Banque Cantonale Vaudoise (BCVN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the BCV Full Year 2021 Results Conference Call and Live Webcast. I'm Sasha, the Chorus Call operator. [Operator Instructions] 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 on 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.

Thank you very much. Good afternoon. Let me jump directly to Page 4. I think those are the key messages in the excellent results. So the first point is also to show that we did a good job but we were helped by the economic environment. It was very good as well as the financial market. As you know, we are very good in 2021. So that helped us. Also many banks, if you look at the result, we are not the only one posting very good results. The revenue is up, net profit is up 14% to a record level. Let me just explain that. So BCV was created in 1845. And this is the best result in those 175 years or something like that, except 3 years, 2005, '06, '07, which were marked by extraordinary items following the recapitalization of BCV in 2002-2003. So if I don't take into account those 3 years which are quite special, we can talk about a record net profit. And according to that, those good results as well our confidence going forward, we are pleased to propose to the general meeting -- for the general assembly to increase dividend by CHF 0.10 something, which is CHF 3.70 something. Slide 5, I'm not going to comment. Slide 6, very quickly. So we see an increase in all business areas. Mortgage, 5%. This is more or less the growth in the market. We don't get the figure for the growth in ROE before the end of June 2022 for the year 2020. So my estimate is that the market invoice growing between 4% and 5%, so we are in line with the market here. Maybe we can comment that later on. Other loans, the increase in other loans and credit is basically mostly trade finance, but not only, but mostly trade finance where we had a -- not a recovery, but we increased our risk appetite in 2021 compared to 2020 due to a huge risk in 2020 in this business due to the pandemic worldwide. And you see the deposits are increasing very, very fast. Basically, customer being private customer and institutional or corporate are quite liquid. And we see here an increase. We try to monitor that as best as we can, i.e., having negative interest where it makes sense, having some fees to make sure that we don't get all customers that leave their bank due to negative interest rates and come back -- come to us. I think it's a trade-off here between, let's say, short-term profit and long-term profit. I hope that some of those customers that came to BCV last year, we remain long term. And of course, that will help our refinancing cost when interest rate goes up. So we try to be, let's say, [indiscernible], maybe slightly nicer to customers, not to be a trendsetter in negative interest rate. But just to follow, let's say, the bunch of our competitor, just to make sure that we are not too away from there. Otherwise we will get all funds from them, and that we don't want. And let's say -- maybe there was one point on Page 7, which is more a strategic point on the financial one. But you see this Most Recommended Bank in Canton Vaud. So as some of you know, I started a huge program, a huge initiative in 2015. This is not just a project or initiative, this a philosophy. I'm convinced that for the type of business we have, the type of thing we have, it's very important to be excellent at customer service. Being operational excellence or just customer service, this is key for the long-term strategic success of BCV. So this program started in 2015. It is still running with workshop, with training, et cetera, et cetera. And I'm quite pleased to see that it pays off. For the last 3 years, we were the most recommended bank in Vaud. So I think that's important to mention. And also our subsidiary, Piguet Galland, was named Best Private Bank in Switzerland by the British magazine, International Banker. Last year, it was UBS. So I think UBS in our offshore business or in onshore wealth management is well known. So in a way, it's a good recognition for Piguet as well. Okay. Let's go into the different business units. So Retail Banking, you see it's very successful. So mortgage loan is probably slightly above the market here. But we try to grow in areas where we have lower vacancy rate. So