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Targeted use of growth potential in corporate client business
The Liechtensteinische Landesbank (LLB) is the most traditional financial institution in Liechtenstein and one of the most trusted banks in the world. The majority shareholder is country of Liechtenstein. The LLB stands for security and stability as well as client orientation, which is reflected in every interaction, every decision and every product it offers. Client trust is the foundation of its actions and characterizes its services.
Tailor-made solutions for companies is one of the main pillars for significantly promoting the economy in the home markets of Liechtenstein and Switzerland. With 1,501 employees, the LLB Group is mainly present in Liechtenstein, Switzerland, Austria and Germany. At the end of 2024, its business volume amounted to CHF 113.5 billion.
IFBC has been supporting the LLB for years with various advisory services - most recently in the further development of the risk-adjusted pricing approach in the lending business. In the following interview, Christoph Reich, Group CFO of the LLB, provides insights into current topics of bank management and the lending business for corporate clients.
As a universal bank, we pursue a clear ambition: to be number one in Liechtenstein and the region. The lending business plays a central role in the LLB Group's business model. In addition to the traditional mortgage business for private clients, we offer corporate clients in Liechtenstein and Switzerland a broad range of financing solutions and excellent expertise. We attach great importance to long-term client relationships and customized solutions that strengthen our role as a reliable partner in our target markets. In addition to operating loans, guarantees and Lombard loans, we are a leader in comprehensive solutions for real estate financing. We see further growth potential in the corporate client business in particular and have therefore set up new teams in Zurich and St. Gallen.
The risk-adjusted pricing model has been in use at the LLB Group for several years and has proven its worth. With the help of the RAP approach, we set the prices for loans in such a way that they reflect the individual risk of a credit position as objectively as possible. This means that a lower interest rate is paid on loans with a better credit rating or quality of collateral, while a higher interest rate is applied to loans with a higher risk. Risk-adjusted pricing is therefore a very important component in determining the price point of individual loans. In short, the aim of risk-adjusted pricing is to grant loans at prices that take appropriate account of risk, capital requirements and the intensity of support, thereby increasing profitability.
The greatest challenges lie in the balance between competitive prices and an appropriate consideration of the objectively determined unit costs of a loan. Unit costs include cost components such as refinancing costs, risk costs, equity costs as well as processing and distribution costs. If these unit costs are deducted from the customer interest rate, the result is an objectified net margin for assessing an individual credit transaction. It is important to continuously adapt these models for determining the cost components to the changing market environment and regulatory requirements. The capital requirements under Basel III that will apply from January 2025 in particular will have an impact on the costs of a loan and therefore on pricing.
The merger of UBS and CS has led to major changes in the credit market. We are seeing many companies and private clients looking for new financing partners. This has noticeably boosted demand for credit. At the same time, the framework conditions on the interest rate markets have changed. The refinancing costs for banks have become significantly more expensive and the capital requirements for higher-risk loans have been tightened. This has prompted many banks to be more cautious when granting loans. The LLB Group is very well positioned in the corporate client segment, and we see great opportunities for targeted growth, particularly in this market situation. Our focus is on being a reliable financing partner for our clients.
As part of our ACT-26 strategy, we are investing a total of CHF 100 million in digital transformation. We are focusing on expanding our digital product offering and optimizing and automating our core processes to increase efficiency, promote growth and improve the customer experience. The measures already implemented include the overhaul of mobile banking, digital onboarding for new customers, the introduction of Salesforce (CRM application for customer advisors) for personalized customer advice and the option to extend existing mortgages online - up to twelve months in advance.
There is no doubt that the role of the CFO has changed significantly. While financial reporting, cost management and risk control used to be the main focus, strategic planning and control, integral risk management, efficiency enhancement and digital transformation have now been added as key areas of responsibility. In many areas, risks have to be managed that did not exist a few years ago or did not exist in this form. For example, information security, customer and data protection, the prevention of financial crime and cyber risks. In order to protect customers and the bank, defensive measures must be constantly adapted to changing circumstances and developed further.
Regulatory requirements, especially those from the EU, have also increased dramatically during this time. There is now no corner of a bank that is not subject to strict regulation. The scope and speed with which banks are expected to implement the numerous regulatory programs is a major operational challenge and entails enormous costs. Unfortunately, the authorities are not always creating more security and stability, but in some cases also more bureaucracy, for example in sustainability regulation.
The exciting thing about my role as Group CFO is to channel this dynamic of change and operationalize it together with the CFO team and our peers in the bank. In future, we will no longer act solely as finance and risk managers, but see ourselves as strategic partners for the successful implementation of the corporate strategy. The overarching goal is growth, while keeping opportunities and risks in balance.
You don't have to be a prophet to recognize that the market environment is deteriorating. On the one hand, interest rates are falling across the board - in the Swiss franc we are already talking about the threat of negative interest rates again. This gives the real estate market a further boost and offers attractive growth opportunities. The high demand from banks for customer deposits is making refinancing costs more expensive, which is having a negative impact on net interest income. Banks must keep a close eye on the balance between targeted growth in the lending business and the costs of the refinancing mix.
On the other hand, banks have invested heavily in growth, digitalization and regulation in recent years, which is driving up costs. Accordingly, topics such as prioritization, efficiency, operational excellence and stringent cost management will once again come to the fore in order to slow down cost growth.
In the first three years of our ACT-26 strategy, the LLB Group has grown consistently and profitably, become more efficient, and we have made important investments in the digitalization of our products, services and processes. Our strategic KPIs are all on track. We are therefore starting this phase in a very good position and are optimistic.
Christoph Reich, Group CFO of the LLB, has been a member of the Group Executive Board for 13 years and Deputy Group Chief Executive Officer since 2022. He is also Deputy Chairman of the Supervisory Board of LLB (Österreich) AG, Deputy Chairman of the Board of Directors of LLB (Schweiz) AG and a member of the Board of Directors of LLB Asset Management AG. Previously, he worked for the Asian Development Bank (ADB) and KPMG, among others.
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