Cantonal Banks

Methodology

Our methodology relies on financial ratios to assess the annual performances of the banks. The first step consisted of gathering a list of relevant ratios, coming from various specialized sources such as academic papers, analysts' researches or financial data providers. From an initial list of 50 ratios, 14 indicators have been retained through a selection process comprising successive filters. The correlations among the ratios have been analyzed in order to avoid a certain redundancy; the indicators showing a high interdependency with their peers have been removed since they bring few additional information.

The selected ratios are the following ones:

  • Profitability
    (1) Return on equity (ROE)
    (2) Ordinary profit margin (OPM)
    (3) Noninterest expenses to revenues (NIE)
  • Efficiency
    (4) Employee expenses per employee (EEE)
    (5) Gross profit per employee (GPE)
    (6) Return on loans (ROL)
  • Growth
    (7) Assets growth (AG)
    (8) Revenues growth (RG)
    (9) Loans growth (LG)
  • Liquidity
    (10) Loans to assets (LTA)
    (11) Cash assets ratio (CAR)
  • Capital adequacy
    (12) Deposits to equity (DTE)
    (13) Financial leverage (FL)
  • Asset quality
    (14) Impaired loans ratio (ILR)

The ratios have been translated into grades from 2 to 6, with increments of 0.5. For each of the 14 ratios, the grades of the 240 observations (24 banks over a 10 years period) are symmetrically distributed around a mean equal to 4. The performance (final grade) of a bank for a given year corresponds to the arithmetic average of the grades obtained for the 14 ratios. An annual ranking within the banks can be retrieved according to their final grade.

It is important to note that cantonal banks are subject to different framework conditions: in particular, there may be important differences in the cost of living from one canton to another. The business models adopted by the cantonal banks are also different, which has an impact on their costs and performances. Finally, the competitive situations may differ from one region to another. These differences can affect the rankings

We also note that the grades can be close to each other and even identical (with the exceptional case of 2014, with 6 banks ranked 15th). For this reason, the rankings might be sensitive to small changes in the banks’ grades: from one year to another; a bank might experience a jump in its ranking even if its grade did not change that much. However, after a detailed and individualized study of the historical banks’ performances, it turns out that the jumps in the hierarchy are mainly due to punctual events.

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