Banque Cantonale Vaudoise (BCVN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the BCV 2024 Half Year Results Conference Call and Live Webcast. I am Alis, the chorus call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] 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 Pascal Kiener, CEO. Please go ahead, sir.

Thank you very much. Good afternoon, everybody. Let me jump directly on Page 4. Those are, for me, the forming points in the H1 results. First of all, we are operating in a still positive economy. Business trends are all up. We will discuss that later. But basically, the economy is strong, very resilient. Maybe we don't have a spectacular growth, but nevertheless, this is a growth expected between 1% and 1.5%. Second main point, basically a strong growth in the mortgage business. We will explain that later. Our revenues are stable. But as you have seen in the results this year, a component of different FX being growth in mortgage business or in credit business, and, let's say, impact of the movement of interest rates as well as also some element in the balance sheet management, which were less positive than last year. So basically, H1 result below last year. This was expected. We also communicated that in February when we announced the 2023 result. So basically, it's minus 6% and minus 8%. But nevertheless, those are very good results since they are the second best H1 results in BCV's history. Okay. Key figures on Page 5. I'm not going to comment on that. In terms of business trends, maybe the main point here is the growth in mortgage. I think there are a couple of reasons. The first one is basically a very dynamic market, very strong growth in the market in this part of Switzerland due to the interest rates going down, of course, and that trigger client or customer to buy house or to buy flat, take a mortgage, that's first point -- or to increase the mortgage. Second point is strong growth in population in Switzerland, especially in the Canton of Vaud, but that fuels also the growth in the mortgage business. Another reason is the dynamic happening today in Switzerland following UBS Credit Suisse merger. We can take advantage of this merger. Those are actually the 2 main drivers. And of course, our people were quite well and very intensively following this merger to be able to, let's say, take advantage as much as possible of what's going on. The main point here I would like to make is we haven't changed our underwriting policy and we still have the same criteria in the credit business or in the mortgage business. We can acquire a bit more business because of this merger, because of the dynamic of the market, but we have not changed anything in our credit policy. I think that's important to stress. In terms of other loans, I mean, there's a compensation between ongoing reversement of those so-called credit -- COVID credit and the ongoing growth in the business. okay. Deposits are quite stable. You see, again, here, you have 2 main effects, a normal seasonal situation in the large corporate. And also they are looking also for liquidity and an increase of individuals in Switzerland as well as small SMEs and some institutional clients, okay. I think that's clear, maybe we might have some questions later. Again, solid rating on Page 7, being financial ratings or PAG rating. I'm not going to comment that. So retail banking is doing very well. I mean, of course, with a 4% mortgage growth, which will be kind of 8% on an annual basis, it's quite a lot. And revenues are up and the profit also. The area of several effects. The first 1 is the growth, of course. The second one you don't see that in the growth, but this is an increase in transaction activity, especially ForEx. So Swiss people, we have quite a lot of locations to move which is not during this first semester. And the third reason is basically some internal transfer pricing element, which are quite complicated to explain. We were not playing these numbers, but let's be clear, yes. I mean if you look -- I mean, the retail banking business was able to get some interesting increase in deposits. And those deposits, they have a kind of a duration of 2 to 3 years. So from a transfer pricing point of view, this is very favorable to the retail banking business. So basically, that's explained also part of this increase. If necessary, maybe Thomas can give some more information later. The corporate banking business, again, here always, I mentioned to you, we have to distinguish different segments here because of the dynamics and the customer are completely different. First of all, the SME, which is core business in Canton of Vaud. So you see that the numbers are up, deposits are up, which means also that they are quite liquid. They are in good shape. And in terms of mortgage and loans, this is slightly up 2%. If we get rate, we don't consider those curvy lines in results, which are being reimbursed, slowing slowly over time. Real estate firm. So basically, here, this reflects also the very dynamic real estate market and mortgage market, and you see that everything here is up. Large corporate, again, as I said, basically seasonal volatility in deposit, a little validity in liquidity. So we have nothing special to mention. Trade finance. If you look at the balance sheet, this is slightly up. But in terms of -- if we take the average volume, business volume over the period, this is down 9% compared to last year. Basically, as we already mentioned, we are careful in this business given the general political uncertainties and different conflict in the world, for those who know who follow BCV for quite a number of years, you know that we have acquired, let's say, we had a significant exposure in Russia and Ukraine, which is normal because Ukraine export a lot of agro business as well as steel. And we have completely stopped 2 years ago, 3 years ago, the business with those 2 countries and with some countries -- neighborhood countries of those 2 large countries. So this is clear. And we're not going to compensate that by taking order for the kind of business, more risky. So we hope 1 day for the people there and also for us that this problem will be solved. And then maybe we might see the trade finance again growing at BCV. But for the time being, this is quite difficult. And in terms of credit risk, as I said, the economy is resilient here, and you can see the numbers also. We have a very limited new provisioning needs, which means basically the corporates are doing quite well. Although this is not easy, but they are doing quite well. Okay, wealth management here. Again, this is an aggregation of different numbers, you have the product banking, you have the asset management business as well as our subsidiary, the Piguet Galland, private bank. So you see, again, mortgage loan also up revenues. I mean the market were not too bad in this first half, so basically that you see in the number. Then the next 1 is trading. This is quite stable. I mean some small, limited fluctuation. This is basically -- again, as I always said, this is a client-driven trading. We don't have a in prop trading BCV except intraday when we have to. But I mean, this is very, very, very small. And basically, during the first half, the ForEx trading was quite good, was quite tough and software product activity slightly down basically is compensated. I think 2 years ago it was the other way around. But if you look at the number, the revenues of roughly CHF 30 million. This is quite stable, plus/minus 10%. Okay. Now I hand over to Thomas for the detailed financial results.

