Ladies and gentlemen, welcome to the BCV Half Year 2020 Results Conference Call and live webcast. I am Alessandro, 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 by the relative field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. For the call today, the speakers will refer to the slides, which are available for viewing on the IR section of 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, sir.
Thank you very much. Good afternoon, everybody. Let me jump directly to page four with a couple of key messages. Obviously, we've been impacted, as well as our environment, by the COVID-19 crisis. We will go in much more details later on to explain exactly what happened in the last six months. Basically, our revenues are down 5%. There is a mix of, let's say, real revenue, commercial revenue, as well as increase in provision in those numbers, and some provision increase as well in the provision line of the P&L. Basically, if I sum up, less business activities with customers, Thomas will explain that in more detail, and an increase of CHF 20 million of provisioning needs in trade finance as well as SME. Those are the two, let's say, main elements of H1 2020 and the main differences with last year, which was a record year.
That translates into a operating profit and net profit down to 13%-14%. Now, having said that, we believe, it's a fact, we still have the highest return on equity among comparable banks, especially cantonal banks, and a very solid bank with a capital ratio of 17.9%. If I look back and think that we're talking about the biggest crisis since World War II, at least this is what we can read from several economists, and I think those numbers are very solid. Nevertheless, we have some provision to take due to some clients, some SME and trade finance clients, which face difficulty. This is a couple of clients, probably less than 10. Basically, the rest of the book of the loan book is still very solid and very resilient. I'm not worried at all about the situation.
Key figures, I'm not going on page five to comment that. Business trends, nothing really here spectacular to comment. Mortgage loans slightly increasing. Deposits increasing, you have to combine the sight deposit with the other current deposits, since we have a reclassification of the account for payments. If you combine the two, you get a 2% increase. I will, and also Thomas will go into more details later on. Some highlights, very quickly, basically the two rating agency confirmed their rating, which is a good rating as you know, and with a stable outlook. The dividend was paid, and I don't think I need to comment much more on that. The split of the share, of course. I can go directly to retail banking. I'll try to be quick so you have enough time for your questions later on.
Retail banking, basically nothing tremendous to report. Mortgage loan increasing slightly. This is our strategy to focus on quality and not to target volume per se. Probably two main elements. First of all, customer deposits are up. This is basically less consumer spending due to the lockdown in Switzerland. The second point I want to make is basically the revenues are down, which is also linked to COVID-19. Basically, this is less cash transaction, less card, credit card transaction. People bought less, people travel less, et cetera. This has an impact clearly on the revenue of the retail banking division, around CHF 2 million as you can see. Corporate banking. Here, this is probably a bit more interesting. Three businesses, SME, large corporate, trade finance. Let me start with the provision needs maybe, because this is across the board.
CHF 20 million, it's a lot, but on the other hand, it's a crisis which is still quite acute. The good news in a way, we're talking about a couple of customers, couple of clients, which are in default or close to, they are in default, basically. We don't know exactly how much we will recover. This is why we had the best possible estimation of CHF 20 million. Provisioning is not a perfect science. The good news, as I said, is that we are talking about a limited number, which means that the rest of the portfolio, so 95%, 99%, 99.5% of the portfolio is solid and quite resilient. SME, you see numbers are up in terms of deposits, credit. Basically, this is mostly the bridge loan program from the federal government.
We had, in our plan base, we extended more than 6,000 such loans for roughly CHF 700 million. Those numbers, when you compare between banks, they are quite similar. It's always a part of their portfolio, of their customer who requested those loans. Large corporates, use of cash. This is what quite expected in this situation. Trade finance. Trade finance is a very interesting business, but as you know, quite volatile from a revenue point of view as well from a, let's say, credit risk point of view. If you look at trade finance, first of all, U.S. dollar went down, and all those transactions are in U.S. dollars. When you convert to CHF, it's clear that we have less revenues.
The commodity price went down, and the general activity also went down, the number of transactions, because of the economic crisis in different countries in the world. Also we decided as of February to decrease our activity. We started first to decrease activities of transaction towards China, because at that time, we didn't know exactly what was going in China, on how things would develop. Overall, we have decreased our activities in some countries or in some kind of transaction to try to minimize credit risk. On one side, there is less revenue in trade finance due to those factors which I just mentioned. On the other side, there is some need for a higher level of provision in trade finance due to some incidents. I think you could read probably also in the papers.
