Zuercher Kantonalbank (ZKB) booked a record first-half profit of 541 million Swiss francs ($561 million) which was driven by its core interest rate business and the strong performance of its commission and fee business, ZKB announced Friday.

The first half-result extends ZKB's successful 2021 results when it booked profits of 943 million francs. At the same time, the Zurich-based institution was able to attract net new money.

«I am very pleased that we have delivered this excellent half-year result, which follows on seamlessly from our record year in 2021 and was achieved despite the difficult market environment and the high level of geopolitical uncertainty,» said CEO Martin Scholl.

Attracts Net New Money

Another positive development was an inflow of 17.8 billion francs during the first half, compared to 11.8 billion during the same period last year. Like other banks, however, market turbulence took its toll on overall assets under management. At ZKB, AuM dropped by 21.1 billion during the first six months of the year, bringing the total to 388.1 billion francs.

Income Exceeds Cost Growth

Operating income grew 6 percent in the first half to 1.34 billion francs, with all of the bank's major income streams improving on a year-over-year basis.

 While operating expenses rose 3.9 percent during the first half to 765 million francs, primarily on slightly higher personnel costs, general and administrative expenses remained flat. Because income base growth exceeded the rise in costs, ZKB's cost-to-income ratio contracted to 56.2 percent.

Core Business

In its main business of interest operations, gross income rose 4.5 percent to 667 million francs. This came on increased income from its secured interbank business, along with «effective» asset and liability management.

Higher interest rates also played a role, particularly in US dollars, ZKB said. With major central banks around the world ending years of easy money policies and raising rates to combat inflation, higher rates are the new normal. In September, the Swiss National Bank (SNB) will announce its monetary policy assessment and is expected to raise its benchmark rate and end the era of negative interest rates in the country.

CEO Scholl expects that higher interest rates from central banks, the Ukraine war, and other geopolitical events will continue to be a source of market uncertainty and reflected in market developments. Still, he expects ZKB «will generate another pleasing result in the second half of the year,» said Scholl, who is handing over the CEO post to Urs Baumann.