we are very careful in some areas of Vaud where vacancy rate is quite high. What I mean quite high is higher than 2%. And in terms of deposit, as I mentioned, we try to manage that to limit the inflow without being, let's say, stronger -- I mean, not stronger, but be more negative than other banks towards customers. So this is a fine line here to adapt on a continuous basis our condition to make sure that we don't get all inflows of our competitors. And revenue profit, I mean, this is very good. I would say, the profit is plus 35% with the basis effect here. Okay. Corporate Banking Here, I want to mention -- I mean, there are 3 business here. SME, this is quite stable. Those loans -- those bridge loans, COVID-19 bridge loans from Swiss confederation, already 20%, a bit more, I think 23% today have been paid back. And the rest, we will begin to amortize that in the next 5 years. So the customer will [ ask ] to amortize. Now you know there is no risk, I mean, the confederation bear the risk here. It was just an initiative of the Swiss banking sector or the Swiss confederation to provide liquidity to SMEs at the beginning of the pandemic between April and June last year -- probably in 2020, not last year, 2 years ago almost. But there is absolutely no risk for us. Large corporate is always a bit volatile, so nothing to mention here. And trade finance, you see that it is slightly up. I mean, as you know, some of you know, we decided to slow down to reduce our risk appetite, our business volume in 2020 due to uncertainty of the pandemic. We didn't know exactly what was going on, whether ships would be disembarked, whether ports would be blocked, all those problems -- supply chain problems, and we decided to reduce our activity. And finally, it worked quite well. I mean, there are supply chain programs that we know. But overall, in the world, but not especially in our business, and we concluded that it was sometimes a little bit slower. But basically, the supply chain and all the logistics with ships, customs, ports, et cetera, warehouse worked quite well, and we decided to increase our risk appetite and to increase the business volume. But of course, we don't do that overnight. So it takes some time because it's always a question of risk appetite. And this is why overall, if I compare 2021 and the pre-COVID, we're 6%, 7% below. So that mean also 7% of revenue below in this business. Now as you know, there are some geopolitical problems in the world, especially in Eastern Europe, and now we are careful here. So we also decided in Ukraine as well as in Russia to be very careful. Either Russian customer or, let's say, Russian customer of BCV, but Russian people buying goods or selling goods for a trader in Geneva or in Lausanne, we are very, very careful. And overall, I mean, the credit portfolio remained very sound. We had in 2020 some risk due to -- especially trade finance. And 2021, nothing in trade finance, just one case, which has nothing to do with COVID or nothing to do with trade finance, it's just bad luck, and that happened in the credit world. But you see that overall, in the 2021 year, [ provisioning risk ] or credit risk costs were lower than 2020. And of course, this contributed to the good results. In Wealth Management, which is basically private banking in the [ model ] company, this is an institutional asset management in BCV as well as the private bank Piguet. You see an increase in AUM, of course, this is driven by the good performance in the financial market. You see an increase in revenues, also due to the financial markets. One good news is, the mortgage business, we were able to grow a bit better than in the previous year in the private banking sector. They were slightly lagging when I compare to the Retail Banking and they've been able to catch up. So this is quite good. And you see the operating profit is also up. And trading, slightly up in revenues and profit a bit more. This is mostly structured products with significant revenue increase of almost 70% and the ForEx trading was slightly down compared to a very good 2020. So overall, trading was up. So overall, very good results from a financial point of view, Thomas will go into detail. But also from a business point of view, we have almost all business units contributing to those excellent results. Now I will turn over to for a detailed financial part. Thomas?

