Ladies and gentlemen, welcome to the BCV full year 2021 results conference call and live webcast. I'm Sasha, the Chorus 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 in writing via the relevant 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 reviewing on the IR section on the BCV website since this morning. At this time, it's my pleasure to hand over to Mr. Pascal Kiener, CEO of BCV. Please go ahead.
Thank you very much. Good afternoon. Let me jump directly to page 4. I think those are the key messages in this, you know, excellent results. The first point is also to show that we did a good job, but we were helped by the economic environment. It was very good, as well as the financial market, as you know, were very good in 2021. That helped us. Also many banks, if you look at the result, we are not the only one posting very good results. The revenues are up. Net profit is up 14% to a record level. Let me just explain that.
BCV was created in 1845, and this is the best result in those 175 years or something like that, except three years, 2005, 2006, 2007, which were marked by extraordinary items following the recapitalization of BCV in 2002, 2003. If I don't take into account those three years, which are quite special, we can talk about a record net profit. According to that, we are confident going forward. We are pleased to propose to the general meeting, the general assembly, to increase dividend by CHF 0.10 centimes, which is CHF 3.70 centimes. Slide five, I'm not going to comment. Slide 6, very quickly. We see an increase in all business areas. Mortgage 5%.
This is more or less the growth in the market. We don't get the figure for the growth in Vaud before the end of June 2022 for the year 2020. My estimate is that the market in Vaud is growing between 4% and 5%. We are in line with the market here. Maybe we can comment that later on. Other loans. The increase in other loans and credit is basically mostly trade finance, but not only, but mostly trade finance, where we had not a recovery, but we increased our risk appetite 2021 compared to 2020 due to a huge risk in 2020 in this business due to the pandemic worldwide. You see the deposits are increasing very, very fast.
Basically, customer, being private customer, institutional or corporate are quite liquid. We see here an increase. We try to monitor that the best as we can. i.e., having negative interest where it makes sense, having some fees to make sure that we don't get all customer that leave the bank due to negative interest rates and come back to us. I think it's a trade-off here between, let's say, short-term profit and long-term profit. I hope that some of those funds, some of those customers that came to BCV last year will remain long-term. Of course, that will help our refinancing cost when interest rate goes up.
We try to be, let's say, as nice as the other, maybe slightly nicer toward customer, not to be a trendsetter in negative interest rate, but just to follow, let's say, the bunch of our competitor, just to make sure that we are not too far away from them. Otherwise, we will get all funds from them, and that we don't want. Maybe there was one point on page seven, which is more a strategic point than a financial one. You see this most recommended bank in Canton Vaud. As some of you know, I started a huge program, a huge initiative in 2015. This is not just a project or initiative. This is a philosophy.
I'm convinced that for the type of business we have, the type of bank we have, it's very important to be excellent at customer care and service. Being operational excellence or just customer service, this is key for the long-term strategic success of BCV. This program started 2015. It is still running. We have workshop, we have training, et cetera. I'm quite pleased to see that it pays off. For the last three years, we were the most recommended bank in Vaud. I think that's important to mention. Also our subsidiary of Piguet Galland was named Best Private Bank in Switzerland by the British magazine, International Banker. Last year, it was UBS. I think UBS in offshore business or in onshore, wealth management is well-known.
In a way, it's a good recognition for PIE as well. Let's go into the different business units for retail banking, you'll see it's very successful. Mortgage loan is probably slightly above the market here. But we try to grow in areas where we have a lower vacancy rates. We are very careful in some areas overall where the vacancy rate is quite high. When I mean quite high, it's higher than 2%. In terms of deposit, as I mentioned, we try to manage that to limit the inflow, without being, let's say, stronger. Maybe not stronger, but being more negative than other banks towards customers. This is a fine line here to adapt on a continuous basis our condition to make sure that we don't get all inflows of our competitors.
