The conference is being recorded. The presentation will be followed by a question- and- answer 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 now 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 of 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. Let me jump directly on page four. Those are, for me, the four main points in those H1 results. First of all, we are operating in a still positive economy. The business trends are all up. We will discuss that later, but basically, the economy is strong, very resilient. Maybe we don't have a spectacular growth, but nevertheless, this is a growth expected between 1% and 1.5%. Second main point, basically a strong growth in the mortgage business. We will explain that later.
Our revenues are stable, but as you have seen the result, this is a component of different effects, being growth in mortgage business or in credit business, and a, let's say, impact of the movement of interest rates, as well as also some element in the balance sheet management, which were less positive than last year. So basically, H1 result below last year, this was expected. We also communicated that in February, when we announced the twenty-twenty-three result. So basically it's minus six or minus eight, but nevertheless, those are very good results since they are the second best H1 results in BCV history. Okay, key figures on page five, I'm not going to comment that. In terms of business trends, maybe the main point here is the growth in mortgage.
I think there are a couple of reasons. The first one is basically a very dynamic market, very strong growth in the market in this part of Switzerland, due to the interest rates going down, of course, and that trigger client or customer to buy a house or to buy flats, to take a mortgage. That's our first point, or to increase their mortgage. Second point is strong growth in population in Switzerland, especially in the Canton of Vaud. So that fuels also the growth in the mortgage business. Another reason is the dynamic happening today in Switzerland following UBS Credit Suisse merger. We can take advantage of this merger.
Those are actually the two main drivers, and of course, our people work quite well and very intensively following this merger to be able to, let's say, take advantage as much as possible of what's going on. The main point here I would like to make, that we haven't changed our underwriting policy, and we still have the same criteria in the credit business or in the mortgage business. We can acquire a bit more business because of this merger, because of dynamic of the market, but we have not changed anything in our credit policy. I think that's important to stress. In terms of other loans, I mean, there's a compensation between ongoing reimbursement of those so-called credit, COVID credits, and the ongoing growth in the business. Okay, deposits are quite stable.
You see, again, here you have two main effects. A, a normal seasonal fluctuation in the large corporates, and also they are looking also for liquidity and an increase of individuals in Switzerland, as well as small SMEs and some institutional clients. Okay. I think that's clear. Maybe you might have a question later. Again, solid rating on page seven, the financial ratings or ESG rating. I'm not going to comment that. So retail banking is doing very well. I mean, of course, with a 4% mortgage growth, which would be kind of 8% on an annual basis, it's quite a lot. Revenues are up and the profit also. Here you have several effects. The first one is the growth, of course.
The second one, you don't see that in the growth, but this is an increase, total increase in transaction activity, especially in Forex, so Swiss people went quite a lot on vacations or moved quite a lot during this first semester, and the third reason is basically some internal transfer pricing element, which are quite complicated to explain. We're not, we were not playing with numbers, but let's be clear here. I mean, if you look, I mean, the retail banking business was able to get some interesting increase in deposits, and those deposits, they have a kind of duration of two to three years, so from a transfer pricing point of view, this is very favorable to the retail banking business.
So basically, that explain also part of this increase. If necessary, maybe Thomas can give some more information later. The corporate banking business, again, I mentioned to you, we have to distinguish different segments here because the dynamics and the customer are completely different. First of all, the SME, which is the core business in a way, in control group. So you see that the numbers are up, deposits are up, which means also that they're quite liquid, they are in good shape. And in terms of mortgage and loans, this is slightly up 2%. If we get rid, we don't consider those COVID-19 loans, which are being reimbursed slowly over time.
Real estate firm, so basically here, this reflect also the very dynamic, real estate market and mortgage market, and you see that everything here is up. Large corporates , again, as I said, basically, a seasonal volatility in deposit. They needed their liquidity, so we have nothing especially to mention. Trade finance, if you look at the balance sheet, this is slightly up, but in terms, if we take the average volume, business volume over the period, this is down 9% compared to last year. Basically, as we already mentioned, we are careful in this business given the geopolitical uncertainties and the different conflict in the world.
For those of you who followed BCV for quite a number of years, you know that we are quite, let's say, we had a significant exposure in Russia and Ukraine, which is normal because Ukraine export a lot of agribusiness as well as steel. We have completely stopped two years ago, three years ago, the business with those two countries and with some countries, neighborhood countries of those two large countries. This is clear, and we're not going to compensate that by taking other kind of business, more risky. We hope one day for the people there, and also for us, that this problem will be solved, and then maybe we might see the trade finance again, growing at BCV, but for the time being, this is quite difficult.