Thank you, Pascal. Hello, everybody. Well, I mean, you have read the financial numbers. So I will really focus on comments on Page 13, where I'll dig into revenues and charges on following pages to understand the operating profit, which is up 15%. Now the net extraordinary income besides in bank operational performance was another gift of that year. Actually we sold real estate belonging to the bank, which was at very different accounting [ field ], very little accounting value in our books. Now obviously, I mean I think I anticipate the question on your side. The [ taxes figures ] is probably more than proportional. The taxes are unusual proportion with regard to the result. While you remember that actually will be created by end of 2020, the provision for non-impaired loans as required by the new accounting standards and the FINMA requirements in Switzerland. We did this not over the P&L, but over balance sheet, which was possible for the first time. But however, the charge was charged, which decreased taxes in 2020. So for that effect that we have this overproportional increase in 2021. Now with regard to different income sources, well, obviously, well, it's very, very well diversified for BCV, maybe even to diversify [indiscernible] relative increases. Interest income is almost stable, I will go more into that later. And obviously, commissions and fees in wealth management and trade finance, you know that also trade finance contribute to interest income. Well, trading has been managed -- has been commented on. Keeping in mind that for you guys, as you are analysts and investors with deeper insight into BCV that we have been trading here. Obviously, the FX trading, we have the structured products, but we have also some elements of the treasury optimization of the threshold, which I can develop a more [indiscernible] if there are any questions with regard to that. Now interest income -- it's always interesting dynamics on the first line on before impairments, which is all around the interest rate curve and managed several times, right, the equation closes at 0%. By that, I mean, we have a one insight, the ongoing repricing effect of the assets, which still have quite a negative impact. In front of that, obviously, some repricing. We have then the important contribution of mortgage growth. And finally, we try to increase, to some extent, the negative rates on some customers. The longer this takes -- the long it has negative rates, the more the competitors push -- negative rates on clients and as Pascal messaged -- mentioned, we follow this in a kind way. With regard to -- on Page 15, with regard to operating expenses, well, so the increase in personnel costs, I think you understood that this is mainly due to the IBM people we integrated. By that time, it was called IBM, which is part of our strategy of having the full control on our IT capabilities and also, which is efficient for our cost or investment charges, which the rest is mainly development of total salaries. Now aside to that, other operating expenses, they are stable. And here, we have exactly these dynamics that you might see this in different companies, particularly in financial institutions. The IT capacity needed is increasing every year, in particular also with increasing transactions and more and more it was used to digital devices. So on the other hand side, we have been able to provide efficiencies here. So the capacity cost is decreasing and we are able to show stable operating expenses. Depreciation and amortization is stable. With regard to the headcount, the main element is already mentioned with these new IT guys who joined the company. On the asset side, Page 17. Well, we have here the 2 key drivers, which drive up total assets on the. The positive element is the increase in mortgage loans. And the other thing, which is to kind of -- reflects the sign of the times we're living in is the cash and equivalents, which increased by 1 billion. Now -- so this is part of the optimization of the retention level we have with Swiss National Bank, which was still increasing over 2021 and which we fully used, sometimes even going beyond, when we had opportunities to earn some additional base points by [ Avitas ]. On the liability side, well, there is this -- we could call it almost a problem of customer deposit inflow, which is something we monitor closely and which then is the one -- the element which makes us increase the conditions on negative rates step by step. So we have here increased by 2.8 million on customer deposits. While you see that we still take one side because besides the whole excess liquidity, which is probably just short-term to medium term. We made sure that our balance sheet has a solid refinancing structure over time. So we issued 2 bonds. And obviously, we also continue to take refinancing over the [indiscernible] for [ covered ] bonds, which is a joint venture of the central banks. Well, with regard to assets under management, well, [ Matt ] already commented on. You see, obviously, that the inflow is onshore, and that's the kind of derisking story, which we told over years is over the outflow of offshore is down and offshore is just now something stable. I think nothing to comment on. On Page 20, with regard to the CET1 ratio, so it is 17.2%, but more or less stable over time, as you can see. With regard to FINMA requirements, by end of 2021, they are at 13%. I think some of you must have read that FINMA now comes back with a [indiscernible] buffer by Q3 of 2022. It is on the residential book, an increase of 2.5%. For us, it's an increase given the composition of our assets. It's an increase of 1.2%. I'm not mistaking in the requirements. But anyway, I mean, given the level where we are, it doesn't change anything to our business behavior. Now the LCR ratio, obviously, is very high, also linked to the optimization of the extension level at Swiss National Bank. I think we have already discussed it, but if you have questions, don't hesitate. The NSF funding ratio is slightly up. Again, the story of inflows increasing available stable funding. Now I think the centerpiece of whole thing here is Page 23. And now we follow the strategy, which you know very well with the authorized since 2008. Now by the end of the [indiscernible], which has an interval of CHF 3.40 to CHF 3.80, we decided to step up to the AGM. The proposal is to pay out an ordinary dividend of CHF 3.70, CHF 0.10 up. So obviously, this is a significant level to pay out CHF 318 million. And in particular, as you can see the history rate, it's stable. It goes up. But we accept really unexpected things. We are very confident -- have a lot of confidence in the future of our development. Okay. Thank you very much.