I don't think that we are the only bank which needs to take a provision for this business this year. I think that's all I wanted to comment on corporate banking. Wealth management, nothing really spectacular to comment. Interesting increase of net new assets from institutional, especially in the German parts. Otherwise, Thomas will comment, let's say, the numbers, especially the decrease in AUM later on. I don't want to spend more time on that. Here there is nothing really spectacular going on. This is continuity. On the good side, on the positive side in trading activities, I'm talking about client-driven activities, as you know. Basically, the volatility, the increase in volatility in the Forex market in March, April, had a good positive impact on our revenues. You see that here the revenues are going up.
I think this is nevertheless a good sign of the, let's say, our revenues mix. Something went down, other went up. Overall, it went down, which is not good, of course. Nevertheless, the fact that we are quite diversified here is a good sign, and we can prove that here. I will hand over to Thomas for the detail of the financial results.
Hello, everybody. I'm on page 13. Well, very briefly on the income statement, here you find the key numbers. It's fairly interesting to understand the development of our operating profit. You know that due to the specialties of accounting rules, the decrease of total income is already affected by a build-up of provisions. You also have on the line other provision loans, an increase of CHF 6 million, which is the other part of the build-up of provisions for loans at risk. I will comment how this really works in terms of income development and risk cost to understand this CHF -30. For this, we prepared a special chart on chart number 14, really understanding these drivers and leaving a little bit the numbers as they are published. Again here, operating profit goes from CHF 209 to CHF 179, down -14% or down CHF -30.
As mentioned in the press release, there's CHF -11 due to income development before a build-up of provisions. Then there's really this element of CHF -20 of impairment charges, which are as mentioned as well on the top line, as well as on other provisions, as Pascal commented those already. With regard to the pure income dynamics, there are two really different elements because to understand this CHF -11, on one side, there is this increase in trading income of plus CHF +13, and then there is this CHF -24 decrease in income. Basically, it's all more or less linked to COVID. In the sense that the negative interest environment even worsened given to this pandemic. Given that there was a slowdown in activity of our private clients who, as Pascal mentioned, who did less payments, less credit card, less ATM, less FX.
Then there is this trade finance element, as mentioned, that we would decrease the exposure by 30%, pretty early when we saw the crisis starting in China. You add to this that there was a decrease in dollar and commodity prices to understand the almost voluntary effect on the income. Last but not least, definitely there was a nice element of an extraordinary dividend in 2019, coming from a holding. I remind you here that the BCV assets balance sheet is clean. The holding here is basically what I call into a Swiss finance market infrastructure. As a matter of fact, in 2020, there was no such extraordinary dividend. To some extent, this is also linked to the fact that also those kind of companies were holding back equity given the environment.
I think it's really important to see that to COVID, we can link CHF-24 and CHF -20, is CHF -44 on our operating profit. In more usual accounting terms, you will find this paper on page 15. I think these numbers have been commented. I don't want to develop this more there for you. As mentioned, operating expenses are stable. Again, here, some interesting COVID effects, given that personal costs increased slightly to the fact that people didn't take their vacations. On the operating expenses, to one side we did less marketing events, obviously. On the other hand side, there was a real strategic result of us working our IT running costs. Slight increase in depreciation amortization, giving a little bit higher investment in digital banking over these last years. This is a small number, CHF +1 million. Total assets. Here's another interesting element.
Liquidity, cash and equivalents. Obviously, again, here we see a COVID effect. Given that the Swiss National Bank increased the two steps, the exemption threshold for the money for the current account of banks with the Swiss National Bank, which they can hold at zero. It's a significant step up. Not all this is below the exemption of what you see as cash equivalents, but it's almost that number. This is also the reason why we break the CHF 50 billion limit. Obviously, we would have preferred to come there by our core business, not that way. With regard to loans and advances, you see that loans and advances to customers, they have a slight increase given to these bridge loans, which have been set up between banks and the government. On the other hand, we obviously had the decrease of our trade finance.
Ongoing development as mortgages, as Pascal mentioned already. On the liability side, page 18, nothing special to mention. Deposits continue to inflow. The COVID loans were used as HQLA collateral at the Swiss National Bank. With regard to assets under management, here the key dynamics are several. As mentioned, there is the kind of almost end of the handover of deposit banking activities for Swisscanto as ZKB b ought up Swisscanto some years ago. Before that, BCV was one of the key deposit banks for Swisscanto. This was expected. Secondly, there is this net new money. Net new money of CHF 0.9 billion, with a very positive development in institutions, and also in private banking and SMEs.