Revenue profit, I mean, this is very good. I will say the profit is +35%, but here this is, there is basis effect here. Okay. Corporate banking. Here, I want to mention three. I mean, there are three business here. SME, this is quite stable. Those loans, those bridge loans, COVID-19 bridge loans, from the Swiss Confederation, already 20%, a bit more, I think 23% today have been paid back. And the rest we will begin amortize that in the next five years. So the customer will be asked to amortize. Now, you know there is no risk. I mean, the Confederation bear the risk here. It was just an initiative of the Swiss banking sector or the Swiss Confederation to provide liquidity to SMEs at the beginning of the pandemic.
That was, I think, between April and June last year. No, sorry, in 2020, not last year. Two years ago, almost. But there is absolutely no risk for us. Large corporate is always a bit volatile, so nothing to mention here. Trade finance, you see that it is slightly up. I mean, as you know, some of you know, we decided to slow down, to reduce our risk appetite, our business volume in 2020 due to uncertainty of the pandemic. We didn't know exactly what was going on, whether ships would be disembarked, whether ports would be blocked. All those problems, supply chain problems. We decided to reduce our activity. Finally, it worked quite well.
I mean, there are supply chain problems that we know, but overall in the world, but not especially in our business. We concluded that it worked. Sometimes it's a bit slower, but basically, the supply chain and all the logistics with ships, customs, port, et cetera, warehouse worked quite well, and we decided to increase our risk appetite and to increase the business volume. Of course, we don't do that overnight. It takes some time because it's always a question of risk appetite. This is why overall, if I compare 2021 and the pre-COVID situation, we're still 7% below. That means also 7% of revenue below in this business.
Now, as you know, there are some geopolitical problems in the world, especially in Eastern Europe, and now we are careful here. We also decided in Ukraine as well as in Russia to be very careful. Either Russian customer or let's say Russian not a customer of BCV, but Russian people buying goods or selling goods in for a trader in Geneva or in Lausanne. Here we are very careful. Overall, I mean, the credit portfolio remained very sound. We had in 2020 some risk costs due to especially trade finance. In 2021 nothing in trade finance, just one case which has nothing to do with COVID or nothing to do with trade finance. It's just bad luck.
That happened in the credit world. You see that overall in the 2021 year, provisions needed for credit risk costs were lower than 2020. Of course, this contributed to the good result. In wealth management, which is basically private banking in the mother company. This is, it's just an asset management in BCV as well as the private bank, BG. You see an increase in AUM. Of course, this is driven by the good performance in the financial market. You see an increase in revenues also due to the financial market. One good news is the mortgage business, we were able to grow a bit better than in the previous year in the private banking sectors.
They were slightly lagging when I compare to the retail banking, and they've been able to catch up. This is quite good. You see the operating profit is also up. On trading, slightly up in revenues. In profit, a bit more. This is mostly structured products with significant revenue increase of almost 70%. The Forex trading was slightly down compared to a very good 2020. Overall, trading was up. Overall, very good results from a financial point of view. Thomas will go into details. Also from a business point of view, we have almost all business unit contributing to those excellent results. Now I will turn over to Thomas for the detail of the financial part. Thomas.
Okay. Thank you, Pascal. Hello, everybody. I mean, you have read the financial numbers, so I will really focus on comments. I'm on page 13, where we dig into revenues and charges on following pages to understand the operating profit, which is up 15%. Now, the net extraordinary income, besides the nice operational performance, was another gift of that year. Actually, we sold a real estate belonging to the bank, which was at very little accounting value in our books. Now, obviously, I think I anticipate the question from your side, that the tax increase is probably more than proportional. Well, taxes are unusually proportional with regard to the results.
While you remember that actually we created by end of 2020 the provision for non-impaired loans as required by the new accounting standards in or the FINMA requirements in Switzerland. We did this not over the P&L but over balance sheet which was possible for the first time. But however the charge was a charge which decreased taxes in 2020. It's for that effect that we have this over-proportional increase in 2021. Now as regard to different income sources well obviously very well diversified for BCV. Maybe even too diversified if you look at the relative increases. Well interest income is almost stable.
I will go more into that later. Obviously commissions and fees. This is wealth management and trade finance. You know that trade finance also contributes to interest income. Trading has been commented on. Keeping in mind that for you guys, as you are analysts and investors who with deeper insight into BCV, that we have in trading here, obviously the FX trading, we have the structured products, but we have also some elements of the treasury, of the optimization of the threshold, which I can develop in more detail if there are any questions with regard to that.