In terms of credit risk, I mean, as I said, the economy is resilient here, and you can see the numbers. Also, we have a very limited new provisioning needs, which means basically the corporates are doing quite well, although this is not easy, but they are doing quite well. Okay, wealth management. Here, again, I mean, this is an aggregation of different numbers. You have the private banking, you have the asset management business, as well as our subsidiary, the Piguet Galland Private Bank. So you see again, mortgage loan also up, revenues, I mean, the financial market, we are not too bad in this first half, so basically that you see in the number. Then the next one is the trading. This is quite stable. I mean, this is some small, limited fluctuation or the...
This is basically, again, as I always said, this is a client driven trading. We don't have a prop trading at BCV, except intraday, when we have to. But, I mean, this is very, very small. And basically, during this first half, the Forex trading was quite good, was quite up, and the structured product activity slightly down. Basically, this compensates. I think two years ago, it was the other way around. But if you look at the number, the revenues were up to CHF 30 million. This is quite, quite stable, ± 10%. Okay, now, I hand over to Thomas for the detail of the financial result.
Okay, thank you very much, Pascal. Hello to everybody. So on page 13, our interim statement, the key numbers have already been well- discussed. I just want to get to the tax line. Taxes are stable, whereas the net profit or the tax base is slightly down. You must be aware that in Switzerland, we now apply the OECD minimal tax rate, for larger companies with at least one foreign entity, and not taking into account its materiality. So, BCV has a subsidiary in Luxembourg for its fund direction, Gérifonds. So it's the daughter of the daughter.
We have now a higher tax rate of something above close to 14%, with this new calculation for the tax base, and which means we are CHF 3 million higher in taxes as we would have been before. Now, looking on the one of the key elements to position this H1 result, right? It is been an operating profit or net profit. It is definitely down by 6%-8%, but it is the second highest, as Pascal mentioned, in history of BCV, taking away extraordinary items. And this is what we want to show. For example, we are up 13% with regard to H1 2022. Remember that H1 2023 was up than more, by more than 20% to H1 2023 to H1 2022.
This was obviously a spike. And now we are 13% above H1 2022. We are cruising now definitely at a higher level than when during the negative interest years. And that's why we put also on the page 14, the average of H1, the H1s only 2017 to 2021, which was... Which was definitely lower. We are 30% up of with regard to that. So we want to highlight this for you because I think- we think it's a good number to for 2024. Now, what were the dynamics and revenues in incomes in with half year, page 15? Well, first of all, I mean, it is quite, it's not a copy-paste error, but that interest income is stable at CHF 290 million.
We have a different dynamics, right? We have on one side the two decreases of the interest rate by Swiss National Bank down from 175 to 125 basis points. This is a direct hit of what we earn on the liquidity at Swiss National Bank or on our short leg of interest rate hedging coverage. On the other hand side, we had with this dynamics, which Pascal illustrated with on the lending side. So different dynamics are basically a little bit more difficult interest environment. And you must bear that in mind when you look when you think about H2 2024. With regard to commissions, right? I mean, it's obviously valuation is high, customer transactions high.
In the financial markets, customer transaction is high for the spending needs, I mean, in foreign exchange. Card business is doing well, so which produces interesting number of + 7% on commission fees. Trading income, always keep in mind with regards to the last part of Pascal, that Pascal will took you through the sector reporting, which is a lot of allocations of revenues between sectors, and he'll show it to the trading income sector. But from an accounting perspective, if you look at all trading income on page 15, we're at CHF 89 million . And the reason why it's down is mainly not the trading activity in itself, but this is what we call the balance sheet management, that we take opportunity of the rates paid by the National Bank.
And you know that this, it's, with regard to our accounting, which impacts the trading income. If anyone has a question on that, I'm more than happy to answer your question. Which takes me then to the lower part of this beautiful chart, the lower part, where we basically separate, crystallize the elements. So basically, here I'm saying that what we're really interested in is, from an economic perspective, is what do we really earn in income linked to interest rates? And this is what we call the economic net interest income, which is built of the NII before balance sheet management, and then the sum of the blues in the overall number, net income from balance sheet management, which is 11, 319 + 11 .
