Money, interest rates and real estate

The strong franc as a permanent condition

The Swiss franc has been one of the strongest currencies in the world for half a century. Its strength is both a reason why foreign clients hold assets in Switzerland and a burden for Swiss banks whose costs are in francs while much of their revenue is earned on assets denominated in euros and dollars. For a Lugano bank serving Italian clients the relation is direct. Its client assets are largely in euros, its fees are calculated as a percentage of these assets, and its salaries, rents and taxes are paid in francs. Every appreciation of the franc against the euro reduces revenue in francs without reducing costs. The decade after the financial crisis of 2008 showed the effect clearly. The franc appreciated strongly in 2010 and 2011, the Swiss National Bank set a minimum exchange rate of CHF 1.20 per euro in September 2011 and abandoned it on 15 January 2015, when it also lowered its policy rate to minus 0.75 per cent.¹

The period of negative rates lasted until September 2022, when the SNB raised its policy rate by 0.75 percentage points to 0.5 per cent in response to inflation.² After a short phase of positive rates the SNB lowered its policy rate again in several steps and reached 0 per cent in June 2025.³ At its monetary policy assessment of 24 September 2026 it left the rate unchanged at 0 per cent. It forecast average inflation of 0.7 per cent for 2026 and 0.8 per cent for 2027 and 2028, expected growth of Swiss GDP of 1.5 to 2 per cent for 2026, noted that the recent depreciation of the franc was supporting the economy and reaffirmed its willingness to intervene in the foreign exchange market as necessary.⁴ For the next decade the realistic assumption is a franc that remains strong in real terms, interest rates close to zero with the possibility of a return to negative rates in a new crisis, and a central bank that uses foreign exchange interventions as its main instrument against excessive appreciation.

The interest margin and the business model

Interest rates matter for Lugano's banks in two ways. The first is the interest margin on the balance sheet. Banks with large deposits and mortgage books, such as BancaStato and the Raiffeisen banks, earn more when rates are positive and the spread between lending and deposit rates widens. The years 2023 and 2024, with positive policy rates, produced exceptional interest income across the Swiss banking sector. The chief executive of BancaStato, Fabrizio Cieslakiewicz, described them as "unrepeatable" years when he presented the results for 2025, which showed an operating result of CHF 110.7 million, a group profit of CHF 60.1 million and a payment to the canton of CHF 57.4 million.⁵ A return to zero rates compresses the margin again and forces banks to rely more on commissions and fees.

The second way is less direct. Private banks earn most of their revenue from fees on assets under management, which depend on the performance of financial markets and on client activity. Low interest rates support asset prices and therefore fee income, while they reduce the income from client deposits that private banks place with the SNB or in the money market. During the years of negative rates many banks passed the cost of negative rates on to large depositors. A renewed period of negative rates would reduce the attractiveness of cash holdings in francs for foreign clients and would again test the willingness of clients to pay for safekeeping. For the scenarios the important point is that none of the plausible monetary paths restores the high margins of the period before 2008. The financial centre must earn its living through advice, asset management and services, with a cost base adjusted to a world of low interest rates and a strong franc.

Notes

1. Swiss National Bank, "Swiss National Bank sets minimum exchange rate at CHF 1.20 per euro", 6 September 2011, https://www.snb.ch/en/publications/communication/press-releases/2011/ pre_20110906; Swiss National Bank, "Swiss National Bank discontinues minimum exchange rate and lowers interest rate to − 0.75%", 15 January 2015, https://www.snb.ch/en/publications/communication/press-releases/2015/pre_20150115. ↩
2. Swiss National Bank, "Monetary policy assessment of 22 September 2022", https://www.snb.ch/public/asset/en/www-snb-ch/publications/communication/press-releases/ 2022/pre_20220922/publications0_en/pre_20220922.en.pdf ("raising the SNB policy rate by 0.75 percentage points to 0.5%", effective 23 September 2022). ↩
3. Swiss National Bank, "Monetary policy assessment of 19 June 2025", https://www.snb.ch/en/publications/communication/press-releases-restricted/pre_20250619_2 ("lowering the SNB policy rate by 0.25 percentage points to 0%", effective 20 June 2025); Swiss National Bank, "Monetary policy assessment of 19 March 2026", https://www.snb.ch/en/publications/communication/press-releases-restricted/pre_20260319 (rate unchanged at 0%). ↩
4. Swiss National Bank, "Monetary policy assessment of 24 September 2026", press release, https://www.snb.ch/en/publications/communication/press-releases-restricted/pre_20260924. ↩
5. Report on BancaStato's results for 2025, laRegione, 13 March 2026, https://www.laregione.ch/1910993, reporting the statement of the chief executive on the "unrepeatable" years 2023 and 2024. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of August 2025.