Now interest income, it's always interesting dynamics on the first line before impairments, which is all around the interest rate curve, and mentioned several times, right? The corridor closes at 0%. By that I mean we have on one hand the ongoing repricing effect of the assets which still have quite a negative impact. In front of that, obviously some legacy pricing. We have then the important contribution of mortgage growth. Finally, we try to increase to some extent the negative rates on some customers, the longer this takes.
The longer we have this negative interest, the more the competitors push negative interest on clients. As Pascal mentioned, we follow this in a kind way. With regard to page 15, with regard to operating expenses, well, the increase in personnel cost, I think you understood that, this is mainly due to the IBM people we integrated. By that time it was still called IBM, which is part of our strategy of having the full control on our IT capabilities, and also which is an efficient for our cost or investment charges. Which the rest is mainly development of total salaries.
Now in addition to that, other operating expenses, they are stable. Here we have exactly these dynamics that you must see this in different companies, precisely in particular in financial institutions, that the IT capacity needed is increasing every year, in particular also with increasing transactions and more and more transactions due to digital devices. We have been able to provide efficiencies here, so that the capacity cost is decreasing and we are able to show stable operating expenses. Depreciation amortization is stable. With regard to the headcount, the main element is already mentioned with these new IT guys who joined the company. On the asset side, page 17.
Well, we have here the two key drivers which drive up total assets on the one hand, which now is a positive element is the increase in mortgage loans. The other thing, which is the kind of reflection, the sign of the times we're living in, is the cash and equivalents, which increased by CHF 1 billion. Now, this is part of the optimization of the exemption level we have at Swiss National Bank, which was still increasing over 2021, and which we fully used, sometimes even going beyond when we had opportunities to earn some additional basis points by arbitrage. On the liability side, this is almost a problem of customer deposit inflow.
Which is something we monitor closely, and which then is the element which makes us increase the conditions on negative rates step by step. We have here increase by CHF 2.8 billion on customer deposits. Well you see that we still take bonds, right? Because besides this whole excess liquidity which is probably just short-term to medium-term, we make sure that our balance sheet has a solid refinancing structure over time. We issued two bonds and obviously we also continue to take refinancing over the Pfandbriefzentrale for covered bonds, which is a joint venture of this cantonal banks.
Well, with regard to assets under management, well, it had already been commented on. You see obviously that the inflow is onshore, and that the kind of de-risking story which we told over years is over. See the outflow of offshore is done, and offshore is just now something stable. Nothing special to comment on. On page 20, which is with regard to the CET1 ratio. So, it is at 70.2%, but more or less stable over time, as you can see. With regard to minimum FINMA requirements, by end of 2021, they are at 13%.
I think some of you must have read that, FINMA now comes back with a cyclical buffer by Q3 of 2022. It is on the residential book, increase of 2.5%. For us, it's an increase, given the composition of our assets. It's an increase of 1.2%, if I'm not mistaken, in the requirements. Anyway, I mean, given the level where we are, it doesn't change anything to our business behavior. Now the LCR ratio obviously is very high, also linked to the optimization of the exemption level at Swiss National Bank. Yeah, I think we have already discussed this, but if you have questions, don't hesitate. The NSFR funding ratio is slightly up.
Again, the story of inflows, increasing available stable funding. Now, the centerpiece of the whole thing here is page 23. Now we follow the strategy which you know very well with the different horizons since 2008. Now, by the end of this third horizon, which has an interval of 340-380, we decided to step up to the AGM. The proposal is then to pay out an ordinary dividend of CHF 3.17 and CHF 0.10 up. Obviously this is a significant level to pay out CHF 318 million. In particular, as you can see the history, right, it's stable, it goes up. We expect really unexpected things.
Have a lot of confidence in the future of our developments. Okay. Thank you very much.
Okay. Thanks a lot. Let me just give you some hints on the future. In terms of economic situation in Switzerland and in Vaud, the situation looks good. We don't have the same kind of, let's say, fear that we see in the U.S. regarding inflation or even in Europe. We're talking about 1% inflation for the time being in Switzerland. Everything is doing well. I suspect the GDP growth will be around 3%, 3%-4%. Seems to be quite high, but I think it's working well for the time being.