That is really what is interest rate contribution to income, and that is actually down, because, basically, the opportunities for balance sheet management are much lower. That is really the element. And the trading income, which is really trading income, is a pure number, right? As a trading activity, is 51 - 50. That activity in itself, is pretty much stable. Okay, so I'm happy to answer any questions regard to that. Page 16 is basically only repeating the upper part, and lower part is new, saying to you, we have really, really marginal provision needs. So we had releases of CHF 2 million in H1 2023. Now we have CHF 1 million net charge. So it's, which is again, a sign of the quality of the, portfolio, but also a sign of the quality of our economic environment.
Page 17 is quite interesting. It is obviously the operational results are marked by the higher operational costs. So we have a personnel cost increase, which is driven by different elements. We are really proud to say that we achieved the last and the third and last step of our IT integration, which we followed through, realized over the last 10 years. This is for step three, and by the end of June or maybe by the first of April, we reintegrated up to 40 people which from Kyndryl or others, basically our IT functions, which were still outsourced by them. We reintegrated them, and now we are in full control of run and change, including the materials buying and keeping and maintaining the material of IT infrastructure.
So this is a step up, and integrating these people had also some one-off pension funding costs, which were borne in these personnel costs in H1. At the same time, obviously, we continue on the development of cybersecurity. It's an ongoing process with ongoing innovation on the hacker and cybercrime side, and ongoing innovation on our defensive side. We got very good benchmark results this year. I think we are very well- positioned, and we keep on investing in that. Asset management is a growth vector for BCV. We continue to develop this. And, for example, over H1, we launched. We decided to get into index funds.
We simply think that the merger of UBS and Credit Suisse allowed us to become a player on this playing field. Other operating expenses are stable, also given the fact that we now no more pay these main Kyndryl IBM providers. And overall, we try to manage costs. On the headcount, you basically I already gave the key message of half of the increase which we saw over H1 is to give to the IT integration to the asset management strategy to cybersecurity strategy. And also, I think we think that basically the pipeline fills up easier given the facilitated environment following the UBS CS merger.
With regard to total assets on page 19, obviously, the key element is the CHF 1.5 billion increase in mortgages. Otherwise, I mean, nothing special to signal. On liabilities, you see ongoing deposit inflows and, I mean, to give you a more technical insight, right? You saw on the key charts of Pascal at the beginning, that there was this, by 30 June, a decrease of deposits from large corporates, right? Which is just, I mean, that point in time, and two weeks later, it can be different. It's a question of how we price the money market, how we basically, treasury wants to extract money, how much we want to pay in basis points.
You look at this page. You can see that by end of June, we took a little more due to banks instead of money market from corporates, right? As you can see the number here. So this is a real basically treasury optimization, and if you can find some basis points, it go to the left or the right side of this, due to banks or large corporate deposits. Well, I mean, ongoing financing over our bonds and our mortgage. An increase on shareholders' equity, which here on, from accounting perspective, integrates the half-year result, which is not integrated in the CET1 number as so far. On page 21, we see the increase of total assets under management.
3% are market-driven, 1% is net new money. And the comment I just made on large corporates, you find it again here on the bottom of the page, and you see that the net inflow, which is really stable for personal banking, for SMEs and institutionals, is ongoing at CHF 2.3 billion, and obviously, it is onshore focused. The capital ratios. The capital ratios, we put here at the end of June numbers, and this is maybe also to answer or some of your questions, which we saw.
You must be aware that as of today, rules for publication, the CET1 number, we use the half year shareholders' equity, but without the net result of the semester. You can see it's CHF 3.5 billion, instead of CHF 3.7 billion, which makes a comparison with the end of year CET1 are not really consistent. So we see that this ratios is down, yes, 17.5% becomes 17%. To make it simple, it's obviously mainly the increase by CHF 1.5 billion in mortgages.
But also other things, and I also wanted to highlight, for those who are careful readers of our Pillar 3 report, that as Pascal mentioned, you, from a business perspective, the trade finance was in average volumes down, but photo image of what you could see on June 30 was the trade finance was higher, and the risk-weighted assets are calculated on that point in time. Okay? Please come back with questions if you have. The liquidity ratio is pretty much stable, and this safety area of about 125 , 130 , it's 127.4 . The NSFR, I mean, is obviously for a balance sheet bank like ours. Not an issue, is at 121 , 190.5 . Okay?
So, happy to hear your questions later. Pascal, please.
