By Brian Blackstone
ZURICH--Alternative Bank Schweiz AG posted a jump in 2016 profit on Monday, suggesting its gamble to become the first Swiss bank to pass on negative rates to all its customers paid off in an era of negative central bank interest rates.
The volume of assets under management increased 5% last year to 1.8 billion Swiss francs ($1.8 billion), while client loans jumped 13.5% to 1.2 billion francs. In contrast, customer deposits advanced just 2% last year, an indication that clients shifted more toward fee-generating services and away from deposits.
The bank's profit was 1.8 million francs last year, up 33% from 2015. It added 900 new customers.
"We hoped to achievea steering effect from [the negative interest rates], and this has indeed been the case. There has been a positive impact on the bank's profitability," said Martin Rohner, chief executive of ABS.
Founded in 1990, ABS gears its lending toward projects with a social benefit. It says that at least 80% of its loans "must demonstrate a measurable social or ecological added value." For instance, one factor in its lending growth last year was financing a housing cooperative project in the French-speaking part of Switzerland. It publishes a list of its loans.
Switzerland's central bank--like those in Denmark, Sweden, the eurozone and Japan--has installed negative official interest rates as a way of spurring economic activity. A side effect is that it typically weakens a country's exchange rate, a key priority for the Swiss National Bank which has been battling a strong franc for several years.
The SNB has maintained a -0.75% deposit rate since 2015, but it also applies significant exemptions, meaning that the negative deposit rate only hits large deposits that are stored at the SNB. Still, that has put large banks in a bind: either charge big clients for deposits or absorb the costs themselves.
UBS executives in particular have been highly critical of negative interest rates. The bank was forced to pass along negative rates to businesses and raise the rates on some types of loans.
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(END) Dow Jones Newswires
March 20, 2017 09:14 ET (13:14 GMT)
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