Consolidated annual report of VP Bank Group

In 2020, VP Bank Group recorded a Group net income of CHF 41.6 million (–43.4 per cent). Group net income for the same period of the previous year was CHF 73.5 million. Earnings before taxes minus value adjustments for credit risks amounted to CHF 68.9 million in 2020 ­compared to CHF 76.2 million in the previous year (–9.6 per cent). The cost/income ratio increased from 67.6 per cent in the previous year to 69.3 per cent in the reporting year.

The reduction in Group net income is largely due to the one-off valuation adjustment communicated in March 2020 in connection with a credit case of around CHF 20 million. Another negative impact is due to the significant reduction in USD and EUR interest rates in March 2020, which was reflected in net interest income, net trading income and financial ­investments.

VP Bank Group has a strong capital base. As of 31 December 2020, the tier 1 ratio was 20.8 per cent (compared with 20.1 per cent at the end of 2019). This strong capital base is a testament to VP Bank’s resilient and successful business model and offers an ideal starting point for the ongoing development of VP Bank Group. 

As of 31 December 2020, VP Bank Group’s client assets under management amounted to CHF 47.4 billion. This represents an increase of 1.4 per cent (CHF 0.7 billion) on the CHF 46.8 billion recorded as of 31 December 2019. Net new money inflow amounted to CHF 1.4 billion. The negative trend in the market valuation (performance) of client assets contributed minus CHF 0.7 billion to the change for the year. Of the CHF 47.6 billion in client assets under management reported in 2019, CHF 0.8 billion was reclassified to custody assets due to a reassessment. 

After a turbulent first half-year brought about by the ­coronavirus pandemic, which caused stock markets to plummet worldwide and reduced the value of client assets under management, the latter returned to the ­previous year’s values as the end of the reporting period approached. The inflow of client assets was achieved in a challenging environment thanks to intensive market ­cultivation and recruitment of new client advisors.

Assets under custody fell slightly by CHF 0.3 billion to CHF 7.4 billion as of 31 December 2020 compared to the value of 31 December 2019 (CHF 7.8 billion). Client assets including custody assets were listed at CHF 54.9 billion as of 31 December 2020, an increase of CHF 0.3 billion compared to 31 December 2019 (CHF 54.5 billion).

In the reporting year, VP Bank’s operating income decreased by CHF 8.7 million or 2.7 per cent to CHF 319 million (previous year: CHF 327.8 million). This reduction was due to lower interest and trading income as well as reduced income from financial investments, which can be attributed to the drop in USD and EUR interest rates. The aforementioned reductions were partially offset by the CHF 2.8 million (2.1 per cent) improvement in income from commission business and services. 

Net interest income fell by CHF 1.5 million from CHF 115.1 million in the previous year to CHF 113.6 million in the reporting year. Interest income fell by CHF 34.2 million (–19.7 per cent). This reduction is primarily due to the decline in USD and EUR interest rates as well as slightly lower client loans. Interest expenses also fell by CHF 32.7 million (–56.1 per cent) due to interest rate trends.

Income from commission business and services increased by 2.1 per cent to CHF 140 million in the reporting year (previous year: CHF 137.2 million).

Income from trading activities amounted to CHF 56.6 million, a decrease of CHF 4.4 million (–7.1 per cent) compared to the previous year. This reduction is also related to a ­further reduction of USD and EUR interest rates by the central banks in the first half of 2020, which had a negative effect on swap transaction margins. 

Financial investments made a positive contribution of CHF 7.9 million to the annual results. Nevertheless, the contribution to earnings in the reporting year was CHF 6.4 million lower than the previous year’s CHF 14.3 million. Gains from financial instruments measured at fair value were CHF 8.3 million lower in the reporting year, which was partially offset by realised gains of CHF 1.9 million from sold financial instruments valued at acquisition cost (➔ Note 4). 

Operating expenses excluding value adjustments fell slightly by CHF 1.4 million (–0.6 per cent) from CHF 251.6 million in the previous year to CHF 250.1 million in the reporting period. Operating expenses, including value adjustments, rose by CHF 24.7 million from CHF 244.8 million in the previous year to CHF 269.5 million. This increase can primarily be traced back to the value adjustment on a credit position in the amount of approximately CHF 20 million which was communicated in March 2020.