Okay. We jump on page 26, just to highlight that, we expect the growth in 2024 to be similar to the one from last year, 2023. So nothing spectacular, around 1.2%-1.3%, but not too bad. I mean, this is still positive in this part of the world. And we expect 2025 to be better. It depends a bit on the development of the overall economic situation, but it seems that things could improve during next year. I think Europe, in a way, has reached the bottom. I hope so, especially Germany. And we'll see whether that is confirmed, but we are slightly more positive for 2025 than 2024. An important business for us is, as you know, real estate.
Okay, prices are slowly going up again. Basically, this is due to two factors I mentioned. The interest rates went down, and also the strong growth in the demand in the population. We have something like 1.5%-2% growth in Switzerland. In this part of Switzerland, this is a bit more. So basically there is a strong demand and, let's say, the companies are not able to, I mean, the construction companies are not able to produce so many flats as needed. And you see that in those so-called vacancy rate, which is going down slowly. 2023 is more stable, slightly down, but up to 0.8%-0.6%.
This is nothing, but basically compared to 2020 we are down. I expect this trends to continue since this is more and more difficult to build houses because of lack of space, because of policies, environmental policies and other things here in Switzerland. At the same time, we have an increase, a stronger increase in the population due to people aging, but also and very important, due to immigration within Switzerland, coming from neighbor countries, since the economy is doing well, much better than our nice neighbor. Okay, in terms of outlook, we can confirm what we said in February, basically, that I expect good results, very good results, but not as good as 2023. Lower result. I think this H1 confirms our guidance, and I can only confirm this in this speech.
Okay, that's it. Thank you very much, and we are ready for our questions.
We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on the touch- tone 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. Questions on the phone are requested to use only hand raised, and eventually turn off the volume from the webcast. Webcast viewers may submit their questions or comments in writing by the relevant field. Anyone who has a question may press star and one at this time. Our first question comes from the line of Andreas Venditti from Vontobel. Please go ahead.
Yes, thank you for taking my questions. Firstly, maybe on the FTE number and the costs. You mentioned that we've seen the final step of insourcing. That's why I guess we can expect the number of staff growth to normalize again, probably. Or how should we see the further build out of the asset management? And then in terms of the numbers, I think you mentioned with the insourcing, that there was like a pension fund contribution as a one-off. Could you quantify that? And then... Or maybe, yes, you can answer this one, and I'll continue with the next. Thank you.
You're right. We expect the growth to level off. Clearly, the IT integration is done, is finished, and so we're not going to increase in this way. And also asset management, I think we had to hire some people to start the business. Not to start, but to grow the business, to start new areas in this business. Those people have been hired, and that's it. We expect to see the benefits in the next two to three years. Because as you know, when you invest, you get the people, you develop a couple of things, and you launch product later, and that takes some time, and then you have also to convince customers, blah, blah, blah. From asset management, I don't expect any further increase.
The same is true for cybersecurity. Okay? So basically, I expect in the next, let's say, two to three years. I mean, in the 2025 and so on. I mean, there will always be some fluctuation in the number of people, but I don't expect another growth like we had this year or even last year. That's the first part of the question. The second part is the one-time contribution. So this is a small number. I mean, we're talking here roughly CHF 2 million.
Perfect. Thank you.
This is one time, this is just for the integration.
Sure.
Since our pension plan was better than the pension plan of the outsourcing company. Okay.
Good to hear. Thank you. Next one, maybe on the whole topic of, firstly, mortgage loan, which was obviously very strong. You explained why. So should we expect this high growth rate to continue, let's say, also in the next half year? Or should we expect some leveling off here as well? And in this context, also in terms of net interest income, and I think you explained, you know, the economic side very well. Thank you for the disclosure as usual. But maybe here as well, in terms of margins, how should we see it, assuming, I don't know what your rate scenario is, but assuming, let's say, one or two further cuts from the SNB, versus-
Yeah.
- Probably your adjustments of the savings accounts remuneration, how should we think about this dynamic?
Yeah.
Thank you.
That's a difficult one, but no, it's the point. Okay. First of all, the growth. Look, I expect a certain leveling off, but very small. I mean, I don't expect 10%, to, to be clear, but-
Annual.
If we would say a year like before, that would be a 2% in for each semester, that would make 7%. I think that's too low. So the truth will lie between 7% and 10%. So if you assume 8%- 9%, I think that should be not too bad, ± 10%. Okay? That's the first part of the answer. Then I will give the word to Thomas for the second part. But it's quite difficult. Just one remark. I mean, this is clear, with such growth, we can increase prices or margins in the mortgage business. This is what we are doing. So that might slow down slightly growth, but I don't think, because if you look at the same time, the rates, interest rates went down.