The usual variations of large corporates over the first quarter, in particular one very known one, which is typically event, even you see at the statistics of the first half of the year. The large corporate net new money is not really interesting number, but the business number on personal banking and institutions and SMEs has been good and positive development. Headcount, slight decrease, also kind of linked to COVID, because on one instance, we had normal departures. On the other hand, given the lockdown was more difficult to recruit. Don't take this as a structural change, but we are very small numbers here. You already know that. Capital ratios, here's something interesting, and maybe also already anticipating some of your questions. We had a step up in our capital ratio, basically for two reasons, right?
Obviously, trade finance is very risk-grade intensive business. Slowing that down by the order of size I mentioned, and given the magnitude of its total exposure, explains basically 2/3 of the decrease of the capital ratio. Adding to that, we had a nice surprise from our as all Swiss cantonal banks, talk about this, about their supervisor. Our supervisor basically decreased slightly, as written on Pillar 3, page 32. Our IRB multiplier, given our very strict discipline of applying this. I remember the IRB multiplier was set up to floor the IRB effect on residential mortgages on the capital ratio. Leverage ratio, don't have to explain to you. Longer balance sheet, with a slight effect on the leverage ratio. LCR, pretty stable in the pretty high level, above target level. This all I want to explain to you so far, Pascal.
Okay. Going forward, I think it's quite fair to say that really in a very uncertain world, I think you have to do in your job also some forecast. It's quite difficult. First of all, we don't know exactly how this COVID-19 problematic will develop. For the time being, seems to be under control, but we don't really know. That's the first part, which is difficult. Second part, we don't know exactly what will be the reaction of authorities, of government, depending on the evolution of the pandemic, then the government might react differently. Those are two key drivers of the economic environment, which are not really in our control. What I'm going to say is the current level of our estimation, but obviously, depending on those two factors which I just mentioned, everything could be wrong in a couple of weeks.
Basically, for the time being, we estimate that the economy will recover. We see that already, but it could change in couple of weeks or months from now. Let's assume that the crisis will not explode, but continue to be under control as of today. Even if there would be more cases, nevertheless under control, we believe that the recovery of our environment, of the economy, should carry on at a moderate pace. We will probably not recover everything in the next two half, but probably part of it in 2020, probably 2021 and the rest 2022. That's basically our best guess as of today. Obviously, that will have a positive impact on our corporate clients, et cetera. For the real estate market, which is quite important for us, as you know. Despite the pandemic, we have seen an increase in prices.
This is mostly due to basically low interest rate environment and the lack of attractive investment opportunities for private investors as well as for institutional. That should carry on, I think. This is why we are quite careful in this market. We see the vacancy rate going up, and we don't want to change our policy of saying that we focus on quality loans. We don't target volume. We could grow faster than we grow, but we don't want to do that. We are really targeting the areas where there is low vacancy rate. In Canton of Vaud, yes, you can see for the time being now that there are quite differences. The area along the lake or Lausanne, I think we have a vacancy rate of something like 0.45, so there is still room for business here.
If we take some let's say more remote areas, backcountry, I would say, if I may say so, we are approaching 2%. In those areas where the vacancy rate is higher, we want to grow at a slower pace, which is quite, I think, basic common sense. Roughly our strategy here will not change. The outlook. Given the hypothesis I just mentioned, with a high level of uncertainty, we will still be under pressure in terms of revenue, but probably we should see revenue slightly grow. We will still be very careful in trade finance. I don't expect growing the revenue of trade finance because we don't want to increase volume right now as it's too early.
We might not see the decrease we saw due to less activities of our clients being traveling, buying stuff in Switzerland or abroad, because now things are going better. On the other hand, we might not have the same volatility in the Forex market, so probably trading revenue will not be as attractive as in the first half. We carry on being very cautious with our operating expense. Basically, we expect a similar trend in second half of 2020. The main uncertainty, as you have already thought, is the level of provision. We don't know exactly what's going to happen in the economy. We are rather, let's say, positive, but it will really depend on how this pandemic will develop. Very difficult here to be more precise than that.
Our budget, our forecast is to have a similar trend in the second half as in the first. Okay, I'm done. We are done. Now we are ready to answer your questions.
The first question comes from Andreas Venditti from Vontobel. Please go ahead.