Okay. Thank you very much, Pascal, and hello to everybody. So on Page 13, our income statement, the key numbers have already been well discussed, I just want to get to the tax line. Taxes are stable, whereas the net profit or the tax base is slightly down. You must be aware that in Switzerland, we now apply the OECD minimal tax rate for larger companies with at least 1 foreign entity not taking into account its materiality. So as BCV has a subsidiary in Luxembourg for its fund direction, Gérifonds, it's the daughter of the daughter, we have now a higher tax rate of something above close to 14%, which is new calculation for the tax base. And which means we are CHF 3 million higher in taxes as we would have been before. Now looking on the -- one of the key elements to position this H1 result, right? So basically, yes, it is -- being an operating profit or net profit, it is definitely down by 6% to 8%, but it is the second highest as Pascal mentioned, in history of BCV taking away extraordinary items. And I just want to show, for example, we are up 13% with regard to H1, 2022. Remember that H1 2023 was up by more than 20% and to H1 '23 to H1 '22. This was obviously a spike. And now we are 30% above H1 '22. We are cruising now definitely at a higher level than when -- during the negative interest year and that's why we put also on the Page 14, the average of H1, the H1s only 2017 to 2021, which was definitely lower. We are 30% up with regard to that. So we wanted to highlight this for you because I think we think it's a good number to -- for 2024. Now what were the dynamics and revenues in income in a half year, Page 15. Well, first of all, I mean, it is quite -- it's not a copy paste area, but that interest income is stable CHF 290 million. We have different dynamics, right? We have 1 inside the 2 decreases of the interest rate by Swiss National Bank, down from 175 to 125 basis points. And this is a direct hit of what we earn on the liquidity at Swiss National Bank on short lag of interest rate hedging average. On the other hand side, we had these dynamics which Pascal illustrated how is on the lending side. So different dynamics are basically a little bit more difficult interest environment. And you must bear that in mind when you look -- when you think about H2 '24. Well, with regard to commissions, right, I mean it's obviously valuations high, customer transactions high, in the financial markets, customer transaction is high, for the spending needs in the foreign exchange. Card business doing well, so which produces an interesting number of plus 7% on commission fees. Trading income, always keep in mind with regard to the last part of -- that Pascal took you through the sector reporting, which is a lot of allocations of revenues between sectors and show to the trading income sector. But from an accounting perspective, if you look at all trading income, on Page 15, we had EUR 89 million. And the reason why it's down is mainly not a trading activity in itself, but it is what we call the balance sheet management that we take opportunity of the rates paid by the National Bank. And you know that this is with regard to our accounting would impact the trading income. If anyone has a question on that, I'm more than happy to answer your questions, which takes me then to the part of this beautiful chart of the lower part, where we basically separate crystallize the elements. So basically, here, I'm saying that what we're really interested in from an economic perspective is what do we really earn in income linked to interest earnings. And this is what we call the economic net interest income, which is built of the NII before balance sheet management and then the sum of the blues in overall number net income from balance sheet management, which is CHF 319 million plus 11%. That is really what is interest rate due to income, and that is actually down. Because basically, the opportunities for balance sheet management are much lower. That is really the element. And the trading income, which is really -- trading income is a pure number, right? Trading activity is CHF 51 million to CHF 50 million. That activity in itself is pretty much stable. Okay. So I'm happy to answer any questions in regard to that. Page 16 is basically only repeat, the upper part and lower part is new, that is saying that we have really, really margin provision needs. So we had released of CHF 2 million in H1 '23, now we have CHF 1 million net charge. So it's -- which is again a sign of the quality of the portfolio, but also a sign of the quality of our economic environment. Page 17 is quite interesting is, obviously, the operational results are marked by the higher operational costs. We have a personnel cost increase, which is driven by different elements. We are really proud to say that we achieved last and -- the third and last step of our IT integration, which we followed through realized over 10 last year. This is for step 3. And by end of June or maybe by 1st of April, we really integrated up to 40 people, which is from Kyndryl or others, basically our IT functions, which were still outsourced but we integrated them. And now we are in full control of run and change including the materials buying and keeping -- maintaining the material of IT infrastructure. So this is a step-up and integrating these people had also some one-shot pension funds of course which were bad in dispersal costs in H1. At the same time, we continue on the development of cybersecurity an ongoing process with ongoing innovation on the hacker cyber-crime side and ongoing innovation on our defensive side. We get very good benchmark results this year. I think we are very well positioned, and we keep on investing in that. Asset management is a growth vector for BCV, we continue to develop this -- and for example, over the H1, we launched it now into -- we decided to get into index funds. We think that the merger of UBS and Credit Suisse allowed us to become a player in this -- on this playing field. Other operating expenses are stable, also given to the fact that normal pace is main Kyndryl IBM providers. And overall, we try to manage costs. On the headcount, you -- basically, I already gave the key number -- key message of half of the increase, which we saw our H1 is given to the IT integration, asset strategy -- asset management strategy, the cybersecurity strategy. And also, I think we think that our -- basically, the pipeline fills up easier given the fascinated environment following the UBS CS merger. With regard to total assets on Page 19. Well, obviously, the key element is the CHF 1.5 billion increase in mortgages. And otherwise, I mean nothing special to signal. On liabilities, you see ongoing deposit inflows and I mean for you to give you a more technical insight, right? You saw on the key charts of Pascal at the beginning that there was by 30 June decrease of deposits from large corporates, right, which is just, I mean, that point in time, and 2 weeks later, it can be different. It's a question of how we price the money market, how we basically treasury wants to attract money, how much we want to pay in bps. If you look at this page, you can see that by end of June, we took a little more due to banks instead of money market from corporates, right, as you can see the number here. So this is a real basically treasury optimization and if you can buy some base points, it go to the left to the right side of this due to banks or large corporate deposits. Well, I mean, ongoing financing of our bonds and our mortgage fund [indiscernible] and increase on shareholders' equity which here from an accounting perspective, integrates the half year result, which is not integrated in the CET1 number so far. Page 21, we see the increase of total under management, 3%, our market-driven 1% is net new money. And the comment I just made on large corporates, you find it again here on the bottom of the page and you see that the net inflow, which is really stable for personal banking, for SMEs and institutionals, is ongoing at CHF 2.3 billion. And obviously, it is onshore focused. The capital ratios, The capital ratios we put here at the end of June numbers, and this is maybe also to answer also some of your questions, which we saw. You must be aware that as of today, rules for publication, the CET number, we use the half year shareholders' equity. But without the net result of the semester, you can see it's CHF 3.5 billion instead of CHF 3.7 billion which makes a comparison with the end of year CET1 and not really consistent. So we see that this ratio is down, yes, 17.5% become 17% and to make it simple, it's obviously mainly, mainly, mainly the increase by CHF 1.5 billion in mortgages, but also other things. And I also wanted to highlight for those who are careful readers of our Pillar 3 report that Pascal mentioned you from a business perspective, the trade lines was an average volumes down. But photo image, what you could see on June 30 was the trade lines was higher. And the risk-weighted assets are calculated on that point in time. Okay. but please come back with questions if you have. The liquidity ratio is pretty much stable and the safety area of about 125%, 130% is 127.4%. And the NSFR, I mean, is obviously for a balance sheet bank like ours. Note issue is at 120%, 119.5%. Okay. So happy to hear your questions later. Pascal, please.