Today it's cheaper to get a 10, 10 years mortgage than it was six months ago, and we have better margins. That's not too bad. Now, the other side is savings account, that's a bit more difficult. I mean, it is, the SNB reduced twice. Maybe they might have another reduction, and it's difficult exactly to transfer this reduction to the customer due to competitive reasons. Maybe, Thomas, you can comment.
Yeah, right. I mean, I think with regard to mortgages, Pascal said it, right? There's volume growth, and there's probably potential for at least defending margins, given the setup we have in Switzerland. That's a positive factor. We expect Swiss National Bank to decrease at least once the policy rate. So that's definitely a negative impact on net interest income, on the whole liquidity, on the short leg of hedging.
Now, and I think I still think that in this environment, which Pascal mentioned, that probably the overall cost of deposits will be higher than second half of 2023, right? So we have here kind of compensating elements, right? W hich we should look at, I would say, positively solid NII in H2 2024, but I would not, well, we should not expect a significant growth. Does this answer your question?
Yes, thank you, Pascal. Maybe another one for you, more on the technical nature. Does the guidance for first January 2024, sorry, 2025, of course, in terms of risk-weighted assets and the introduction of Basel III final still stands, that you would expect a one percentage point CET1 improvement from that point of view? Thank you.
Yes.
Great, thank you.
Yes. There's no change. We have everything has confirmed, everything has consolidated, and also the entrance date has been confirmed from FINMA. So, I mean, with reasonable prudence, that there could always be a surprise.
You never, with FINMA-
You never know with FINMA.
You never know. No, that's the point. I mean, we expect, but we cannot guarantee it because we never know with FINMA till we have it in black and white, I mean.
But our expectations have done become even stronger.
Perfect. Thank you so much.
The next question comes from the line of Stefan, Stefan Stalmann, Autonomous Research. Please go ahead.
Yes, good afternoon, gentlemen. Thank you very much for the presentation. I also have a couple of questions. Maybe we take it one by one again. Starting with the income producing real estate, where you had very strong growth as discussed. It does look as if this has put a little bit of, let's call it, stress on your funding ratios. I mean, your loan to deposit ratio is now the highest that it has been since 2011. And it also sounds as if you have relatively opportunistically funded this, somewhere between interbank and relatively slightly corporate deposits. How does that impact your funding strategy on a more sustainable basis going forward, also considering that there could be more growth in the second half? Do you have any particular targets for loan to deposit ratios going forward?
Are you going to use more wholesale funding? Maybe you can add a bit of color around that topic.
Okay. Okay, I thank you that you asked this question, because obviously in the room... I know, I mean, I think over the first half, this was very much equilibrated. And, and, as, as I mentioned in my, my presentation, right? The picture by end of June is that the compensated the outflow of CHF 1 billion that day, basically, because there were term placements which were reimbursed by lending from the interbank market. So which is really a normal treasury business as usual. The loan to deposit ratio, I mean, it was exceptionally high over the last years. I remind you that we are targeting rather something like 90%, right, for our solid balance sheet.
But I mean, what is correct is that the market dynamics like that positive for the first half, but it's not something which could be extrapolated, right? Because that would could give questions to funding. That is correctly. So we manage this very carefully with our ALCO. And that's why Pascal gave the outlook, which he just did, with regards to rather reduced, but still high mortgage growth in the second half. But there is. No, there's very solid management, and it's a good situation. Now, it's probably interesting for you from a listing point of view, to look on this Swiss market.
By the way, there is interesting publication by UBS on reserves by Swiss National Bank, which has been published today. You must be aware that there are different things which are interesting, right? I mean, there is following this new Credit Suisse merger, the liquidity facilities, which have been reimbursed to Swiss National Bank. I mean, this is taking liquidity out of the system. There has been the increase in the legal requirements of liquidity, which do not enter into the LCR, which means initial LCR funding needs. And at the same time, SNB is expected sometime to reduce its total balance sheet, right? In taking basically liquidity instruments out of the market.
So there is that, there are interesting dynamics, right, and all in all, I would not be surprised that from a market perspective, for instance, a financial institution, there should be, could be a tendency that funding becomes more expensive, right, but so, there's we are fully analyzed this, we build this into our scenarios. We drive stress tests. We analyze this to be ahead of the game, so but I think the Swiss market is interesting these times, and we manage this very carefully.
