Ladies and gentlemen, welcome to the BCV 2021 half-year results conference call and live webcast. I am Alice, the 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 one on your telephone. Webcast viewers may submit their questions or comments in writing by the relative field. For operator assistance, please press star 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 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. Maybe good morning for some of you calling from the U.S. Let me go directly on page four. I think we have good results, or very good results, in this first half, given the context. Those two years were record years, nevertheless, very close to them, with a net profit of CHF 173 million. I think CHF 10 million short of the best result in the last two years, I think. I will concentrate on some business evolution in our different business lines, Thomas, then, will concentrate on the more financial elements of this presentation, P&L, balance sheet, et cetera. I go directly on page six. One of our main business, mortgage business, we have a growth of 2%, which is totally in line with the growth of Canton Vaud.
We don't have the latest statistic of the Swiss National Bank, according to the statistic we have, in the last six months, the business in Switzerland grow by roughly 3.5% and 4% in Vaud, we are totally in line with the market growth. Other loans, I will come back to that, mostly a slight increase in trade finance. Deposit, as usual, in the last couple of semesters, this is still increasing. Probably a bit too much. We have to be careful on that. We come back to that. AUM, of course, net new money with the performance of the market, significantly up. Other highlights, I will not mention that on page seven. I think this is self-explanatory. Let me go to the different business line. Page eight, retail banking. An increase of 3% in the mortgage, or slightly, probably above market.
We are focusing, as you know, on several areas in the market and not on all region of Canton Vaud, since the vacancy rates are quite different from region to region. We're focusing on those region, mostly around the lake, where the vacancy rates are still low. We have a very good traction in asset allocation funds. Those products are doing very well. We are also able to transform some savings account into those off-balance sheet account. This is, of course, very interesting in this period. That's not easy, but this is improving quite fast. As I said, an increase of inflows from customer. Basically, if we look at the market dynamic, PostFinance, as well as UBS, have changed their condition, others as well. We are following here. We always said we don't want to be here a leader.
We follow the market, and we try to reduce as much as possible the inflow coming from other banks. It is not easy when you have a customer that brings you six times CHF 10,000, or 12 times in one- year. It's difficult to track really very well, and it's difficult to prove that this is a kind of arbitrage. It's difficult to do that. Nevertheless, we're going in the next weeks to adapt some of our pricing condition to make sure that we are not the ones which receive all those flows going out from certain banks. Otherwise, you see that revenue, operating profit are quite up. Nothing really to mention. I mean, 2020 was not a very good year, so in a way, there is a kind of a base effect here.
Corporate banking, quite stable in terms of overall volume, an increase in revenue and profit. I think this is most important to discuss the different business activities within this division. First of all, the SME, mostly Canton Vaud SME, as you know. This is very stable in terms of credit limit, in terms of drawdowns, prioritization of those limits. I think it's very stable. Those COVID-19 bridge loan issued last year from the bank, backed up by the Swiss Confederation, we have a roughly 12% paid back already. You see that those SME are quite liquid, with a deposit up 6%. They are very stable, and this is a sign that the Vaud economy is very resilient, very sturdy. We don't have an increased number of SMEs or companies having problems. This is very stable.
I mean, it's clear that for some sectors like tourism, gastronomy, entertainment, et cetera, those sectors have really suffered quite a lot during this pandemic. This is not over. They've been helped from the state, this is clear, but we don't have a significant exposure. It's rather small, and most of those very small SMEs are active in gastronomy or entertainment. They don't have credit, basically. They might now have some COVID-19 credits, that's possible. But historically, we cannot really see what's going on in this market because they don't have any credit. Only one-third or 40% of SMEs have credit in Canton de Vaud. Large corporate. This is a volatility-based basic on pricing here. We are very strict in terms of negative interest rate condition, and some deposits went down, comparing to other banks.
Trade finance, for those of you who follow us, we decided in 2020 to reduce our exposure in March last year because we didn't know exactly what was going on with this pandemic, with this crisis. We reduced exposure, and we did that for the whole year, 2020, and only the beginning of 2021, when we saw that the market is recovering, that the economies around the world are doing much better, that the supply chain are working, we decided again to increase progressively our exposure. We are not back at the level we had in 2019 or 2018, but we are going to go in that direction during this year, probably the beginning of next year. You see an increase, but it doesn't reflect directly yet in the revenues, because we are not yet there.