Compared to the previous year, personnel expenses decreased by CHF 3.3 million or 2.0 per cent to CHF 162.1 million. At the end of December 2020, VP Bank Group employed approximately 917 full-time equivalents.

General expenses rose by 4.6 per cent to CHF 58.9 million (previous year: CHF 56.3 million). The increase is related to one-off costs incurred to strengthen the organisation as well as higher IT costs. At CHF 28.8 million, depreciation and amortisation were somewhat lower in the reporting period compared with the previous year (CHF 29.3 million). 

Valuation adjustments, provisions and losses amounted to CHF 19.8 million in the reporting year compared with a net reversal of CHF 6.2 million the previous year. The change is mainly due to the value adjustment of around CHF 20 million on a credit position that was communicated in March 2020.

The aim of IFRS 9 is to map the expected credit loss (ECL) over an economic cycle. The individual parameters of the ECL model are assessed on an ongoing basis and may be adapted where potential changes in economic circumstances require it. 

Taxes on income in 2020 amounted to CHF 7.9 million, which is CHF 1.5 million less than in the previous year. The reduction is due to the lower Group net income and the partial capitalisation of future loss offset opportunities.

The Group net income of 2020 amounted to CHF 41.6 million (previous-year period: CHF 73.5 million). The Group net income per registered share A was CHF 6.90 (2019: CHF 12.28).

Comprehensive income refers to all income and expenses recognised on the income statement and in equity capital. Items recorded directly in equity principally concern actuarial adjustments relating to pension funds and changes in the value of financial instruments FVTOCI. VP Bank Group generated comprehensive income of CHF 28.4 million in the 2020 financial year, compared to CHF 87.3 million in the previous year.

Compared to 31 December 2019, total assets grew by CHF 0.1 billion to CHF 13.5 billion in the 2020 financial year. The increase in the balance sheet total is mainly due to the increase in other liabilities due to customers of CHF 0.4 billion on the liabilities side, as well as a reduction in liabilities to banks of CHF 0.2 billion and a reduction in medium-term notes of CHF 0.1 billion. 

While loans and advances to clients decreased by CHF 0.5 billion, loans and advances to banks increased by CHF 1.0 billion. Compared to the previous year, financial instruments measured at amortised cost decreased by 4.4 per cent to CHF 2.2 billion (previous year: CHF 2.3 billion). The funds from the expiring financial instruments are ­reinvested, but at less favourable conditions due to the low interest rates.

VP Bank Group has a very comfortable liquidity structure with liquid assets of roughly 19 per cent of total assets worth CHF 2.6 billion (CHF 2.9 billion as of 31 December 2019). This is reflected in an optimum liquidity coverage ratio (LCR) of 179 per cent.

As of 31 December 2020, VP Bank Ltd holds, directly or ­indirectly, 530,171 registered shares A and 344,369 ­registered shares B (8.53 per cent of the share capital and 7.28 per cent of the voting rights). As the shares have not been cancelled, both capital structure and voting rights will remain the same. The registered shares A in the port­folio are to be used for future acquisitions or for treasury management purposes.

As of 31 December 2020, equity capital stood at CHF 1,025 million (31 December 2019: CHF 1,026 million).

The tax reassessments of simplifications of the Group ­structure carried out in the past led to tax expenses in the amount of approximately CHF 5.8 million, which are charged to equity capital on an accrual basis. As a result, equity capital decreased from CHF 1,032 million to CHF 1,026 million as of 31 December 2019.

The tier 1 ratio calculated under Basel III was 20.8 per cent as of 31 December 2020 (as of 31 December 2019: 20.1 per cent), reflecting a strong capital base and a good strategic starting point for the ongoing development of VP Bank Group.

The coronavirus pandemic will continue to leave its mark on economic trends in 2021, with containment measures currently restricting public life and the economy. Never­theless, there are good reasons to look to the future with confidence as progress in vaccine administration promises a gradual return to normality. Another positive factor is that the order books of many companies are now much fuller again, and some sectors are even experiencing a real boom. Finally, both fiscal and monetary policy continue to provide strong support for the economy.

VP Bank cannot escape the challenging environment and potential consequences of COVID-19, but it is well equipped for the challenges and all set to press ahead with its sustainable growth strategy. With a strong capital base coupled with a very good liquidity situation, VP Bank Group has everything it needs to build a successful future. The “A” rating confirmed by Standard & Poor’s in July 2020 underscores the resilience and effectiveness of VP Bank Group’s business model.