Okay. Thanks, Thomas. Let me just give you some things on the future. So in terms of economic situation in Switzerland and in Vaud, the situation is good. We don't have the same kind of, let's say, feel as we see the US regarding inflation or even in Europe. We're talking about 1% inflation for the time being in Switzerland. So everything is doing well. So I suspect the GDP growth will be around 3% to 4%. It seems to be quite high, but I think it's working well for the time being. Maybe it's going to be just 3%, but nevertheless, a number [indiscernible] GDP growth and probably 2023, it should be back to around 2%, which is rather kind of a long-term average GDP growth for our country and our region. But anyway, a good economic situation in 2022. And in terms of the mortgage business or the real estate, you see that prices went up again, which I think are a bit too high. But as long as interest rates are low, we will see that. The good news here is that the vacancy rate, so that went up from something 4% 10 years ago and went up and was going up steadily. This change in 2020, '21, now this is stable. So that means, first of all, the increase in population is back to around 1%. It was a bit lower in the last 2 to 3 years. And also there is a reduced level of new construction of new buildings. So it seems that things are stabilizing, although the prices, I believe, are quite high. But I don't expect any bubble exploding. I could well expect that with probably increasing interest rate level, probably the prices will level off, might be reduced slightly in the next 2 years to 3 years with something like maybe minus 5%, minus 10%, but I don't expect a bubble here. Now in terms of outlook, there are couple of uncertainty, but overall, I'm quite optimistic as far as the economic situation in our country is concerned. So I expect BCV to develop in a similar way 2022 as in the last 2 to 3 years. Given the uncertainty on the revenue, we will carry on our strict policy of controlling our cost quite tightly. So that's it for me. Thank you very much for having listened to us and we take your question with pleasure.

