Lifting of the ban on loans and mortgages vital for PostFinance
Today the Federal Council opened the consultation procedure on the partial revision of the Postal Services Organization Act. The key element of the bill is the lifting of the ban on PostFinance providing loans and mortgages. Swiss Post and PostFinance expressly support the Federal Council’s proposal. It is essential that the ban is lifted for PostFinance and to ensure overdue equal treatment with other Swiss banks. With a strong PostFinance, Swiss Post can maintain public service provision for Switzerland and viably improve it for the future.
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PostFinance was made legally independent in 2013 based on a decision by the Swiss Federal Parliament. It was granted a banking licence, assumed all the associated obligations and has since met all regulatory requirements. However, in contrast to all other banking institutions, Parliament imposed a ban on PostFinance providing loans and mortgages. This means that PostFinance was not on an equal footing with all other banks, whether in the private or public sector.
Erosion of interest differential business since 2009 financial crisis
PostFinance’s main source of income is the interest differential business. The banking and financial crisis of 2009 led to negative interest and a sharp fall in interest rates. Both factors have increasingly eroded PostFinance’s business model. Interest income has fallen by a figure in the triple-digit millions each year. In 2019 alone, PostFinance’s interest and dividend income declined by 164 million Swiss francs. While commercial banks operating on the loan and mortgage market can absorb this, PostFinance’s interest margin is clearly declining. This has major consequences: PostFinance previously made a significant contribution to Swiss Post’s positive overall result. PostFinance is now becoming a financial burden and is no longer a source of financing. This is particularly concerning as PostFinance’s profit does not go to private shareholders, but benefits public service provision and is used by Swiss Post for investment.
First, urgently needed step into the future
Swiss Post and PostFinance expressly support the Federal Council’s intention to lift the ban on PostFinance providing loans and mortgages and put PostFinance on an equal footing with other banks. It is a first, urgently needed step into the future and will ensure a level playing field on the financial market. There is no reason why PostFinance should be the only bank not permitted to provide mortgages and loans. The fact that PostFinance is wholly state-owned as part of Swiss Post is not a valid argument either. Publicly owned cantonal banks are not subject to such restrictions, despite the fact that – in contrast to PostFinance – they usually have a general state guarantee from the canton concerned.
Lifting the ban is essential to the long-term survival and competitiveness of PostFinance. This is the only way PostFinance can generate income for the Swiss economy. However, it is not the only important measure required to ensure PostFinance’s future viability: PostFinance itself will also set a new course for the future with its strategy and related measures. Swiss Post intends to continue financing the public service and the investment required from its own resources without state subsidies, which is why Swiss Post needs a robust PostFinance.
Temporary capitalization guarantee required in the short term
The Federal Council is also proposing a capitalization guarantee based on the too-big-to-fail regulation. This step is necessary owing to PostFinance’s inadequate earnings situation. It will no longer be able to meet FINMA’s stricter capital requirements for emergency capital from its own resources in the foreseeable future. Swiss Post has already invested just under two-thirds of its equity capital (6.1 billion francs) in PostFinance and also bears liability with eligible debt capital totalling 200 million francs and a guarantee in the event of a crisis amounting to 1.5 billion francs. This means Swiss Post’s financial capacity is exhausted.
A potential partial privatization may help to raise equity, but only if the ban on lending is lifted.
The Federal Council’s consultation procedure also raises the prospect of opening up PostFinance’s shareholder base over the medium term, enabling equity capital to be raised at a later stage. As the owner of PostFinance, Swiss Post supports this proposal and will examine it in close cooperation with the Federal Council. However, the lifting of the ban on loans and mortgages must be resolved first. If the lifting of the ban fails, the assessment of a possible partial privatization will be unnecessary, because this option will remain unattractive to new shareholders.
With around 4.4 million accounts, total assets of 125 billion francs and a universal service obligation for payment transactions, PostFinance is a systemically important bank and a key player in the Swiss economy. The debate over PostFinance’s future concerns 2.7 million customers, which is more than a third of Switzerland’s adult population. In addition, PostFinance fulfils the public service mandate in the field of payment transactions on behalf of the Swiss Confederation from its own resources without state subsidies. PostFinance is also a key pillar in developing Swiss Post’s business model and securing Swiss Post’s overall public service provision in Switzerland.