Retail & Corporate Banking
Private and corporate client business
Retail & Corporate Banking of the LLB Group encompasses the lending, deposit and payments business with private clients in Liechtenstein and Switzerland, as well as investment and asset management business with an amount of up to CHF 0.5 million. It is also an important partner for the business community in Liechtenstein and the east of Switzerland. The focus of its corporate client business lies in providing an array of services for small and medium-sized enterprises (see the chapter «»). In 2013, the Retail & Corporate Banking Division of the LLB Group attained operating income of CHF 118.3 million (2012: CHF 98.4 million).
In 2013, interest bearing business with CHF 85.5 million (2012: CHF 72.3 million) was again the strongest revenue generator. As the market leader in mortgage lending business in Liechtenstein, the LLB AG succeeded in strengthening its position with a gain of 1.5 percent. Our Bank Linth subsidiary expanded its mortgage lending volumes in eastern Switzerland by 6.0 percent. On the whole, growth volumes slowed at a high level. Against the backdrop of historically low interest rates, and in view of the fierce competition situation, interest rate margins on the liabilities side decreased. Clients chose safety, and therefore many credit applications involved long-term, fixed-rate mortgages. The LLB refined its lending policy in 2013, and optimised the separation of market and back office processing. A conservative lending policy aims to ensure a high-quality mortgage portfolio.
Real estate market in Liechtenstein
The mortgage lending volume in Liechtenstein has risen to a high level in international comparison. In a study from April 2013, the Liechtenstein Financial Market Authority (FMA) assessed the risk of a real estate pricing bubble in Liechtenstein as «rather low». The Liechtenstein mortgage market is characterised by historically low interest rates, a rising level of mortgage receivables in proportion to overall economic development, and very intense competition. Measured against gross domestic product, Liechtenstein has a very high level of mortgage debt in international comparison. The purchase of real estate in Liechtenstein is financed with a relatively high proportion of own capital.
The Liechtensteinische Landesbank proactively pursues a conservative lending policy with respect to collateral values, own capital requirement and affordability. With a market share of around 50 percent, it is the market leader in Liechtenstein. In 2013, 78.1 percent (2012: 76.6 %) of loans made by the Retail & Corporate Banking Division were in the form of mortgages. This corresponds to CHF 4.2 billion (2012: CHF 4.2 billion). Whereas the volumes in private residential construction in Liechtenstein have expanded sharply in recent years, in 2013 signs of a levelling off became apparent. A certain surplus exists with office and commercial property, and there are more unoccupied apartments.
Real estate market in Switzerland
For almost four years, the Swiss National Bank (SNB) has regularly warned about the risks in the Swiss mortgage and real estate market, and the level of the corresponding UBS index confirms the risk of a bubble. In May 2013, the anti-cyclical capital buffer (ACB) was activated for the first time to slow this development. This instrument is a component of the Basel III regulations. Consequently, since September 2013, the banks are to increase their equity capital by one percent. In January 2014, at the request of the SNB, the Swiss Federal Council decided to double the size of the ACB: i.e. from 30 June 2014, the banks are obliged to hold additional equity capital of two percent of the mortgage loans issued to finance residential property in Switzerland. On the basis of the UBS forecast, the Federal Council assumes that real estate prices will again increase in 2014.
From a geographical perspective, according to real estate specialists, the price momentum in 2013 eased further in the centers most susceptible to overheating such as Geneva and Zurich. In some cases, falling prices were discernible, e.g. with single family houses in the Lake Geneva region. In contrast, price rises are accelerating in previously «favourably priced» areas, primarily in the rural regions of the cantons of Berne, Neuchatel, Freibourg, Schaffhausen and Schwyz. This also includes the March region in the market area of Bank Linth.
With a market share of between 10 and 20 percent, Bank Linth is an important provider of real estate financing in its region. Mortgage lending business is the most important source of its revenue, accounting for 94.3 percent of loans. In 2013, mortgages grew by 6.0 percent to CHF 4.7 billion (2012: CHF 4.4 billion). Demand has declined for high-priced own homes and for commercial property in the real estate market of eastern Switzerland; a trend that will probably continue.
Corporate and private pension provisioning
The clients of LLB Group benefit from our holistic care and service concept. As part of this concept, we are consistently expanding our private and corporate pension provisioning services. Accordingly, Liechtensteinische Landesbank AG has established itself in the Liechtenstein market as a competence center for corporate and private pension planning and provisioning.
The pension fund capital of LLB Liechtenstein Pension Foundation posted pleasing growth thanks to the positive development of the stock markets. As per 31 December 2013, it stood at CHF 413 million (2012: CHF 348 million). It provided services to 345 (2012: 329) companies with 4'082 (2012: 3'895) active insured persons. The ALVOSO LLB Swiss Pension Fund had 249 (2012: 255) companies with 1'493 (2012: 1'350) employees. The pension fund capital amounted to CHF 200 million (2012: CHF 175 million).
The interest rate on the retirement capital of the persons insured with the LLB Pension Foundation stood at 2.5 percent with the «Conservative» investment strategy and 3 percent (2012: 2.5 %) with the «Dynamic» investment strategy. The annual pension payments amounted to around CHF 27.4 million (2012: CHF 27 million). In terms of size and market share, the LLB Pension Fund Foundation – the most recent pension foundation set up in the Principality – was the second largest among independent collective pension schemes in Liechtenstein.
In view of the demographic transition, the calculation of pension duration and pension amount is becoming more and more important. The LLB Liechtenstein Pension Fund Foundation reduced the technical interest rate to 3 percent (2012: 3.5 %) in 2013. This interest rate represents the return expectation that we envisage over the long term. The pension conversion rate is directly linked to the technical interest rate. In 2013, the LLB Pension Fund Foundation converted the old-age credit balance upon retirement into a pension at a rate of 7 percent. From 2015, this conversion rate will be reduced to 6.8 percent. The application of a correct technical conversion rate is in the best interest of all insured persons. The LLB Liechtenstein Pension Fund Foundation has a very good structural ratio: for each pensioner there are 48 active insured contributors.