Maybe it's going to be just 3%, but nevertheless a number of average GDP growth and probably 2023 should be back to around 2%, which is rather kind of a long-term average GDP growth for our country and our region. Anyway, a good economic situation in 2022. In terms of the mortgage business or the real estate, you see that prices went up again, which I think are a bit too high. As long as interest rates are low, we will see that. The good news here is that the vacancy rate so that went up from something 0.4% 10 years ago, and went up and was going up steadily.
This change in 2020, 2021, now this is stable. That means, first of all, the increase in population is back around 1%, because it's been lower the last two to three years. Also, there is a reduced level of new construction, of new buildings. It seems that things are stabilizing, although the prices, I believe are quite high. I don't expect any bubble exploding. I could well expect that with probably increasing interest rate level, probably the prices will level off, might be reduced slightly in the next two to three years but something like maybe minus 5%, minus 10%, but I don't expect a bubble here.
Now, in terms of outlook, there are a couple of uncertainty, but overall, I'm quite optimistic as far as the economic situation in our country is concerned. I expect BCV to develop in a similar way, 2022, as in the last two to three years. Given the uncertainty on the revenue, we will carry on our strict policy of controlling our cost quite tightly. That's it for me. Thank you very much for having listened to us, and we take your question with pleasure.
We now begin the question and answer session. Anyone who wish 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 question in writing via the relevant field. Anyone who has a question may press star and one at this time. The first question is from Stefan Stalmann from Autonomous Research. Please go ahead.
Yes. Good afternoon, gentlemen. Thank you very much for the presentation and for taking my questions. I have three, please. The first one, on the topic of interest rate sensitivity, that's obviously the topic at the moment in the wider banking sector. Can you maybe talk a little bit about what your sensitivity of your net interest income is to rising interest rates? I know what you disclose on the interest rate risk in the banking book, but I think that's maybe a bit more theoretical. I'm more interested in what practically happens, and in particular about what happens while rates remain negative, and what then happens when they turn positive. The second question relates to net commission income, which was obviously very strong.
I was wondering if you could talk a little bit about what you think the sustainability of that revenue line will be like in coming years. It was really quite extraordinary also relative to the long-term trend here. The third question that relates back to the countercyclical capital buffer. Thomas, you just gave a guidance here, and I just did the back-of-the-envelope. The 1.2% higher capital requirements that you mentioned seem much lower than I would have thought based on your IRB disclosure on mortgage-backed retail exposure. I would have thought it could be three times that impact. So if it's not, I think that may suggest that a lot of your mortgage-backed retail exposure is not actually backed by residential property. Is that a fair conclusion?
Thank you very much.
Pascal, can I talk? I will take the second one, and Thomas will take the first one and the third one.
Okay,
no, the third one. I start with the second one. It's a good question. You see, I mean, this is clear. One part of the increase in the commission business is due to the level of the financial market. I mean, you know that, some fees are proportional to the level of AUM. So it's clear the higher the level of the AUM, the higher the fees. There were also many transactions in 2021 due to the financial market. You know that certainly as well as myself.
There are some effect of this particular year. That means it will depend on the future of the financial market in a way. Having said that, trade finance should be hopefully higher. And we have also commission in the trade finance business. You see that 2021, we were -7% compared to the pre-COVID situation. I could accept that in trade finance, it would be a bit higher than the 2021. What we are also doing, I was talking about all those private customer bringing money to us in a way to avoid paying negative interest rates in their bank. Here, what we are doing, we are increasing slightly but slowly, and every bank does that more or less.
We are increasing fees level, so commission-based fees, for example, on current account, on some savings account. We are transforming, in a way, interest revenues into commission revenues. There are also some structural effect in this good performance. I cannot give you the exact number. Now, third point or fourth point. If you compare 2020 and 2021 in terms of commission, it's a bit unfair because 2020 was very low. It's not unfair. 2020 was very low. For example, all commission income on Forex, commission income on teller machines, withdrawal, et cetera, all those traffic, payments, all those payments during three months, there was nothing due to the lockdown.
