we have, on the other hand, as mentioned, the trade finance, which is in balance sheet and off balance sheet activity.
So the off balance sheet part is in commissions, and as the volumes are down, the commissions here are down. Well, of course, the total trading income, you understand it now, of CHF 190 million is of course really trading as the client-induced trading effects and structured products is CHF 101 million. And is slightly down. And then on the other hand side, the gross income from SME is up, which provides us with a stable total accounting number of trading income.
Now, on page 15, it's just basically the same upper part and with other lower part on the chart, just to give you the evidence that our impairment charges are very low, no new net provision needs, with a very healthy loan portfolio. On page 16, total operating expenses. Well, in the current environment, you can imagine the personnel costs are going a little bit up. Operating expenses are obviously driven by financial information providers, like, like [SU Live], the same thing, IT costs and other elements which had a repricing in this international environment. And depreciation, amortization, quite slightly up, linked to our different development initiatives. The headcount is detailed here for you. Well, it has some fluctuations, some on the parent company, right?
We have some continued insourcing of IT competencies. We have also the increased link to more compliance resources, more cyber IT resources, which are, you know, in the banking industry, hot points and where we are really want to be referenced with regard to our quality. The subsidiaries increased slightly, are also linked to the nice business development, which we see in our filiale Piguet Galland in private banking in the western part of Switzerland. Total assets were almost stable, close to CHF 59 billion. With mortgage loan development and customer have been commented on. For you guys, you might be at a first sight surprised if financial investments go down. Remember that we had, we took opportunity in 2020, in the short-term SNB bills, which were redeemed.
On page 19, on the, on the liability side, what I would point out that there is, of course, linked to the mortgage development, the ongoing, mortgage-backed bonds with our Pfandbriefzentrale. You know, this is a very solid setup for refinancing of cantonal banks. And the customer deposit, of course, here is linked to what Pascal mentioned, is treasury money, which moved, in and out, and which is hiding the underlying positive trends. Total, just jump back to the bottom of the chart on page 19. Ongoing shareholders equity increase, because actually, as you know, we, we do not -- we still keep some, some money, even if we have a very nice dividends.
Well, back on the graphics of assets under management, where we see the performance of 3.2%, and where we have this key element of net new money, where we have both of them, the off-balance-sheet institutional, where there was non-managed money, only custody money, which went out with almost very, very little impact on revenue. And again, our treasury actor, large player, who moved at that time. All business lines are positive net new money, and we are excited to delight with those numbers, right? If you don't see it, I apologize. Capital ratios is still up.
Well, okay, let's be clear. It's also linked to some extent to the little activities and trade funding, which trade finance, which has quite high risk weights. LCR. Actually, with regard to LCR, okay, the LCR is almost the same. But what is interesting for you is what is linked to what I said before, right? With regards to balance sheet management and all this. You see that the HQLAs at net cash outflows, right? That there is a base effect, right? They have been increased with this balance sheet management, and now the volumes are going slightly down. Net stable funding ratio, you know, like for a cantonal bank, universal bank, like ours, it is not a critical topic.
Well, now, given that we went through this beautiful record year, but also conscious that this is a record year, we adapted our target ratios, right? You have seen that our cost income on 2023 is 52%. However, going forward, we think we should be at 55%-57%, which is improvement with regard to previous targets. On the bottom of the page, right, you've seen that on 2023, we did 12.5 in ROE. Our target range was below 10 so far. We think going forward, we will be between 10 and 12. So there's a lot of messages on this page, as you can see. In the middle of the page is more a kind of a little bit game, right?
Because those of you who follow us for a while know that we're always proud to say that this bank would be perfectly capitalized from an operational point of view with 13%. And then if we formulate our ratio on the 13%, just the same numbers, basically, with a denominator. The new target of 10%-12% would be 40.7, 13.7. That's the way how we formulated them before. But to simplify your life. We formulated it in a simple way now, like everyone else, with regard to accounting numbers, regard to shareholder equity, 10%-12% going forward.
Well, page 25, as mentioned, we increased by CHF 0.50 our dividend, total payout of 79% of CHF 370 million, which represents a 4% dividend yield based on end of 2023 numbers. Of course, this has been approved by the AGM on end of April. Well, you remember guys that 12 months ago, we have been very prudent, and some of you criticized us immediately. I apologize. You see the footnote on page 26, that's what we communicated 12 months ago. Now, we have been surprised by this very beautiful way how interest rates developed and how pricing in the market happened. We've seen this record here, and but we're also confident in the future.
And also, again, right, means that, well, Pascal said it, we should think that 2024 is probably slightly below 23, but we believe that they are strong years to come, and we think the right dividend interval for years to come is CHF 4.30-CHF 4.70. Of course, always bearing significant changes in the economic, regulatory environment or bank situation. Thank you very much.
Okay, I'm back on page 28. So basically, the purpose of this page is to show you that we are quite confident in the economy of our region. I expect, I do not expect a recession in Switzerland. This is totally not possible for me. Although, I expect a low growth, around 1%. I don't see that return will be able to be much higher than that. You see here the number for Canton Vaud, 1.4, probably. That's the latest estimation we had, but I think it's a bit too high for me. Let's say, roughly 1% should be the GDP growth in our region, which is nevertheless a small growth and no recession, so quite positive from that side.