[Operator Instructions] The first question is from Stefan Stalmann from Autonomous Research.

I have 3, please. The first one on the topic of interest rate sensitivity. That's obviously the topic at the moment in the wider banking sector. Can you maybe talk a little bit about what your sensitivity of your net interest income is to rising interest rates? I know what you disclosed on the interest rate risk in the banking book, but I think that's maybe a bit more theoretical and we're more interested in what practically happens and in particular about what happens while rates remain negative and what then happens when they turn positive? The second question relates to net interest and net commission income, which was obviously very strong. And I was wondering if you could talk a little bit about what you think the sustainability of that revenue line will be like in coming years. It was really quite extraordinary also relative to the long-term trend here. And the third question, that relates back to the countercyclical capital buffer. Thomas, you just gave a guidance here. And I adjusted the back of the envelope, the 1.2% higher capital requirements that you mentioned seem much lower than I would have thought based on your IRB disclosure on mortgage-backed retail exposure. I would have thought it could be 3 times that impact. So if it's not, I think that may suggest that a lot of your mortgage-backed retail exposure is not actually backed by residential property. Is that a fair conclusion?

I will take the second one and Thomas will take the first and the third one. I'll start with the second one. Good question. You see, I mean, this is clear, one part of the increase in the commission business is due to the level of the financial market. I mean, you know that some fees are proportional to the level of AUM. So it's clear, the higher the level of AUM, the higher the fees. Then we have also many transactions in 2021 due to the financial markets, you know that certainly as well as myself. So there are some effect of this particular year. Now so that means it will depend on the future of the financial market in a way. Now having said that, trade finance should be hopefully higher. And we have also commissioned in the trade finance business. And you see that 2021, we were minus 7% compared to the pre-COVID situation. So I could accept that in trade finance, it would be a bit higher than 2021. What we are also doing, I was talking about all those private customer bringing money to us in a way to avoid paying negative interest rate in the bank. Here, what we are doing, we are increasing slightly, but slowly and every bank does that [indiscernible] more or less. We are increasing fees level, so commission-based fee is, for example, on current account on some savings account. So we are transforming in a way interest revenues into commission revenues. So there are also some structural effect in this good performance. I cannot give you the exact number. Now third point -- or fourth point, if you compare 2020 and 2021 in terms of commission, it's a bit unfair, because 2020 -- it is unfair, 2020 was very low. For example, all commission income on ForEx, commission income on [ telemachines ] withdrawal, et cetera. All those traffic -- so payment, all those payments during 3 months, there was nothing due to the lockdown. People were not really buying a lot and shops were closed and they could not travel, et cetera, et cetera. So I think it's very good -- very difficult to compare with -- in a way with 2020. But definitely, I mean if -- let's assume, the market will decrease by 10% in terms of asset price level that will have an impact on our commission revenue. This is clear. So I think this is the same for many banks. And probably for some banks, the effect of the financial market is even stronger. If you think we don't have any [indiscernible] at BCV, we don't have any portfolio belonging to BCV. So I've been convinced that many banks that you see at least in Switzerland of the ones I know, very probably they had very good year due to just their trading. They are not [ stronger ] prop trading portfolio giving -- getting up in value. This is not the case for us. So probably in a way we are less volatile here if the market goes down. I cannot answer your question in more detail. That means I have to give you some more detail on the different business lines, which we don't disclose. But I hope it helped a bit for your forecast on your assessment of BCV.

I take question number one with regard to the interest rate sensitivity, which you want me to be practical. Well, I think it's very interesting to discuss this and to really separate sensitivity on short-term rates and on long-term rates. But first of all, what happens as you said if everything stays unchanged, the rate stayed stable. It's not too bad actually. It's a crazy thing to say. It's not too bad, and we must also -- and we discussed the same, right. We must also be aware that the accounting numbers on interest revenues don't tell the full story about, I would say, interest driven revenue. You remember that it's very important to take into account the part of the arbitrage game opportunity, which linked to the SNB exemption level comes in as trading income, right. So we must take this broad number to understand evolution. On this broad number, I mean, if the current situation stays on, we are still in a situation where the exemption level at Swiss National Bank increases every month, every year, by a significant number until beginning of 2023 and by then will stabilize, but still increase if deposits increase slightly. This of course is an opportunity for us to take the place and to do arbitrage and to bring in more revenue. If you do arbitrage by taking Swiss Bank and show some interest income, if you do arbitrage by taking US dollar or Euro, it goes over FX swaps and comes in as trading income. These dynamics, in addition to the -- if things stay unchanged every year, every quarter, the negative interest rate conditions will become slightly tempered by pure game of smart follow, I would call it, right. These elements were in addition to the, let's assume, ongoing mortgage growth, will allow to compensate, and will continue to allow to compensate the repricing effect on the asset side, which is still there, right. Simply it's still under 2025 with regard to is big down movement -- downwards movement of interest rates in 2015, right. We have mortgages which last until 10 years, right, to this level up to 10 years. So in addition to that, we saw also that the rates -- client rates, right, they had kind of a downward pressure. So these dynamics, they work out quite correctly. I mean, it's not a sexy story, but it's just a defense story in an environment where we can defend this economically speaking interest income by -- with these drivers. So far okay?

Yes.

Now we come to the thing, that interest rates moves up. But obviously we like positive interest rates very much. And ideally we would like to jump on that, because once we are there, we are fine. We are fine because in nice positive interest environment, obviously we would rediscover commercial margin on deposits, which is positive, right, which represents tens of millions of -- even almost CHF 100 million of revenues, which are not here today. But…

Under which environment is this?

Sorry?

CHF 100 million? The almost CHF 100 million, for what kind of...