Okay. If we jump on Page 26, just to highlight that we expect the growth in 2024 to be similar to the 1 from last year, 2023. So nothing spectacular, around 1.2%, 1.3%, but it's not too bad. I mean, this is still positive in this part of the world. And we expect 2025 to be better. Now it depends a bit on the development of the overall economic situation, but it seems that sales could be -- could improve during next year. I think Europe in a way has reached the bottom, I hope so, especially Germany, and we'll see whether that is confirmed, but we are slightly more positive for 2025 than 2024. An important business for us is, as you know, real estate. And okay, prices are slowly going up again. Basically, this is due to 2 factors I mentioned. The interest rates went down and also the strong growth in the demand in the population. We have set 1.5% to 2% growth in Switzerland, in this part of Switzerland, a bit more. But basically, there is a strong demand. And let's say, companies are not able to -- I mean the rated companies are not able to produce so many flats as needed. And you see that in those so-called vacancy rate, which is going down slowly. 2023 is moving stable slightly down with 0.98% to 0.96%. So this is nothing but basically compared to 2020, we are down. And I expect this trend to continue since this is more and more difficult to build houses because of lack of space because of policies, environmental policies and other things in Switzerland. And at the same time, we have an increase -- a stronger increase in the population due to people aging, but also a very important due to immigration in Switzerland coming from neighbor countries. Sales economy is quite doing well, much better than our nice neighbor. Okay. In terms of outlook, we can confirm what we said in February, basically, that I expect good results, very good results. But not as good as 2023. So lower result. I think this H1 confirms our guidance, I can only confirm this in this speech. Okay. That's it. Thank you very much, and we are ready for our questions.