In terms of credit risk, as I said, the books, I mean, the SME is going to evolve very resilient. The book is sound, being trade finance, large corporate or SMEs, not at all affected by the COVID-19 problematic. We have some provision this year or this semester, less than in the first half of 2020. Nevertheless, I think CHF 8 million or CHF 9 million. This is due to only one case. I insist on that. One case, a local company, and that has nothing to do with the COVID-19. This is in a way bad luck. This is a credit business. This is not a sign that the portfolio is having problem or something like that. This is just a very special case, probably a fraud, but I cannot mention much more about that. The main message, it has nothing to do with the COVID-19 crisis.
Wealth management, so basically private banking as well as institutional asset management, as well as our subsidiaries, Piguet Galland. You see the numbers are good. This is quite normal given the financial market. We see here the effect of performance and increase in valorization effect directly on revenues, on commission. Quite also a strong transaction activities. I think you see that in most private banks or private bank-related businesses. Nothing really special to mention here. Trading, quite stable. Basically two effects. First one is the reduced revenues in the Forex business. I repeat here, we don't do any prop trading. This is customer-driven activities. In Forex, basically in the first half of 2021, there was less volatility in the market than in the first half of 2020. We profit from volatility usually, so basically less revenues.
That was compensated by a very robust activity in structured products. We have, in a way, two new person there. We have made some changes, and this is picking up quite well, and with an increase of more than 50% in revenues. This is also due to the market condition. Let's be clear on that. Okay, I'm done and hand it over to Thomas for the financial part. Thank you.
Okay. Hello, everybody. I will give you some comments on the more financial part. On page 13, if revenue is up 13.3% that I develop this in more detail just after. The key element here to highlight is probably that the other provisions were at CHF 8 million or minus CHF 8 last year. You remember last year, we had total risk cost of above CHF 20 million. The balance sheet part of it is in the net interest income and for terminal costs on off-balance exposure, we had to put it under other provisions. This year, this is, at least for this line, completely different. We had only some releases on other provisions. With the well-managed charge costs, I will also develop this in more detail after. We have operating profit up 13%. With taxes of CHF 30 million, we get net profit of CHF 173 million.
Looking at the different lines on chart 14, obviously, the key element to have in mind is that the commissions and fees income was outstanding, at least with regard to the increase of CHF 17 million of 11%. Well, just mentioned, this mainly links to the valuations and the transaction levels. In this line here, with regard to commissions, we have trade finance and counter commission levels already picking up more than in interest income over H1 2021. The trading income, well, it's just been explained. In net interest income, I take the lower chart on page 14. Well, it's always interesting to understand well what's going on on the loan, on the NIM before impairment charges. Well, it's under pressure of -2%. Obviously, here we have, on one side, the whole dynamics, which are linked to the ongoing negative interest rate environment.
The total dynamics are more or less stable, meaning that there is income pressure coming from the repricing of the mortgages which is only partially offset by the mortgage growth. On the liability side, we have some repricing, of course, on our own bonds, as well on the hedge book, whereas we are stuck on the deposits, as you mentioned. As Pascal already highlighted, there is ongoing steps of bringing more negative interest rates to the client. However, at the moment it's less than 1% of the clients or about 15% of deposits volume who have negative rates. However, it's important to say that probably the minus five, then is linked still to the fact that trade finance is still below normal. As Pascal highlighted, we expect with the normalization of the environment that also trade finance will continue to step up.
Risk charges here on the balance sheet part of the credit exposure, as Pascal mentioned, we have one isolated case which gives the main numbers. There are always a continuous flow of some SME defaults, as you know, but they wouldn't show any significant number. Here is one isolated case which is neither COVID nor trade finance, which gives us the net interest income of down minus 1%. On page 15, with regard to operating charges. Well, the total costs are up, I would say, for a good reason. We've insourced another step of IT specialists, you know that this is always interesting for BCV, because we reduce the margin paid to IBM and the VAT. At the same time, we apply our own discipline in management and in efficiency. This will drive through to some cost reductions.