I mean, it has really positive influence of 2% to 3%, right. And if we calculate, there's a commercial amount of 50 basis points, which goes quite tricky, right. But the way there is a difficulty, right, the way there is interesting. It's not so much what we see currently, right, that long-term rates go slightly up, there is rather positive, right. But it gets an argument for higher interest rates on long-term, it's not such a problem, right. It is mainly [ when the ] national banks will start, right, to push up the short-term, now Fed has announced 4 levels for 2022. PCE, we don't know in 2002 and BNS, we really don't expect in 2022, but still when this happens, right, when this happens, while the first thing when BNS SNB increases its short-term rates, well, the first thing that happens is that the arbitrage opportunity is grows less obviously all the arbitrage game, I mean this is worthless obviously. The second thing which happens is, of course, that hedging book of work that is good. And the third thing which happens, that is probably the most decisive thing is how will banks behave -- react, right. First, with those clients which have negative interest rates, right, will we just stupidly follow the increase of the Swiss National Bank or will we time lag? While we reconnect to say, okay, somehow we have even for those deposits pay salaries, rent and IT, we discover commercial margin. And then once we went over the zero -- into the zero, into positive ground, the same argument becomes true for those deposits, which currently stack at zero. So these dynamics are decisive, right. And make a difference -- between a bad and a hypothesis is, we talk about CHF 10 million to CHF 20 million difference in annual revenues. It's not material for the bank. It makes a slight difference, however. So I did not answer how it will work exactly, but I mean, we shall be aware that these dynamics of the positive economy, we're living with a positive inflation rate, we expect national banks committed to normalize. We could see tension over 12 to 18 months, also depending on the speed of increases of rates. And once it's through, it will be very nice.

The CHF 10 million to CHF 20 million number you mentioned, Thomas, what again do you assume that for? For the change in rates? You said what happens for 100 basis points or...

Well, I don't want to be precise. But I mean, it's -- we do a lot of scenario, scenario, scenarios, and we try to build it here and there. It's different -- the question is, if we are able to slightly re-discover commercial margin on the deposits or if we will for a time or maybe until it becomes positive just follows the Swiss National Bank with regard to the short-term rate, that's where the difference lies. Now I come to the question number three. Do you remember, before COVID when the Swiss National Bank already had this countercyclical buffer. And it actually -- for us, it was an increase of 0.7% at that time. The increase -- the countercyclical buffer in Switzerland decided by Swiss National Bank with FINMA before COVID was 2% with regards to capital requirements on residential mortgages. And given our distribution of risk-weighted assets, it meant give them our book, our 13% was 30.7% at that time. Now they wanted to give oxygen to banks to work through the potential COVID crisis. Now they probably concluded that COVID is done and the crisis did not really appear. And they are still much more preoccupied by the high housing prices and the dynamics in this real estate market and the lending associated to that. So right now the bank was in countercyclical buffer of 2.5%. And by the regular -- by simple calculation, you understand, it's actually -- and I've crossed check it while I was talking with my specialist, it means 1.0% increase in capital requirements for BCV. So the 13% by October will be a 14% requirement.

That's clear. I misunderstood that. I thought it was a 1% increase in capital requirement, but it's the ratio that increases by 1 percentage point, right?

A percentage point, exactly. You are a very precise person.

There are no more questions at this time. [Operator Instructions] We have a follow-up question from Mr. Stefan Stalmann.

I thought if no one else wants to ask, maybe I could throw in one or 2 more questions if time still permits. The first one just very narrowly on the trade finance exposures. They were actually down about 10% from June. Is it fair to assume that that's basically the impact from your Russian and Ukrainian portion, so to speak, that you ran down the book because of that?

Yes, roughly. Good assumption.

