The Retail & Corporate Banking Division of the LLB Group offers the full range of banking and financial services for private and corporate clients (see chapter “Retail & corporate banking”). For over ten years the LLB Liechtenstein Pension Fund Foundation has been an important player in the Liechtenstein pension fund market.
Traditionally, savings and mortgage lending have been major elements of the LLB’s business. During 2015, mortgage loans accounted for 87.2 percent (2014: 87.1 %) of client loans granted by the LLB Group, corresponding to CHF 9.6 billion (2014: CHF 9.3 billion). With a market share of around 50 percent, LLB AG is the market leader in Liechtenstein. In the east and north east of Switzerland, Bank Linth is an important partner for real estate financing. Mortgage lending is its most important area of business. In 2015, mortgages reached CHF 5.2 billion, thus exceeding the five-million mark for the first time.
Real estate markets
The development of the real estate and mortgage market plays a key role in Liechtenstein’s economy. As the Liechtenstein Financial Market Authority (FMA) reported in its 2015 study of the Liechtenstein real estate and mortgage market, at CHF 10.7 billion at the end of 2014, the mortgage loan volume made up approximately 180 percent of the country’s economic performance. Over the last two years, the FMA has tightened its risk controls of the bank’s mortgage business. In the meantime, the rise in real estate prices has eased and construction activity has slowed down
The prices for residential property in Switzerland, adjusted for inflation, are at the same level as they were at the height of the real estate bubble at the beginning of the 1990s. On account of the anti-cyclical buffer (ACB), since 30 June 2014, the banks have been obliged to hold an additional two percent of equity capital for the mortgage loans granted for the financing of residential property in Switzerland.
The LLB Group sees little risk of an abrupt price collapse in Liechtenstein and Switzerland. We expect the real estate market to continue to be attractive, but foresee slower and more selective market growth. To achieve sustained profitable growth, we are counting on the quality of the mortgage portfolio and risk-conscious growth carefully tuned to suit the region and the type of property. At the same time, we shall continue our policy of consistently hedging interest rate risks. Currently, we have identified four major developments, which have become visible in view of the historically inexpensive financing possibilities coupled with rising real estate prices:
- The measures implemented by the supervisory authorities and central banks are contributing to the fact that the banks in Liechtenstein and Switzerland are becoming more selective in granting loans.
- The negative interest introduced by the Swiss National Bank has led to slightly higher mortgage interest rates, which tend to have a restraining effect.
- By increasing their investments in real estate, investors are seeking higher returns; among these investors are increasingly pension funds and insurance companies.
- Insurance companies and pension funds are frequently appearing on the market to offer mortgages, which is making competition more fierce.
All four of these factors support the growth of the real estate markets in Liechtenstein and Switzerland.
Liechtenstein pension fund market
The aging society is a key topic of future trends. Consequently, corporate pension provisioning, which is financed via a capital funding system, is an increasingly important subject. In a similar manner to Switzerland, Liechtenstein bases its retirement provisioning on a three-pillar model.
In Liechtenstein making the necessary adjustments for the demographic changes and the more challenging economic environment is easier and more flexible than in Switzerland. Moreover, in March 2015 the Liechtenstein government initiated a reform of its corporate pension systems. The new law – together with the revision of the state pension scheme ( AHV) – should come into force in 18 months. Liechtenstein intends to confront these challenges in good time to ensure a stable retirement provisioning system.
LLB Liechtenstein Pension Fund Foundation
In 2015, the pension fund market encompassed 25 pension fund schemes. The LLB Liechtenstein Pension Fund Foundation is a strong pillar of the pension fund market in Liechtenstein.
Over the last ten years, the LLB Liechtenstein Pension Fund Foundations has established itself as a competence center. As the youngest pension fund in the country, it ranks as the number two among the independent collective foundations with a market share of 30 to 40 percent.
At the end of 2015, it managed CHF 501.9 million of pension fund capital (2014: CHF 472 million). It benefits from the powerful investment competence of the LLB Group. The pension fund capital is managed in accordance with the LLB’s asset management concept. The foundation provided services to 356 (2014: 365) companies having 4’510 (2014: 4’187) active insured persons. The LLB Liechtenstein Pension Fund Foundation is one of the few pension funds to offer its members two investment strategies. The interest rate on the retirement capital with the Conservative strategy and the Dynamic strategy stood at 0.75 percent for both strategies in 2015 (2014: 3.0 % and 3.5 %).
In 2015, the LLB Liechtenstein Pension Fund Foundation kept the technical interest rate at 2.75 percent (2014: 2.75 %) and converted the old-age credit balance upon retirement at age 64 into a pension at a rate of 6.7 percent (2014: 6.8 %). The foundation has a very good structural ratio: for each pensioner there are 27 active insured contributors (2014: 31 active insured contributors).
Since 30 October 2008, LLB Professional Pensions AG has managed the Swiss ALVOSO LLB Pension Fund. In 2015, 278 (2014: 255) companies with 1’469 (2014: 1’455) employees were serviced by ALVOSO. The pension fund capital amounted to CHF 238 million (2014: CHF 220 million).