Maybe if I can add, I can tell you, we're going to carry on to be a liability-driven bank. I mean, I don't want to increase the loan book tremendously, and then to be too much dependent on the funding side in the wholesale market. So basically, we can grow, but we can also limit our growth if necessary, because of funding. But I think Thomas is right. There's a lot of things happening now in the Swiss market. The big picture is that we're going to remain liability- driven.
That's, that's very helpful. Thank you very much. Just to clarify one number, Thomas, I think you said you would target in roughly 90% loan to deposit ratio. I think you were at about 107 in the first half. Maybe I'm using a different definition, but how do you want to realistically get down to anything like the low 90s in any foreseeable point in time?
Deposit to loan. Deposit, sorry, I wanted to say-
Ah, deposit to loan.
Deposit to loan. Sorry about that. I wanted to say deposit to loan.
Oh, okay. Okay, that makes sense.
Sorry.
Excellent.
Sorry.
Um-
Because both things are used there. I want to say deposit to loan. We our reference-
Okay, great.
Okay.
But you see, I mean, you have to see that in
Great
... in average terms.
Mm-hmm.
There might be one or two months or six months, whether the situation is a bit different. I mean, those are, I'd say, not targets, but I mean, we should see those numbers on an average over time, but not really at one point in time, which might be different for one or another reason.
Okay.
Yeah. Okay, understood. The second question I wanted to ask is about your loan growth by geography, if you will. So you very helpfully disclose every semester your loan book inside the Canton of Vaud, and then in the other Swiss cantons. And it has been already a trend for quite a while that your exposure outside of Vaud is growing much faster than inside of Vaud. And that has also been the case in the first half of this year. And given that you have grown so quickly in income producing real estate, which is maybe one category where you can venture out of the canton, is it fair to say that a good chunk of this growth has actually taken place outside of Vaud?
If so, what is the rationale for you to be growing quite rapidly outside of the canton, as opposed to staying at home?
I think that's a good question. We have to, to explain that better. We grow at Vaud, as you said, on Canton Vaud, in the mortgage market for individual, SMEs. Here we have a continuous growth-
Mm-hmm.
a bit more than usual because of the merger with UBS. Where we grew quite-
Yeah
... quite quickly in the last two years and also in the semester, is outside Vaud, but this is mostly in real estate funds. So basically real estate funds, the risk is almost zero. I mean, those funds cannot have more than 30% of debt. So we're talking about funding real estate funds, well- diversified in terms of real estate objects.
Short- term.
And quite short- term and only up to 30%. So almost for those, let's say, real estate funds, the risk is almost zero, is zero by definition. So there's almost no risk.
We grew because, I mean, there is no risk. Now, the margins are increasing because those funds are also due to this merger and due to this merger, they were ready to, let's say, to accept our prices better, or I'd say, than two or three years ago, where the market was more competitive and we didn't want to have too low margins. So basically, this is in a way. You can call that opportunistic, and I have no problem with that, to grow outside the Vaud in almost zero- risk business with, let's say, interesting margins. I mean, those margins are of course lower than if you do a kind of a mortgage for an individual. But again, as I said, the risk is zero.
Now, this is business, which is quite, let's say, you can stop the business whenever you want, because those funds, they are standard every, I don't know, three months, six months, and you apply, you have a price, you take it or you don't take it. So this is quite interesting because zero risk for the time being, attractive margins, and if you don't want to make the next one, you just don't do it, or maybe you come back in two years from now. So this is where we grow.
To be clear, we don't grow in, let's say, individual or SME customer outside Vaud, except maybe 2 km-3 km from the border of Canton Vaud, but this is peanuts. But this is, let's say, 80% of the growth outside Vaud, maybe 60%. I don't know exactly. Those are real estate funds.
That's interesting. Thank you very much for that, and the final question I wanted to ask is, unrelated to the results, but we had recently a message from the Basel Committee about the rates to be used in IRRBB, interest rate risk in the banking book, stress test scenarios, and the Swiss rates were going up quite a bit in that Basel Committee paper, and I'm wondering whether you already have an initial view of what this may mean for you and your calculation of IRRBB, whether FINMA has already signaled how they want to look at these maybe new rates, and what this may also mean for your capital surcharge for interest rate risk in the banking book going forward?