Yes. Hi from my side. Thank you for taking my questions. I have a couple of those, mainly on trade finance. Maybe it would really help us if you could maybe quantify slightly what the negative impact on revenues was for this period? The second question is in terms of activity, and I think, I guess I understood you right, that you would not basically reallocate more resources in this business, even though as we were able to read recently, some large players are exiting or reducing their activity. So this might result in opportunities. If I got you right, you're not willing at the moment to take these opportunities? If I look at the Pillar 3 report, is it correct my reading that a big part actually of the provisions taken were actually from trade finance and probably a smaller one from the SME business?
Maybe on this multiplier on the risk-weighted assets, is this temporary or is this permanent? Thank you.
Okay, I will take the second one. Thomas will take the first one and then the third and fourth questions. You're right. We're not going to, for the moment, to increase our volume, our activities, or deploy more resources in this business. This business has always been, in a way, under constraint at BCV. For us, the sky is the limit. We are a very small player. We could have a business which is 2x as big or 3x as big, but that would not fit really in our portfolio, in our strategic intent. Now, it's unclear what's going exactly to happen to those players. I read, as you did probably, the different papers and reports that some players are withdrawing. We don't know exactly what it means. Are they talking about specific countries?
Are they talking about specific, let's say, location where they don't want to do some business? For me, it's unclear for the time being. It could be that if big player. We need to understand that better because the communication were not that clear. Probably that will be good for the business, because if there is less competition, there might be a way to increase margins. I would rather try to increase prices and to have better condition on term, than just increasing volume. Let's say for the next six months, I don't think that we will change anything in our strategy, because this business is limited within BCV for strategic reason anyway. Now we are a bit far from this limit since we are reduced by roughly 30%. Given the current uncertainty environment in the world, it would be probably not wise to increase volume.
On the other hand, you see it's always easier to be clever afterwards, after the fact. Probably if we didn't decrease or hadn't decreased our volume, probably we might have had the same provision level, and we might have had maybe CHF 5 million-CHF 6 million more revenues. It's quite difficult. The point strategically is that this business has been profitable for the last 15 years at BCV, or the last 17 years at BCV. This year, despite the provisioning need, it is still profitable. I'm always surprised by some large player saying that we withdraw, then when the economy is recovering, transaction are here, then they come back. We don't plan to play this game of in and out. I'm not sure this is the right way to do this business.
To go to the point, to make long story short, you're right, we're not going to deploy or to increase our resources and our commitment to this business for the next six months, certainly.
Right. Just to give you orders of size with regard to revenues impact, Pascal already mentioned the order of size, right? It's probably on revenue something between CHF 5 million-CHF 8 million minus for this first half. You can see from the numbers also in Pillar 3 that the exposure on absolute volumes has decreased by something like 25% with regards in volumes. Now, still I insist on the point that over the first half of the year, the trade finance business was profitable in, I would say, in revenues after cost for provisions. Now, obviously you are very good reader of our piece. Refer in particular it's page 22. It's good news and frightening at the same time because it's obviously very strong transparency.
As a matter of fact, now you must always be aware that it's a net increase, which you see on end of 2019-2020. The gross provision moves are larger in terms of trading and in the sense of recovering. Still, as a matter of fact, in terms of the net increase, it is definitely, as you can easily read, strong majority from trade finance. Refer to the gross numbers, there is also in enterprises, and same time, there is always recovery given our prudent approach. With your last question with regard to the multiplier, it is structural. There was a step up over, I don't know how many years of this multiplier, 10 years it was actually from 0-2 in a basis 0.2 increase by year, if I'm not mistaken.
Also as written in the Pillar 3 report on page 32, it has now been reduced specifically for BCV, by 0.1 with positive effect on the CET1 ratio. Basically, it is permanent. Yeah, it's structured.
Have we answered your questions?
Yes, thank you. Sorry, I was on mute. Thanks a lot.
No, no. No problem.
Thank you.
The next question comes from Stefan Stallmann from Autonomous Research. Please go ahead.
Yes. Good afternoon, gentlemen. Thanks for taking my questions. I have three, please. All on the topic of, I guess, credit quality. The first one, pretty broadly, we have had a change in accounting for credit risk under Swiss GAAP. I was wondering if you could talk a little bit about whether this has influenced your provisioning in the first half at all, whether anything has changed, or whether you would expect any changes from this accounting methodology to come in the second half of the year. The second question, a bit more specifically to the provisions in the first half. We already talked about the Pillar 3 disclosures. It looks like you had a provision cover on impaired trade finance loans of 100% at the end of 2019.