People were not really buying a lot, and shops were closed, and they could not travel, et cetera, et cetera. I think it's very good. It's very difficult to compare with in a way with 2020. Definitely, I mean, if let's assume the market will decrease by 10% in terms of asset price level. That will have an impact on our commission revenue. This is clear. I think this is the same for many banks and probably for some banks, the effect of the financial market is even stronger. If you think we don't have any Nostro at BCV, we don't have any portfolio belonging to BCV.
I've been convinced that many banks that you see, at least in Switzerland, for the ones I know, very probably they had very good year due to just their trading, their Nostro, their prop trading portfolio, getting up in value. This is not the case for us. Probably in a way, we are less volatile here if the market goes down. I cannot answer your question in more detail. That would mean I have to give you some more details on the different business lines, which we don't disclose. I hope it helped a bit for your forecast.
Yes.
your assessment of BCV.
Thank you very much.
Okay, Stefan, I take question number one with regard to the interest rates sensitivity, where you want me to be practical. Well, see, I think it's very interesting to discuss this and to really separate the sensitivity on short-term rates, right? And on long-term rates. Well, first of all, what happens, as you said, if everything stays unchanged? Let's say rates stay stable. It's not too bad, actually, which is a crazy thing to say. It's not too bad, and we must also, when we discuss this thing, right? We must also be aware, right, that the accounting numbers on interest revenues don't tell the full story about, I would say, interest-driven revenue.
You remember that, it's very important to take into account that part of the arbitrage game or opportunity, which linked to the SNB exemption level, comes in as trading income, right? We must take this broad number to understand evolution. On this broad number, I mean, in if this current situation stays on, we are still in a situation where the exemption level at Swiss National Bank increases every month, every year by significant number until beginning of 2023. By then, it will stabilize but still increase if deposits increase slightly. This, of course, is an opportunity for us to take that place and to do arbitrage and to bring in more revenue.
If you do arbitrage by taking in Swiss francs, it shows them an interest income. If you do arbitrage by taking U.S. dollar, euro, it goes over FX swaps and comes in trading income. These dynamics, in addition to if things stay unchanged, every year, every quarter, the negative interest rate conditions will become slightly covered by a pure game of smart follower, I would call it, right?
Mm-hmm.
These elements will, in addition to the, let's assume, ongoing mortgage growth, will allow to compensate and will continue to allow to compensate the repricing effect, on the asset side, which is still there, right? Simply, it's still there, until 2025, with regard to this big downward movement of interest rates in 2015, right? We have mortgages which last under 10 years, right? These last up to 10 years. So in addition to that, we saw also that the rates, client rates, right? They had a kind of a downward pressure. So these dynamics, they work out quite correctly.
I mean, it's not a sexy story, but it's just a defensive story in an environment where we can defend this, economically speaking, interest income with these drivers. So far, okay?
Yes.
Now we come to the thing that interest rates move up, right? Obviously, we like positive interest rates very much so. Ideally we would like to jump on them, you know. Because once we are there, we are fine. We are fine because in a nice positive interest environment, obviously we would rediscover commercial margin on deposits, which is positive, right? Which represents CHF tens of millions of even almost CHF 100 million of revenues which are not here today. But
For which kind of rate environment is it?
Sorry?
The CHF 100 million. For the almost CHF 100 million, for what kind of rate environment?
I mean, it depends how it works. I mean, if you have really positive interest of 2%-3%, right? We calculate-
Right.
With a commercial amount of 50 basis points, it goes quite quickly, right?
Yeah.
The way there is a difficult thing, right? The way there is interesting. It's not so much what we see currently, right? That the long-term rates go slightly up. That is rather positive, right? It gives an argument for higher interest rates on long-term mortgages. It's not such a problem, right? It is when the national banks will start, right, to push up the short-term. Now, Fed has announced four levels for 2022. The ECB, we don't know in 2022. BNS, we really don't expect in 2022. Still, when this happens, right? When this happens, well, the first thing when BNS SNB increases its short-term rates.