And I have, let's say, 2 very broad and longer term questions that I thought are a good opportunity to ask, financial nature, but one of them relates to your leverage ratio. Over the years, as long as we have the data, your leverage ratio has always trended down. And I think that's basically kind of the automatic consequence of the fact that your balance sheet is growing by about 4% and you have a relatively high payout ratio without much earnings retention. And I think that's clearly not a problem at the moment. But if you extrapolate that for another decade, it may start to be a problem. You cannot always grow your balance sheet at 4% and grow your equity at 2%. So at some point, you're going to get to a point where you probably have to change something. And I was wondering if on this longer term perspective, you're seeing the high payout ratios that you have been working with over the last 10, 15 years are actually sustainable?

Stefan, it's a nice scenario you're mentioning, but it's a horrified scenario if you're sitting with negative interest and equity interest goes another 10 years. But I think clearly, it's not our leverage ratio, which by that time will have problems, but some others will hit before.

I think, Thomas -- sorry, Stefan, that's the main answer. I mean if you believe that the situation will last for the next 10 years or more, I think many banks and especially banks which are less diversified and where revenue is problem. So probably to them, the ratio -- the regime of those ratios will be discussed. But I don't believe that this will last for the last 10 years. So this is a highly hypothetical question, but a fair question. But my short answer would be when we see the [indiscernible] probably all those will have problem much, much, much before that. Thomas, go on.

Exactly and precisely what Pascal mentioned. There has been already discussions within Switzerland to take out the liquidity, obviously take it out of the leverage ratio calculations, which so far the FINMA and the SNB didn't want to. But as a matter of fact, they will have to adapt to situations precisely for reasons which Pascal mentioned. And that's really -- I mean, in all of those sites, there is no link to our payout ratio or the dividend distribution. I'll take the opportunity to tell you that, obviously, we are now by definition, as announced at the end of the [indiscernible]. And with all the insights and all the analysis and all the thoughts, it will be the work of this year to think and to reposition how we go further. But anyway, the way how we distribute is part of the AND of BCV.

DNA, you have to say.

DNA.

And maybe a final question, I promise, it's the final one. But again, looking slightly across kind of beyond the short-term trends, your tangible fixed assets are coming down almost every year and they have come down again in 2021. And also your depreciation charges are flat to slightly down over the years. And that's quite different from what I see at other banks, which are investing a lot -- lots of capitalized software, rising amortization charges on these capitalized software investments. So I'm wondering, have you may be invested a bit cautiously? Do you expect that these trends that you have shown in the last couple of years are sustainable or do you think that at some point we may actually see more loads will jump in investments, in particular, on the tech side that could drive these numbers up and would eventually also come into the P&L through amortization charges?

Stefan, thank you to give me the opportunity to talk about that. As of matter of fact, there are 2 drivers here. The first is that our IT strategy of in-sourcing the IT experts and of taking out the VAT for ABM and managing our sales makes it that IT investments, it has peaked -- the same output has become cheaper. So this is a key element for the answer, because from an output level, we're definitely not decreasing our IT investments from what we deliver. And then the second part of the answer is that, on a group perspective, we had depreciation charges for the goodwill of P&L, which decreased already in 2021 compared to 2020 and which will be zero next year.

I would add 2 points. I think those points are totally correct. I would add 2 things. First one being that, I think we've been more clever than some banks in investing carefully in a very smart way into the digital world. I mean, some banks invested in fintechs in many initiatives, and basically, I don't see the returns of those initiatives. We were very, very cautious in selecting the right, let's say, the right investment in terms of the whole digitalization work. I never believed that the banks will disappear, that everything will be changed. Remember, in 2016, everybody thought or many people thought that the national bank would disappear and everything will be done by other new actors. So we were quite careful. This is the first point. The second point, you see more and more now in the IT world the notion of software as a service. So basically, you no longer invest in a piece of software or hardware that you buy and then you amortize over 3 or 5 years. You take it like -- you take a fees every year and the software is run somewhere in the cloud and you just use the software, so it's a software as a service. So you shift here very clearly, depreciation element against, let's say, operating expense. So that trend will continue because I mean more and more software providers, hardware providers are trying to go that way. This is normal. They're shifting their business from a kind of asset-based business to a service business, which makes sense. So that plays a role also in this trend that you very, very well spotted.