In terms of real estate, the prices are again going slightly up. There was a leveling off of the prices, and now, given the vacancy rate going down, given the strong increase in immigration, we are expecting 1.8% population growth this year in Canton Vaud, which is something like 13,000, 14,000 new inhabitants. That means that the vacancy rate will further decrease because the buildings— So we are not building enough buildings to accommodate all those guys. So basically, that means that the real estate market will carry on growing, the mortgage market will carry on growing, and probably the prices slightly as well.
So basically, we are not going to change our mortgage policy, basically focusing also on low quality, focusing also on area with low vacancy rate, because there are some discrepancies between the region in Canton Vaud. Some of them are more than 1%, other around Lausanne, on the Lake of Geneva, I mean, on the Lake Léman, we have a vacancy rate of below 0.3%. So basically, that's a continuous strategy in this key market or key business for us. Now, outlook. Here, I would like to be very well understood. I mean, roughly, if I take volume growth, the business side, et cetera, I think we will be in the line of the previous years. There is no discontinuity expected in terms of volume growth, the kind of business, mix, et cetera.
In terms of financial results, I believe, as far as I know today, that 2023 will be a record, and that 2024 will be slightly below. I mean, let me explain. 2023 was really exceptional in terms of margin on the deposit side, on the right side, sorry, of the balance sheet. Imagine that the SNB will decrease the interest rate, which might happen in March or in June, slightly. I'm not sure that all the banks will decrease the rate they're paying to customer on the deposit side. So I expect that the margin in the deposit business will be slightly lower. Let's be realistic.
We are really very so quite lucky all the banks in 2023, so I expect this trend to be the same for all of them. Now, having said that, you see that we have decided to increase the interval for the dividend, which is normal, because if you look at the number before 2022, we had a result between, I don't know, CHF 350 million and CHF 380 million, CHF 390 million, I think. And now we have come back into a positive environment for the interest rate. So I do expect that the number will be higher. So we are talking CHF 400+ million, but probably not CHF 469 million, 2024.
That might happen with further growth in the mortgage business or in the credit business, of course, but the next two to three years, everything being equal, I believe that they will be slightly below 2023. So just to make sure that we are correctly understood, I don't expect a bad 2024. I expect a very good 2024. This is why we are quite confident and quite clear on our dividend policy or distribution policy. But I do not expect, as far as I can see that today, a record 2024 being better than 2023. I hope this is clear, but we are ready to answer all your questions, guys. Thank you very much.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to use only handsets and eventually turn off the volume from the webcast. Webcast viewers may submit their questions or comment in writing via the relative field. Anyone who has a question may press star and one at this time. The first question comes from the line of Andreas Venditti with Vontobel. Please go ahead.
Yes, thank you for the presentation and for taking my questions. Maybe on the cost side, you have obviously a very good track record over many years in managing the cost. We had some uptick in costs, which you explained, which are all very clear for the reasons. For me, it's more looking forward, what you would expect in terms of has this been now just a step up in terms of costs and you you're gonna manage, let's say, the costs again, like in the historic range? Or should we expect a bit more of you know investment and so on, so a bit higher cost growth going forward compared to historically? Then also on the depreciation, we've seen a tick up there.
Maybe you could add some color here as well, what we should expect going forward on this one. Further on trade finance, you explained or showed the volumes that came down again quite a bit. Would you say that we are close to the bottom, assuming that, you know, the geopolitical situation and also the currency situation remains stable? So have we seen the bottom there or... Yeah, not yet. Thank you.
Okay. So let's start maybe with question number three. Yeah, I think we've seen at the bottom. As long as the geopolitical situation doesn't change, I mean, stay similar as of today, which means not very good, but let's say the situation doesn't worsen, I think we have reached the bottom. That's the third question. Concerning the cost, I think we are in between. You see, I mean, you know that the unemployment rate is less than 2% in Switzerland, so basically we have to give some salary increase to make sure we can keep the best people. So if you look at the number in terms of increase of personal cost in the last, let's say, 10 years, we were quite strict.
I'm not sure we can carry on like that. So I expect a bit more on the personal side in terms of salary increase, but not as high as we had last year. Let's be clear, last year is a bit special, but I don't expect to come back exactly at what we had in the last maybe 10 years. In terms of other costs, we invested a bit last year in cybersecurity elements, so this is why we had an increase. We had also an increase of energy cost, and I can tell you the energy cost will go down. These are. They will be slightly down already this year and more next year. So basically, also here, I do not expect the same kind of uptick you could see going forward. And depreciation, maybe, Thomas, you-
Yes, maybe you want me to comment on the depreciation. Well, depreciation is interesting because we are again in an interesting move with regard to our IT setup. We are further insourcing IT, which will increase our ability to control our the way we go and also our efficiency. So this actually enhances depreciation for the moment, but will, other things being equal, increase our productivity going forward. So this is a move which it has been communicated-
Mm-hmm.
by Kyndryl and BCV, v and it's a very nice strategic move which we appreciate and which will bring us to a higher IT productivity in the years to come.
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