I mean, basically, to our understanding, right? In the kind of shifts we get, we get closer to what in Switzerland what European regulators require in 175 basis point shift. Basically, we will adjust our calculations, right? And but our risk appetite fundamentally is unchanged, right? W hen if you focus before on the 100 or 150 basis point shift, you will where the limit and the measure gets accepted, adapted the same way. This will not change. We looked at it. It will not change our intrinsic view on interest rate risk, right? We will adapt internal limits, internal measures, or we will even continue our own internal measures, and we provide FINMA with the adapted statistics.
And then to make the link to the famous markup question with regard to capital requirements, right? Well, FINMA, as we said, so they will soon tell us, because basically, it's now almost two years, almost eight quarters that we are on their radar below the alert. So if they are consistent with themselves, they should take off the markup. And if they, I don't know, excessively prudent or anticipating further interest rate decreases, they could leave it. I mean, you know, FINMA is a quite interesting animal. But again, here, they take it off, they leave it, we will not change our interest rate risk management on the balance sheet because we are completely convinced of it.
When we do kind of backward calculations, what-if analysis we've really went very positively through all those years with all these interest rate changes. Obviously, it would be more beautiful to establish a 13% requirement than 14%, but I think it's just a question of a beautiful window and nothing else.
Right. So you see no chance that FINMA could actually increase this? Because with higher stress test rates, your sensitivity would probably go well above the 15% outlier test.
No, I mean, there, as they work, I mean, I've seen them, when the requirement went to 100- 150 , they really did a linear transposition. That's how they work. So it's just a shift, but it will not change the intrinsic view. I'm, I believe strongly, because that is what they did in the past.
Right. Okay. Thank you very much. I think that's it for me. Thank you.
The next question comes from the line of Alsino Curti , ZKB. Please go ahead.
Good afternoon. I have one question left from my side, regarding the balance sheet management. So what are you looking into for H2 and going forward? Do you think there are still some opportunities on that regard, or is it decreasing?
Yeah, very good question. Thank you for asking it. I think the overall trend is that we expect it to decrease, right? It's we think that the elements normalize opportunities become lesser. And by the way, but it's just a kind of signal and not impact. Just some days ago, FINMA set this multiplier for the tiered pricing . The multiplier came down from 25 to 22, but it's actually so high that anyway, we don't fill up. Remember that it's a multiplier of the legal reserve, which was increased, so it's also a reaction to that. But overall, I mean, we see less volume opportunities for the arbitrage, okay?
And we see obviously lower interest rates by Swiss National Bank, right? Which by itself gives less impact to that. So be it from the volume side or be it from the earning side, the interest rate, which is the interest rate of the National Bank, we think that the impact is rather decreasing.
Thank you, and maybe a follow-up on that. How many rate cuts are you expecting?
How many?
Yes.
How many what? We haven't understood.
Rate cuts. How many rate cuts are you expecting?
Ah, oh, the crystal ball.
If I knew, I would be rich, huh? No, I mean, look, probably one. I mean, if you look at the macroeconomic data, first of all, the inflation is under control, is well below 2%, 1.3%, 1.4%, 1.2%, it depends on the month, but well below 2%. Second, you see the Swiss francs being very strong and, the economy 1.3%. So, I mean, if I were at the SNB, probably I would bring the rate down by 25 basis points. This is our expectation. I would prefer not, as a CEO of BCV, but unfortunately, that will happen probably.
And yes, thank you very much. And if I may, a third one at the end.
Sure.
The trend that you are observing in 2024 regarding shifts in deposits, like last year it was a trend towards term deposits and savings deposits. Now, did it stabilize or what, what are you seeing?
Okay. Well, I mean, what we see overall, right, in the market, it's not BCV, but overall, we see that the banks have been quite smart in the way of how they passed on the positive interest rates, opportunities on deposits, right? Most banks have not so much increased savings, and they gave the opportunities for price sensitive, investors to put to term placements, right? So that the term placements have overall increased, right? And we see also that the need for deposits of UBS, so to name them, given the context of the liquidity assessment, reimbursements to Swiss National Bank, has created quite a demand and pricing for term placements.
So, I think that dynamic of which is on one hand side, a pricing tactic, and the other hand side, demand for deposits will go on.
Thank you very much.
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Okay. Thank you very much. No specific closing remarks. Thank you, everybody. Bye-bye.
[I hope you did too]. Bye-bye.
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