[Operator Instructions] Our first question comes from the line of Andreas Venditti, Vontobel.

Firstly, maybe on the FTE number and the costs. You mentioned that we've seen the final step up in in-sourcing. That's why, I guess, we can expect the number of staff growth to normalize again probably? Or how should we see the further build-out of the asset management. And then in terms of the numbers, I think you mentioned with the in-sourcing that there was like a pension fund contribution as a one-off. Could you quantify that?

Okay. So you're right. We expect the growth to level off. Clearly, the IT integration is done -- is finished. And so we're not going to increase in this way. And also asset management, I think we had to hire some people to start the business -- not to start, but to grow the business, to start new areas in this business. Those people have been hired, and that's it. and we expect to see the benefits in the next 2 to 3 years because as you know, when you invest, you get the people, you develop a couple of things and you launch products later, and that takes some time. And then you have also to convince customer, et cetera. So from asset management, I don't expect any further increase. And the same is true for cybersecurity, okay? So basically, I expect in the next, let's say, 2 to 3 years, I mean, in the 2025 and so on. I mean, there will always be signs of fluctuation in the number of people, but I don't expect another growth like we had this year or even last year. That's the first part of the question. And the second part is the onetime contribution. So this is a small number. I mean we don't give any figures, roughly CHF 2 million. This is onetime and this is just for the integration since our pension fund was better than pension fund of the outsourcing company. Okay.

Good to hear. Next one, maybe on the whole topic of firstly, mortgage loan, which was obviously very strong. You explained why. So should we expect this high growth rate to continue, let's say, also in the next half year? Or should we expect some leveling off here as well. And in this context also in terms of net interest income. And I think you explained the economic sites very well. Thank you for the disclosure as usual. But maybe here as well. In terms of margins, how should we see it assuming -- I don't know what your rate scenario is, but assuming, let's say, 1 or 2 further cuts from the SMB versus probably your adjustments of the saving account remuneration. How should we think about this dynamic?