Well, the first thing that happens is that the arbitrage opportunity is worth less, obviously. All the arbitrage game, I mean, is worth less, obviously. The second thing which happens is, of course, that the hedging book works. That is good. The third thing which happens, and that is probably the most decisive thing, is how will banks behave, react, right? First, with those clients which have negative interest rates, right? Will we just stupidly follow the increase of the Swiss National Bank, or will we time lag, right? Well, will we decouple to say, okay, somehow we have even for those deposits to pay salaries, rent, and IT, right? Rediscover commercial margin.
Once we went over the zero into positive ground, the same argument becomes true for those deposits which currently are stuck at zero. So these dynamics are decisive, right? Make a difference between a bad and a good hypothesis is we talk about CHF 10 million-CHF 20 million difference in annual revenues, right? It's not material for the bank, right? It makes a slight difference, however. So I mean, I did not answer how it will work exactly, but I mean, we shall be aware that this dynamics of the positive economy, we're living with a positive inflation rate, with Swiss National Bank committed to normalize, right?
We could see tension over 18, 12-18 months, also depending on the speed of increases of rates. Once it's through, it will be very nice. Okay. Was it practically enough?
The CHF 10 million-CHF 20 million number you mentioned, Thomas, what, again, do you assume therefore for the change in rates? Is that what happens for a half basis points or
Well, I don't want to be precise, but I mean, it's. We do a lot of scenarios, right? We try to build it here and there. The question is, if we are able to slightly rediscover commercial margin on the deposits, right? Or if we will, for a time, or maybe until this becomes positive, just follow the Swiss National Bank in regard to the short-term rates. That's where the difference lies. Okay?
All right.
Now, I come to the test number 3. Do you remember before COVID, when the Swiss National Bank already had this countercyclical buffer, right?
Mm-hmm.
It actually, well, for us, it was an increase of 0.7% at that time. The countercyclical buffer in Switzerland, decided by Swiss National Bank with FINMA before COVID was at 2% with regards to capital requirements on residential mortgages, right? Given our distribution of risk-weighted assets, it meant, given our book, right, that our 13 was a 13.7% at that time, right? They wanted to give oxygen to banks to work through the potential COVID crisis, right? Now they probably concluded that COVID is done. This crisis did not really appear. They're still much more preoccupied by the high housing prices and the dynamics in this real estate market and the lending associated to that.
That now they come back with a countercyclical buffer of 2.5%, and by simple calculation, you understand it's actually. I crosschecked it by what I was talking with my specialist. It means a 1.0% increase in capital requirements for BCV. The 13% by October will be a 14% requirement.
All right. That's clear. Yeah, I misunderstood that. I thought it was a 1% increase in capital requirements, but it's the ratio that increases by one percentage point, right?
Yeah. Percentage point. Exactly. Yeah.
Yeah. Okay.
You are a very precise person.
Very good. Thank you very much for that. Much appreciated.
Okay.
Thanks.
Thank you. Have a great day.
Thank you.
There are no more questions at this time. As a reminder, if you wish to register for a question, please press star and one on your telephone.
It was good.
Very nice.
We have a follow-up. We have a follow-up question from Mr. Stefan Stalmann. Please go ahead.
Oh, sorry. Me again. I thought if no one else wants to ask, maybe I could throw in one or two more questions if time still permits.
Of course.
Is it the first one, just very narrowly on the trade finance exposures? Is it fair to assume that that's basically the impact from your Russian and Ukrainian portion, so to speak?
Yes.
That you ran down the book because of that?
Yes. Roughly, yeah.
Yeah.
Good assumption.
Okay. I have, let's say two very broad and longer-term questions that I thought are a good opportunity to ask, financial nature, but one of them relates to your leverage ratio. Over the years, as long as we have the data, your leverage ratio has always trended down. I think that's basically kind of the automatic consequence of the fact that your balance sheet is growing by about 4% and you have a relatively high payout ratio without much earnings retention. I think that's clearly not a problem at the moment. If you extrapolate that for another decade, it may start to be a problem. You cannot always grow your balance sheet at 4% and grow your equity at 2%.