On other operating expenses, we see already lower IT costs and the -2% therefore. Depreciation is stable. Headcount. Well, headcount basically finds the increase linked to the IT guys, which I just mentioned. On total assets, well, obviously balance sheet is marked by the high level of liquidity, be it at SNB and cash and equivalents or with other banks. Obviously, there's also some part of treasury optimization, and particularly to the increase deficit. Also in the increase, what we have put at reverse repo agreements. Well, the business side, Pascal explained already very well what's going on on loans and mortgage loans. I turn to page 18 with regard to total liabilities and equity. Here, of course, you see the inflow of customer deposits, which is particularly high on H1 2021, and that's why we will tighten our conditions.
Ongoing increase of bonds, even though we are very liquid. Obviously this is linked to have a structural solid and sound finance structure. Well, paying more dividends and the income of benefits of H1 means that shareholder equity is down on June compared to end of year. On chart 19, some numbers on assets under management, which have already with regard to net new money and performance been mentioned by Pascal. Well, the key message here is that this is pretty nice, pretty good situation, in particular in asset management and private banking, and also institutional clients. In these numbers, there also are some inflows of deposits on the balance sheet which are too high. On page 20, our CET1 ratio is slightly down for two reasons. One is the trade finance risk. Coming back.
Secondly, our institute, which is financing cantonal banks by covered bonds, has decided at its last general assembly a capital increase. Every participant cantonal bank participates pro rata in this increase. It is already committed, that's why it already was impact on the CET1 ratio. Well, leverage ratio is obviously down due to the suspension, which is increasing in liquidity. LCR ratio is very high, because of the optimization to do in treasury management has, as a result, very high LCR numbers to make it simple. Okay. These are all my comments, and I hand over again to Pascal.
Thank you. I'm going to finish with just a bit, the outlook. In terms of economic situation in our region, as you can see, the GDP development for 2020 was not as bad as foreseen. This is always the same. When there's a crisis, always can certain exaggeration. Instead of the -5% to -6%, we will land by -2%, -3%. The estimate for 2021, with growth in Switzerland or in Canton Vaud of around 3%, let's say between 2.5% and 3.2%. Basically we are more or less back at where we were in 2019. We're recovered. I think this is similar in certain part of the world as well. Going forward, I believe the number 2021 are probably rather right between 2.5%-3.2%.
I would say 2022 could be a bit lower, but certainly not lower than 2%, 2.5%. Rather optimistic about the future here. In terms of real estate prices, you see the trend continues. Again, we saw an increase in the last six months of prices being on flat apartment or single-family homes. This is clearly due to a strong demand, but as well as the environment of very low interest rates for mortgages. Now the good news here is that for the first time since 2010, the vacancy rate is going down. This is 1.4%- 1.3%, so this is not a lot. Nevertheless, it seems that this trend is stopped. Two reason. There is again, a population growth above 1%. We had till 2016, 2017, roughly 1.1%- 1.3% population growth. It went down to 0.7%, 0.8% for three years, I think.
Now we are back at a bit more than 1.2%. In the same time, I think there are a bit less new objects on the market, so new buildings. Probably, that explains this slight decrease in the vacancy rate. Now whether it stays like that, difficult to say. It's why we are not going to change, let's say, our mortgage policy, focusing on quality, focusing on the areas where the vacancy rate is low. I mean, 1.3%, 1.4%, this is the average for Canton Vaud. Basically it goes from 2.5% in certain region, down to 0.3% around Lausanne, the main city and around the lake. This is of course where we focus our effort. I don't see that there will be a burst of a bubble in the next couple of months.
The population is growing, and the price of mortgage are still low due to negative interest rates. Probably this dynamic will carry on. We have to be clear, prices cannot go up to the roof. At one point in time that should level off, and I don't know exactly when. Okay. More specifically for the bank, unless there is, I don't know, a huge problem, either in credit, which I don't foresee, or in the environment, or a new variant of this virus. I'm rather optimistic for the second half, which would be similar as the first half. Probably a reserve around CHF 340 million-CHF 360 million. Enough to pay our dividend, which is basically our base commitment to our shareholder, is to have a stable dividend, no surprise.
That's the value proposition of BCV, and if we can increase the dividend, we'll see. For the time being, I don't think this is a given certainty it will be the right move. Okay. Thank you a lot. We take our questions if you have any.