I think what Pascal just mentioned will be an element partly for the future.

That started already. I mean, for example, we are thinking about a new software. And we have to take this piece of software under software as a service, which I don't really like because you will get cybersecurity issue, et cetera. But this is a trend in the software business in the industry. For example, I think the big German guys, SAP, I think in couple of years, SAP will be just distributed as a software as a service.

The next question is from [ Andreas Brun ] from Vontobel.

I think you partially answered some of my questions already, but one on trade finance. Do you actually think that you will close the gap in 2022 versus pre-COVID levels with regards to business activities? Then the second one. In your outlook, you said business activity in 2022 is in line with previous years, but you did not say that is in line with 2021. Where do you think you cannot match the '21 results? You virtually commented on commission income, but are there other activities where you do think will slow down? And then finally, my third question on NII in really short-term, in 2022, I guess it's still under pressure. Maybe you can give us some color on the drivers of interest expense and interest income dynamics in the short-term?

So the first question was trade finance. I don't see we will close the gap in 2022. Without the problem going on in Ukraine and Russia, we would have closed the gap, definitely. But now I'm not sure. So I believe we will not. We will close, we will not close the gap. I hope to be able to do it in 2023. That's the first question. The second question, I mean, you see it's always difficult. I mean, in terms of commission income, I think I have already commented that, so I don't want to come back to this one. Interest rate should be, let's say, closer part to last year. Now the question is always the same for a bank like BCV or like some other banks, et cetera. I mean, it's a question of probably having need for -- in credit business for the risk cost. And you see, this year, it was quite low. I don't know exactly what will happen next year. So let's say, the line of volatility will be the commission income line that we have already mentioned and the risk cost. The rest, you see ForEx, ForEx structure, pretty sure they were up, ForEx must be down. So probably we will land in the middle. Now it's impossible to get BCV result plus/minus CHF 20 million. I mean this is just impossible. So this is why I prefer to say in line with previous years. I think 2020 was a bad year, and I don't expect to be as bad as '20. Now whether we will repeat CHF 379 million, I don't know. I mean, if you look, let's assume the financial market will be not as good as last year, probably we will lose CHF 10 million due to that line. So it's difficult to be more precise than that. So this is why we carefully selected our language to say in line with previous years. But I cannot comment more than that. Maybe you can make the average between 2020 or 2021, but that would be not good because I think 2020 was really a bad year. We had problem in trade finance. But I cannot commit that we will make CHF 379 million next year. But what I can commit, I mean, we always said that we will pay a high dividend. We will stick to our policy that we announced some years ago. And I can tell you, it will be for me -- we need to have very strong structural problems in order to decrease dividend. We don't want to do that. We never did it. And I will never do it unless I'm totally forced to do it when I have no other option. I hope it helps answering your question.

I'll take your third question with NII short-term 12 months. Well, first of all, I think we stick to the hypothesis that the short-term rates in Switzerland will not move over that time horizon. So basically, we will stay exactly in the same dynamic as I just explained before with repricing of the assets, with volume growth on the asset side, some repricing on the liability side, some toughening, tightening or negative conditions on liability side. And finally, the arbitrage continuing to basically make such a whole thing that provides a stable. Interest income from an economic perspective, and that is a key point now, it's in my arbitrage, I use more dollars. You will see lower accounting interest income and higher trading income. If I do my arbitrage fully over Swiss francs, then this will be more stable. So it's actually this point, which I will have to comment on as we go forward because the accounting numbers do not exactly show the dynamics. But from a bank perspective, on the short-term, we are interest income that we think about something stable.

There are no more questions at this time.

Pascal, please?

Okay. Thank you, everybody. Have a nice afternoon and really a nice day for those are calling from the U.S. Bye, bye. See you next time. Talk to you next time.

Bye-bye.

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