That's a difficult one. I mean economic -- the point. Okay. First of all, the growth, look, I expect a certain leveling off but very small, I mean I don't expect 10% to be clear. But if we would say a year like before that would be a 2% for each semester that would make 7%. I think that's too low. So this shows we lie between 7% and 10%. So if you assume 8% to 9%, I think that should be not too bad, plus/minus 10%, okay? That's the first part of the answer. Then I will give the word to Thomas for the second part. But it's quite -- just 1 remark. I mean this is clear with such growth, we can increase prices or margins in the mortgage business. This is what we are doing. So that might slow down slightly grow. But I don't think because if you look at the same time, the rates -- interest rates went down. So today, it's cheaper to get a 10-year mortgage than it was 6 months ago, and we have better margins. So that's not too bad. Now the other side is savings account, and that's a bit more difficult. I mean, the SMB reduced trials, maybe they might have another reduction and it's difficult to exactly to transfer this reduction to the customer due to competitive reasons. But maybe, Thomas, you can comment?

Yes, right. I mean I think with regard to mortgages, Pascal said it, right. there is volume growth and there is probably potential for at least defending margins given the setup we have in Switzerland. That's a positive factor. We expect Swiss National Bank to decrease at least once on the direct rate. So that's definitely a negative impact on whether the whole liquidity on the short like of hedging. Now -- and I think -- I still think that this environment, which Pascal mentioned that probably the overall charges of deposits will be higher than second half of '23, right? So we have here kind of compensating elements, right, which we should look at. I would say, positively solid NII in H2 '24, but I would not be -- we should not expect a significant growth. Does this answer your question?

Yes. Maybe another 1 for you, more on the technical nature. Does the guidance for first January '24 -- sorry, '25, of course, in terms of risk-weighted assets and the introduction of Basel III final still stands that you would expect a 1 percentage point CET1 improvement from that point of view?

Yes. Yes.

There's no change. We have rather everything has confirmed everything consolidated and also the entrance date has been confirmed from FINMA. So I mean, there's a reasonable prudent that there could always be a surprise. We never know with FINMA,.

You never know. That's the point. I mean we expect but we cannot guarantee it because we never know with FINMA, we have the same black and white.

But our expectations have become even stronger.

The next question comes from the line of Stefan Stalmann, Autonomous Research.

Thank you very much for the presentation. I also have a couple of questions. Maybe we take it 1 by 1 again. Starting with the income producing real estate, where you had very strong growth as discussed. It does look as if this has put a little bit of, let's call it, stress on your funding ratios. I mean, your loan-to-deposit ratio is now the highest that it has been since 2011. And it also sounds as if you have relatively opportunistically funded this somewhere between Interbank and relatively slightly corporate deposits. How does that impact your funding strategy on a more sustainable base going forward, also considering that there could be more growth in the second half. Do have any particular target for loan-to-deposit ratios going forward? Are you going to use more wholesale funding? Maybe you can add a bit of color around that topic?

Okay. Okay. I thank you that you asked this question because obviously in the room, I know, I mean I think over the first half, this was very much calibrated -- and as I mentioned in my presentation, right, the picture by end of June, said the compensated the outflow of EUR 1 billion that day, basically because term placements, which were reimbursed by lending from the interbank market. So which is really a normal treasury business as usual. The loan-to-deposit ratio, I mean, it was exceptionally high over the last years. I remind you that we are targeting rather something like 90% for our solid balance sheet. But I mean, what is correct is that the market dynamics like that, the positive for the first half, but it's not something which could be extrapolated, right? Because that would give questions to funding, that is correctly. So we manage this very carefully with our [indiscernible]. And we -- that's why Pascal gives the outlook which he just did with regards to a rather reduced but still high mortgage close in the second half. But there is very solid balance sheet management and it's a good situation. Now it's probably interesting for you from a listing point of view to look on this Swiss market. By the way, there is interesting publication by UBS on reserves by Swiss National Bank, which has been published today. You must be aware that -- you are aware -- you are aware that the different things which are interesting, right? I mean following this UBC Credit Suisse merger, the liquidity facilities which have been reimbursed with Swiss National Bank, I mean just take liquidity out of the system. There has been the increase in the legal requirements of liquidity, which do not enter into the LCR, which means the initial LCR funding needs. And at the same time, SMB is expected for some time to reduce its total balance sheet, right, taking away to see liquidity instruments out of the market. So there are interesting dynamics, right? And all in all, I would not be surprised that from a market perspective for financial institution, there should be capacitance, the funding becomes more expensive, right? But -- so that's -- we are fully analyzed it into our scenarios. We drive stress test. We analyze this to be ahead of the game. So -- but I think the market is interesting in these times, and we have managed it very carefully.