On the incremental impaired trade finance exposures in the first half, you only provisioned a bit less than 30%. You also hinted that some of the cases behind these impairments could have been in the public domain. The ones that I'm aware of have often involved fraud, where the loss given default seems to be quite a bit higher than 30%. I was wondering how confident you really are in the additional provisions that you have taken on these impaired trade finance exposures in the first half. The third question on payment deferrals. You mentioned that you've actually deferred about CHF 40 million of payments during the first half of the year on corporate loans. Could you disclose what the total notional amount is of loans that benefited from these kind of payment deferrals? Thank you very much.
Okay. Stefan, it's Thomas. I will start with your accounting question. As a matter of fact, the IFRS is changing the domestic standard with regard to provisioning of expected loss on the loan book in Switzerland. As a matter of fact, we have not yet applied it, and it's a strong intention, and everything is prepared to do it by the end of the year. Without betraying anything, I can just explain you already that be aware that our CET1 ratio, as we publish it today, takes only into account equity, after deduction of a Basel Committee calculation of expected losses, which already takes into account the expected loss on [HVCRE] credits. I'm saying our CET1 ratio, as a matter of fact, already is equity after corrected by, reduced by provisions for [HVCRE] credits. This, I think, is a key element to understand where you should expect us. Pascal?
Yes. Your question is a good question on trade finance. You're right. We haven't taken 100% of the exposure to the provision. I think maybe one point is important. In trade finance, you have two ways of doing this business. Either you can finance the balance sheet of a trader, so you buy it exactly like if you would, let's say, finance a corporate, or you finance transactions, specific transactions. We do, let's say, 90% of our business, maybe even a bit more, probably, transaction financing. That means there is always good, there is always, in a way, a kind of a pledge, which is not the case if you finance a balance sheet of a trader. Depending on the kind of, let's say, transaction that you are financing, depending on the countries.
Basically, we did an assessment of the different situation, and we came to the conclusion that for the time being, with scenarios, we believe we have the right number. I cannot exclude that this number will go up. The number could also go down. This is not a precise science.
Comparing maybe to other banks, if you should do that, think about, let's say, the different ways of financing those traders. It's clear that if you finance the balance sheet and there is a huge fraud, then you are maybe not in a position which are as good as if you finance a specific transaction where there is good behind. Now, it doesn't mean that this is always 100% safe when you finance a transaction, because you have also fraud in financing a transaction. Overall, probably it's a bit less risky, if I may say so, and less prone to fraud if you have specific transaction. This is why we believe we will recover some of our exposure, and there is a part we will probably not recover. For the time being, this is what we have provisioned.
I cannot exclude that those provisions will go slightly up. If you read also very carefully our statement of going forward, we believe that second half will be similar to the first half.
That means we believe that provision might increase in the same kind of proportion. For the time being, let's be clear, we don't know exactly what's going on. Okay, that was the second question. There was another question.
SMEs.
I think SMEs. Okay. The numbers, we don't have the number. I don't have here, but we can provide you the numbers if you want afterwards.
I have order of size.
Okay. if Thomas has the number of-
Yeah. I mean, basically talking here about of a base of CHF 8 billion, with regard to the particular mortgages to the SME sector, which have a scheduled amortization, which were basically then the bank decided to create this liquidity injection for these companies by an order of CHF 40 million. It's not a tremendous number, but it's a nice thing to do.
Does that mean, Thomas, that you've basically not accepted any payments during the first half from SMEs?
We decided on maturity, there's two maturity, end March and June.
To not take the principal amortization, but to suspend the principal amortization.
J ust to come back maybe to the numbers in provision. You can read, if you read the Pillar 3, you see the expected loss at BCV. Now we are in a huge crisis. In a way, expected loss is through the cycle. I would not be surprised that in a huge crisis that we would shoot a bit more than expected. That might not be the case. Thomas, what's the expected loss of the portfolio?
Based on depreciation and amortization of models.
No, I know.
From the models, the expected loss is CHF 30 million-CHF 35 million.
CHF 30 million -CHF 35 million. We are at CHF 20 million. You see. This is still okay. I think this is maybe what people tend to forget, because in the last 10 years, the economic cycle was always good, and we had always less than the expected loss in terms of more or less always.