At some point, you're gonna get to a point where you probably have to change something. I was wondering if on this longer-term perspective, you think the high payout ratios that you have been working with over the last 10, 15 years are actually sustainable?
Well, Stefan, it's a nice scenario you're mentioning, but it's a horrifying scenario. It's a thing with negative interest and equity increase goes on after 10 years. I think clearly, it's not our leverage ratio which by that time will have problems, but some others will hit before.
Well, I think, Thomas, that. Sorry, Stefan. That's the main answer. I mean, if you believe that this situation will last for the next 10 years or more, I think many banks, and especially banks which are less diversified than we are, will have tremendous problem. Probably till then, the ratio, the regime of those ratio will be discussed. I don't believe that this will last for the last 10 years. This is a highly hypothetical question, but a fair question. My short answer would be when BCV has problem, probably others will have problem much beforehand. Thomas, go on.
Exactly, and precisely what Pascal mentioned. There has been already discussion within Switzerland, right? To take out the liquidity, or take it out of the leverage ratio calculations, which so far the FINMA and the FMB didn't want to, right? As a matter of fact, by the way, they will have to adapt to situations precisely for reasons which Pascal mentioned. That's really. I mean, also in all of those slides, right? There is no link to our payout ratio or dividend distribution. I take the opportunity to tell you that, obviously. We are now, by definition, as announced by the end of the Horizon 3.
Mm-hmm.
with all insights and all analysis and all thoughts, it will be the work of this year, right? To think and to reposition how we go further. Anyway, right, the way how we distribute is part of the DNA of BCV.
Okay.
DNA, I have to say. DNA.
Exactly. Maybe a final question. I promise it's the final one. Again, looking slightly across, kind of, beyond the short-term trends. Your tangible fixed assets are coming down almost every year, and they have come down again in 2021. Also, your depreciation charges are flat to slightly down over the years. That's quite different from what I see at other banks, which are investing a lot, lots of capitalized software, rising amortization charges on these capitalized software investments. I'm wondering, have you maybe invested a bit cautiously? Do you expect that these trends that you have shown in the last couple of years are sustainable?
Do you think that at some point we may actually see a more noticeable jump in investments in particular on the tech side that could drive these numbers up and would eventually also come into the P&L through amortization charges?
Well, Stefan, thank you for giving me the opportunity to talk about that. As a matter of fact, there are two drivers here. The first is that our IT strategy of insourcing the IT experts and of taking out the VAT for AHV and managing ourselves makes it that IT investments for the same output has become cheaper, right?
Mm-hmm.
Has become cheaper.
Yeah.
This is a key element for the answer, right? Because as from an output level, we're definitely not decreasing our IT investments from what we deliver. Then the second-
Mm-hmm.
part of the answer is that, well, on a group perspective, right, we had depreciation charges for the goodwill of Piguet Galland, which decreased already in 2021 compared to 2020.
Mm-hmm.
which will be 0 next year.
Mm-hmm.
I would add two points. I mean, those points are totally correct. I would add two things. The first one being that I think we've been more clever than some banks in investing carefully, in a very smart way into the digital world. I mean, some banks invested in fintechs, in many initiatives, and basically, I don't see the returns of those initiatives. We were very cautious in selecting the right, let's say, the right investment in terms of the whole digitalization world. I never believe that banks will disappear, that everything will be changed. Remember, in 2016, everybody thought or many people thought that the traditional bank would disappear and everything will be done by other new actors. We were quite careful. This is first point.
The second point, you see more and more now in the IT world, the notion of software as a service. Basically you no longer invest in a piece of software or hardware that you buy and then you amortize over three or five years. You take a fee every year and the software is run somewhere in the cloud and you just use the software. It's software as a service. You shift here.
Mm-hmm.
Very clearly, depreciation element against, let's say, operating expense. That trend will continue because, I mean, more and more software providers, hardware provider are trying to go that way. This is normal. They shifting their business from a kind of asset-based business to a service business, which makes sense.
Mm-hmm.
So that's-
Mm-hmm.
that plays a role also in this trend that you
For the future.
Very, very well spotted.
I think that what Pascal just mentioned will be an element, particularly for the future to explore a little.