Maybe if I can add, I can tell you, we're going to carry on to be a liability-driven bank. I mean I don't want to increase the loan book tremendously and then to be too much dependent on the funding side in the wholesale market. So basically, we can grow, but we can also limit our growth, if necessary, because of funding. But I think Thomas is right. A lot of things happening now in the Swiss market. The big picture is that we're going to remain liability-driven.

That's very helpful. Just to clarify 1 number, Thomas, I think you said you would target a roughly 90% loan-to-deposit ratio. I think you were at about 107% in the first half. maybe I'm using a different definition. But how do you want to realistically get down to anything like the low 90s in any foreseeable point in time?

Deposit to loan, deposit, sorry, I wanted to say deposit to loan, sorry about that. I wanted to say deposit to loan.

Okay. Okay. That makes sense.

Both things I used that. I want to say deposit to loan. [indiscernible].

But you see -- I mean, you have to see that in average time, there might be 1 or 2 months or 6 months [indiscernible] is a bit different. I mean those are, I'd say, not targets, but I mean we should see those numbers on an average over time, but not really at one point in time, which might be different for 1 or another reason.

Okay. Understood. The second question I wanted to ask about your loan growth by geography, if you will. So you very helpfully disclose every semester, your loan book inside the Canton of Vaud and then in the other Swiss Canton, it has been already a trend for quite a while that your exposure outside of Vaud is growing much faster than inside of Vaud. And that has also been the case in the first half of this year. And given that you have grown so quickly in income-producing real estate, which is maybe 1 category where you can venture out of the control. Is it fair to say that a good chunk of this growth has actually taken place outside of Vaud? And if so, what is the rationale for you to be growing quite rapidly outside of the downtown as opposed to staying at home?

I think that's a good question. We have to explain that better. We grow at Vaud, as you said, on Canton of Vaud in the mortgage market for individual and SCE. Here, we have a continuous growth more than usual because of the major bases where we grew quite quickly in the last 2 years and also in the semester is outside Vaud, but this is mostly, mostly in real estate funds. So basically estate funds, the risk is almost 0. I mean those funds cannot have more than 30% of debt. So we're talking about funding, real estate funds, well diversified in terms of real estate objects and quite short term and only up to 30%. So almost for those, let's say, real estate fund, the risk is almost 0 -- is 0 by definition. So there's almost no risk. And we grew because I mean, there is no risk. Now the margins are increasing because those funds based also to this merger and due to this merger, they were ready to let's say, to accept our prices better, I'd say, than 2 or 3 years ago, where the market was more competitive and we want to have too low margins. So basically, this is in a way you can call that optimistic. And I have no problem with that to grow outside the Vaud in almost the risk business with, let's say, interesting margins. I mean those margins are, of course, lower than if you do kind of a mortgage for an individual. But again, as I said, the risk is 0. Now this is a business which is quite, let's say, you can stop the business whenever you want because those funds, they have -- they are standard every, I don't know, 3 months, 6 months, and you apply a price to take it or you don't take it. So this is quite interesting because 0 risk for the time being at attractive margins, and if you don't want to make the next one, we just don't do it or maybe you come back in 2 years from now. So this is where we grow. To be clear, we don't grow in let's say, individual or SME customer outside Vaud, except maybe 2 to 3 kilometers from the border of Canton of Vaud, but this is different. This is, let's say, 80% of the growth outside or maybe 60% exactly those are those real estate front.

That's interesting. And the final question I wanted to ask is unrelated to the results, but we had recently message from the Basel Committee about the rates to be used in IRRBB interest rate risk in the banking book, stress test scenarios. And the Swiss rates were going up quite a bit in that Basal Committee paper. And I'm wondering whether you already have an initial view of what this may mean for you and your calculation of IRRBB whether FINMA has already signaled how they want to look at these maybe new rates and what this may also mean for your capital surcharge for interest rate risk in the banking book going forward?