We will now begin the Q&A session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered a 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 comments in writing by the relative field. Anyone who has a question may press star and one at this time. The first question comes from the line of Stefan Stalmann with Autonomous Research. Please go ahead.
Yes. Good afternoon, gentlemen. Thank you very much for taking my questions and for the call. I have two questions, please. The first is on what you said about negative interest rates and the potential to do a bit more there on pricing. Can you maybe give us a rough idea how much potential there is? I think for last year, you disclosed interest income from negative rates of about CHF 46 million. If you could maybe put the additional potential from here into perspective relative to this number. The second question, I guess, is somewhat related to this. You now have this very, very generous LCR ratio, 150% even in the second quarter. You did mention some optimization in the treasury, so this is not all coming from deposit inflow. This is also coming from something that you have done in your HQLA portfolio, I guess.
Does it now give you additional degrees of freedom to either make more money in the treasury or maybe even push client deposits out of the bank if they're not willing to accept repricing? Thank you very much.
Okay. I'm going to take the first one. I cannot give you specific figures, but you see, there are two ways. More and more every, let's say, three, four months, we increase the number of clients, customer who are affected by negative interest rates. We charge them - 0.75. We don't really change the pricing. We increase, let's say, the circle or the scope of clients going down slowly. It's also kind of a competitive game. It depends what the others are doing. There is another way. This is increasing a transaction cost, increasing cost for an account, increasing fees, and we will, in the next couple of weeks, months, introduce some new pricing schemes for certain type of accounts, et cetera. That might not increase the revenue of interest. That will increase commission because those fees are the commission, are not interest rate.
Interest rate depends basically on the growth of the mortgage, and I think with 3%, 2.5%, 3%, we are in line with the market. We don't want to go much faster than the market. 0.5% more, why not? Not much more than that. The rest is just trying to carry on, to continue, let's say, increasing the scope of the negative interest rates. We will carry on with that. I cannot give you a specific number. That would be a wrong guidance. Sorry for that. You see, it depends really what the others are doing. We have to follow that to make sure that we don't get too much inflow. Our goal is not really to get people out of the bank. You have to think long-term here.
Today, we don't need all those funds, but maybe in 5- 10 years from now, we might. We don't know. We try to not to attract new customer here who don't want to invest in financial markets or just having a saving account. We try not to accept those customer. We try to detect, to see the situation where we have the impression or the proof that the client is arbitraging us. Then we apply, we get the interest rate, or the guy has to leave the bank. It's not an easy task to do. I cannot really commit to any numbers here. We will do, let's say, the maximum we can given the situation of the competition. Now, in this first semester, I think the increase in inflow is a bit too high.
I want to make sure that I can slow it down in the next couple of months. You cannot change just like that. You have to send a letter to customer, et cetera. You have to be careful with those kind of conditions. You cannot just change overnight. We are ready. I cannot also give you information here, but we have analyzed the situation, and we will increase our condition in the next few weeks. That might translate more in increasing commission than in interest rate revenues. I hope that gives kind of a guidance, and I give now the word to Thomas for the second question.
Okay. Hi, Stefan.
Hi, Thomas.
With regards to your LCR question. Well, the first point here is that the LCR currently is not directed, right? Because from a strategy point of view, financial strategy point of view, we would put them at 110 or 120. It's now rather the result of optimization getting actually the most out of the opportunity which Swiss National Bank gives us with this exemption level.
It's a result. Here you must understand that, and I think I can put it bluntly on the table, because if you combine numbers, you can see it on your own, that this exemption level continues to increase as a matter of fact for BCV. Because as a matter of fact, which you can read, our legal liquidity reserve has been increased for some accounting reasons two years ago. The exemption level is a result of a three years moving average. Basically, this increase of the liquidity reserve has a positive result of increasing the exemption level month after month, the three years moving average going up. That's the key element. Right? That's the key element.
We have this HQLA, if you want to call it that way, which is increasing because we want to at least fill up the exemption level at Swiss National Bank and everything as follows, right? If you fund it with something which is longer than 35 days, then obviously this will be very positive on LCR. Okay, that's really the main driver. I think this should have answered your question.
That's great. Thank you very much for that.