That started already.
Started already.
I mean, for example, we are thinking now about a new software.
Exactly.
We have to take this piece of software under a software as a service, which I don't really like because you get cybersecurity issue, et cetera. This is a trend.
Mm-hmm.
in the software business, in the industry. For example, I think you know the big German guys, SAP. I think in couple of years, SAP will be just distributed as a software as a service.
Yeah. Great. Yeah, that makes sense. That was very helpful. Thank you very much again for taking the time.
Thank you.
Thank you.
Thank you. Thank you.
The next question is from Andreas Brun from Vontobel. Please go ahead.
Hello.
Hello.
I think you partially answered some of my questions already, but one on trade finance. Do you actually think that you will close the gap in 2022 versus pre-COVID levels with regard to business activity? The second one, in your output, you said business activity in 2022 is in line with previous years, but you did not say that is in line with 2021. Where do you think you cannot match the 2021 results? You partially commented on commission income, but are there other activities where you do think will slow down? My third question on NII in the really short term in 2022. I guess it's still under pressure.
Maybe you can give us some color on the drivers of interest expense and interest income dynamics in the short term. Thank you.
Okay. You see. The first question of trade finance.
Yeah.
I don't see. I don't think we will close the gap in 2022. Without the problem going on in Ukraine and Russia, we would have closed the gap, definitely. Now, I'm not sure. I believe we will not. We will be close, but we will not close the gap. I hope to be able to do it in 2023. That's the first question. The second question. I mean, you see, it's always difficult. I mean, in terms of commission income, I think I have already commented that, so I don't want to come back to this one. Interest rates should be, let's say, closer parallel to last year.
Now, the question is always the same for a bank like BCV or like some other bank, et cetera. I mean, it's a question of provisioning needs for the credit business, for the risk cost. You see, this year it was quite low. I don't know exactly what will happen next year. Let's say the line of volatility will be the commission income line that we have all dimensions and the risk cost. The rest, you see Forex, structured products were up, Forex was a bit down, so probably we will land in the middle. Now it's impossible to get BCV result ± CHF 20 million. I mean, this is just impossible. This is why I prefer to say in line with previous years.
I think 2020 was a bad year, and I don't expect to be as bad as 2020. Now, whether we will repeat CHF 379, I don't know. I mean, if you look, let's assume the financial market will be not as good as last year. Probably we will lose CHF 10 million due to that line. Okay. It's difficult to be more precise than that. This is why we carefully selected our language to say in line with previous years. I cannot comment more than that. Maybe you can make the average between CHF 220 million or CHF 221 million, but that would be not good, because I think 2020 was really a bad year. We had a problem in trade finance. I cannot commit that we will make CHF 379 next year.
What I can commit, I mean, we always said that we will pay high dividend, we will stick to our policy that we announced some years ago. I can tell you, it will be for me, we need to have very strong structural problems in order to decrease dividend. We don't want to do that. We never did it, and I will never do it unless I'm totally forced to do it when I have no other option. I hope it helps answering your question.
Yes, it does. Thanks.
I take your third question with NII short-term 12 months. Well, first of all, I think we stick to the hypothesis that the short-term rates in Switzerland will not move over the time horizon. So basically, we are staying exactly the same dynamic as I just explained before, right? With repricing of the assets, with volume growth on the asset side, some repricing on the liability side, some tightening on negative conditions on liability side. Finally, the arbitrage continuing to basically make that this whole thing provides a stable interest income from an economic perspective. That is the key point now. If in my arbitrage I use more dollars, you will see lower accounting interest income and higher trading income.
If I do my arbitrage fully over swaps or Swiss francs, then this will be more stable. It's actually this point which I will have to comment on as we go forward because the accounting numbers do not exactly show the dynamics. From a bank perspective, on the short-term, you have the interest income. We think about something stable.
Good. Thank you very much.
There are no more questions at this time.
Okay. Pascal, we've
Okay. Thank you, everybody.
Thank you.
Have a nice afternoon or maybe a nice day for those who are calling from the U.S. Bye-bye.
Bye-bye.
See you next time or talk to you next time.
Bye-bye.
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