Well, I mean, basically to our understanding, right, we -- in the kind of shifts, we get closer to what -- in Switzerland, what European regulators require in 175 basis point shift basically, we will adjust our calculations, right? And -- but our risk appetite fundamentally is unchanged, right? So if we focus before the 100 or 150 basis points, we will -- where the limit and the measure gets accepted that in the same way. So this will not change. We look at it, it will not change our view on intrinsic view on interest rate, interest rate risk, right? We will adopt internal limited internal measures or we will even continue our own internal measures, and we provide [indiscernible] adaptive statistics. And then you will make the link to the famous markup question with regard to capital requirements, right. Well, FINMA, as we sold as they will soon tell us because basically, it's now almost 2 years, almost 8 quarters that we are on their radar below the allowed. So if they are consistent with themselves, they should take off the markup. And if they, I don't know, excessively prudent or anticipating further interest rate decreases, they could leave it. I mean, FINMA is a quite interesting analyst. But again here, they take it off, they leave it, we will not change our interest rate risk management on the balance sheet because we are completely convinced of it when we do a kind of backward calculations, what if and analysis, we have really went very positive through all those years, we see all these interest rate changes. So obviously, it would be more beautiful to publish a 13% requirement at 14%, but think it's just a question of a pretty full window and nothing else.

Right. So you see no chance that FINMA could actually increase this because with higher stress test rates, your sensitivity would probably go well above the 15% outlier test?

No. I mean there as they work, I mean, I've seen that when the requirement went to 100 to 150, they really did a linear transposition. That's how they work. So it's just a shift, but it will not change the intrinsic view. I believe strongly that's what they did in the past.

The next question comes from the line of Ausano Cajrati, ZKB.

I have 1 question left from my side regarding the balance sheet management. So what are you looking into for H2 and going forward? Do you think there are still some opportunities in that regard? Or is it decreasing?

It's a very good question. Thank you for asking it. I think the overall trend of is that we expect it to decrease, right? It's -- we think that the elements normalized opportunities combination. And by the way, but this is just a kind of signal impact, just some days ago, FINMA set a multiplier for the 2/3 pricing. The multiplier came down from 25 to 22, but it's actually so high that anyway, we don't fill up. Remember that it's a multiplier of the legal reserve, which was increased as a reaction to that. But overall, I mean, we see less volume opportunities for the arbitrage, okay? And we see obviously lower interest rate by Swiss National Bank, right, I mean, which by itself gives less impact to that. So it albeit from the volume side, albeit from the earnings side interest, which is the interest rate of Swiss National Bank, we -- we think that the impact is rather decreasing.

And maybe a follow-up on that. How many rate tax are you expecting?

How many?

Yes.

How many what? We haven't understood your question.

Rate cuts. How many rate cuts are you expecting?

If I knew, I would rich. No, I mean, look from everyone. I mean if you look at the macroeconomic data, First of all, inflation is under control, is well below 2%, 1.3%, 1.4%, 1.2%, it depends on demand, but well below 2%. Second, you see the Swiss franc being very strong. and the economy, 1.3%. So I mean if I were at SMB, probably I would bring the rate down by 25 basis points. This is our expectation. We -- I would prefer not as a CEO of BCV, but unfortunately, that will happen probably.

And if I may, a third 1 at the end, the trend that you are observing in 2024 regarding shifts in deposits. Like last year, it was a trend towards term deposits and saving deposits, now is it stabilized? Or what are you seeing?

Okay. Well, I mean, what we see overall, right, in the market, it's not BCV, but overall, we see that the banks have been quite smart in the way of how they passed on the positive interest rate opportunities on deposits, right, being that has no -- most banks have not so much increased savings. And again, the opportunities for price-sensitive investors to [indiscernible] term placements, right? So that the term placements have overall increased, right? And obviously, also that the need for the deposits of UBS to name and given the context of the liquidity assessment, reimbursements to Switch National Bank has created quite a demand and pricing for term placements. So I think that dynamic, which is on one hand side, a pricing tactic. On the other hand side, demand for deposits will go on.

[Operator Instructions] We have no more questions at this time. Back to you, gentlemen, for any closing remarks.

Okay. Thank you very much. No specific closing remarks. Thank you, everybody. Bye-bye.

Bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call. Thank you for participating in the conference. You may now disconnect your lines. Good bye.