If at the end of the day, let's imagine that at the end of this year, we go to, I don't know, CHF 30 million-CHF 35 million, that will be a perfect number in terms of matching the expected loss and the real losses. I don't know. You see, I think we have to be clear. This is a crisis which is quite acute, and I would not be surprised if we should, let's say, above the expected loss. It seems to be the case for the time being, but we don't know really what's going to happen in the next six months.
Yeah
condition will increase or will decrease. I think here we have to be quite humble. It's very difficult to be precise.
Yeah. Could I maybe follow up on what you, Thomas, said earlier on the accounting point, where you basically reminded me that there's, I think, about CHF 58 million of expected losses already deducted from your CET1 capital. Is it therefore possible that as the new accounting comes on board that we see, let's call it half of that, going through the P&L, but then it's going to be offset by less deductions? Your CET1 is protected, but your P&L would suffer. If that is the case, and this is all very hypothetical, would that have any impact on your dividend? If that means that you have to pay.
I cannot explain it to you, but I can tell you that CET1 ratio will be unchanged, and well, as we have worked it out, we don't expect impact on P&L.
Okay.
Neither on dividends. That change will not affect dividends at all.
No. I think it's really the thing I was hinting on is that, basically, the cost of this a pproach we already paid the day we introduced IRBs.
Yes. It's just that if I look at other banks that are using IFRS, the typical outcome has been that some of these-
It's nothing to do with-
Expected losses have gone through the P&L.
I understand. It's technical. It's not IFRS. Okay?
Okay.
It's domestic standard, and our ambition is that we want to take this opportunity to make our IRB Basel III and CET1 ratio and the accounting numbers more consistent. That will be more consistent by the end of this year.
Right.
Is it clear for you?
Yes. Thank you very much.
Okay.
The next question comes from Andreas Brun from Credit Suisse. Please go ahead.
Hello. Thanks for taking my questions. Can you actually split the trade finance revenue loss to fee and commission income, as well as to interest income? More generally, is it evenly split between these two revenue lines?
Yeah.
Yeah.
No, okay. Sorry. Yes, you can go ahead with 50%. 50/50.
Okay, thanks. On G&A expenses, which came down nicely in the first half year, is this actually a step down to a new normal? Or in a normalized environment, will it go up again, due to higher marketing expenses, et cetera?
It's a mix. It will go up again. We also have IT decrease. I don't have here specific figures, but it's clear that also in second half, most of marketing events, if you know that we have BCV has a birthday this year, 175 years, and we had put something aside for that, and we had to cancel most of the events. There will be also in the second half, certainly some reduction, due to those events being canceled. Don't expect this is the new baseline for 2021. That would not be correct. On the other hand, if you take personal cost, it's clear that people could not take their vacation, and we could have forced the people, but this is not our philosophy. There is an increase in personal cost due to vacation not taken by our employees.
It's clear that we will, if there is not a new lockdown or stuff like that, during the course of 2021, we will ask the people to take their vacation. We might see, during 2021, a slight decrease in personal cost only due to that effect.
Okay. Thank you. That's very clear. Lastly, on gross interest income, which was down 10% year-on-year, do you think that this net interest margin compression will continue going forward?
First of all, gross interest income was down 4%. There was the first moment, an error in the AWP communication, which they corrected later. The net interest income is down 10%, taking into account the risk cost. Now, going ahead, here's something with regard to dynamics of gross income, which is very much linked to the negative interest environment. There are some elements which we should take into account here. Obviously, there will be the ongoing effect still of mortgages repricing on the asset side at lower interest rates. On the other hand side, on the liability, nothing especially going on, as you know. Secondly, there will be positive effect from the increased and increasing exemption at Swiss National Bank to put liquidity there at zero.
Thirdly, it's actually difficult to read the real economic development of interest income in the P&L, because it is partly in the line which we are just talking about, and given that treasury is working on this to exploit it completely, it's partly captured in over derivatives, over swaps, in trading income. The number you see in terms of development of interest income is not fully reflecting the dynamics. All in together, taken together, if I can take it to the bottom line, interest income from an economic perspective will be under pressure. If we take the strong hypothesis that the current interest rates stay as they are, we are rather on a flattish development. Okay?
Okay. Thank you.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to BCV for any closing remarks.
Okay. I mean, I will be very quick. Thank you very much to all of you, and we talk to each other either in road shows or discussion or next year for the 2020 results. Bye-bye.
Bye-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.