The next question comes from the line of Andreas Venditti with Vontobel. Please go ahead.
Yes, thank you for taking my question. I would have some related to trade finance. Maybe you could discuss a bit how you see the market evolving, maybe also in terms of margins, given the withdrawal, at least the stated withdrawal of some competitors in this market. This would be helpful. In terms of volumes and the gradual recovery you mentioned, where do we stand here? You mentioned that this will continue in the second half and probably also at the beginning of next year in order to recoup somehow the volume you decided to withdraw last year. Also in terms of revenues, I think if I understood you right, on the net interest income, it's more lagging. I guess that's obviously the averaging effect.
If I got it right on the fee and commission side, this has already been, partially obviously, in the numbers in the first half. Did I get this right? Thank you very much.
I'm not sure I understand the last part of your question, but let's try to take the first one, which is more strategic, I understand. You're right, some big players withdraw from this business. We didn't want to take opportunity to increase our credit lines within our customer at the same time, because we were in a strategy of being very cautious. They did that very professionally. That means at one point in time, we thought that there might be some liquidity problems in the trade finance business, not for us, but also for the clients and for also other banks. This did not happen because those banks that withdrew did it very professionally and over time. For us, in a way, it's an opportunity. On the other hand, we want to be very careful. Obviously, those were large credit lines.
What we see is that some American banks, as well as Asian banks, are entering the market. Those two banks, European banks that withdrew, are being replaced slowly by some American banks and Asian banks. That will not have a significant effect on us. What is changing, though, is we try to increase price, because you see there were some, let's say, some fraud cases, and I think most banks have realized that they went too far in the last 5 years with, let's say, low pricing and very loose, in a way, credit arrangement, credit conditions.
Basically, those significant fraud cases in Asia, Singapore, not to name it, as well as the withdrawal of some banks have created, in a way, a reaction within the trade finance banking community, where I think the business is going to be a bit more, let's say, healthy in the next couple of years, with a slight increase in overall price and especially a better risk management. I think banks will no longer accept several conditions, and the clients will have to adapt, and not the banks. Given this situation, we're going to increase slowly. I cannot give you an exact timing when I expect to be back at, let's say, 2018, 2019 level. If things carries on like that, probably middle of 2020, we should be back at Sorry?
Middle of 2022.
2022, sorry. Yeah. Middle of 2022, we should be back at the level we had in the previous years. You see, this is a ramp-up. This is increase. You don't see the full impact at once. It takes a bit of time to realize. If we get by June 2020, the level we had on average in 2019, it's just at the end of the first half. You will see only one effect, a part effect, in 2022. I hope that answered the first part of your question. The market is a bit healthier, I think. Let's say the European competition is replaced by some Asian and American competitors. For us, not much change.
We will just take advantage of, let's say, this healthier market by being a bit tougher on the credit condition, by trying to increase on a selectivity basis, to increase prices by 10- 20 basis points. I hope that answered your question.
Sure. Thank you very much.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Star followed by one. There are no more questions at this time. Back to you, gentlemen, for any closing remarks.
Okay. [crosstalk] Thank you very much.
Sorry?
Sorry, we have a follow-up from Mr. Venditti.
Okay, good.
Thanks.
No problem.
Mr. Venditti, your line is open.
Thank you very much. Sorry for that. I thought I give space to other people asking, otherwise, I can continue. One of the strengths that, in my view, we saw today in the results was obviously from fees and commission, which were nicely up. Maybe you can give a bit more of light. You mentioned several times, I think, during the presentation, your strong transactional activity from trading from clients. Maybe you could give a bit of color of how much this was responsible for the increase of the fee and commission line. Thank you.
I can't. Maybe Thomas, you can give a bit more. I can't give you precise figures. Maybe Thomas, I don't know.
Well, I would say it's really the strong majority part of that increase. We have also, as I mentioned, whereas total trade finance income is still below H1 2020, it is in the commission part, higher. We have also contribution on trade finance here applied. You can really put the 80% of the increase on the market performance and the higher transaction level.
Okay, thank you very much.
That was the last question. Back to you for your closing remarks, gentlemen.
Okay. Thank you very much. We talk to each other probably in a couple of months. Bye-bye, thank you very much for attending this conference. Thank you.
Bye.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.