Switzerland still manages almost as much client money as peak levels in 2007, though 20 percent of its banks have disappeared since then and more are expected to follow, according to a study by PricewaterhouseCoopers.

Swiss banks have grappled with massive pressure on hidden offshore accounts, criminal investigations into banks such as UBS and Credit Suisse as well as individual bankers.

Switzerland eventually decided to largely abandon banking secrecy, but has managed to keep its title as the world’s largest offshore money center despite signing up to data-sharing standards laid out by the Organisation for Economic Cooperation and Development (OECD).

Skeletons Out of Closet, But More Challenges Remain

«The period of challenges for Swiss banks is anything but over, even after cleaning up the skeletons in their closet,» the authors of the PwC say in the study.

The pressure on banking secrecy and sharp rise in rules governing their business has eaten into private banks’ margins and taken a major bite out of profitability: their return on equity has shrunk to an average of 5 percent, or roughly one-third of 2007’s average, according to PwC.

Chief among the banks’ challenges is the higher regulatory burden in the next three to five years and increasing customer loyalty through a more personal touch or through products and services, which typically requires additional investment.

Digital Disruption

Non-traditional players and start-ups from the fintech industry are also more aggressively challenging banks on their own turf, although PwC says it is still uncertain whether clients will make the switch or remain loyal to traditional players out of loyalty or trust.

«Not all private banks which are currently active in Switzerland will successfully meet these challenges, and as a result the number of firms will continue to fall in coming years,» PwC writes.

Incumbents must remain «focused but flexible,» according to PwC, in order to respond quickly to emerging technological developments or regulatory requirements.

While the wealth management industry is still seen as an attractive one, bankers can forget about fat margins and high ROE’s achieved in past years, PWC says.

Private Banks Urged to Get Fit

Prominent bankers such as Boris Collardi, head of Julius Baer, have urged the industry peers to stop resting on laurels and whip themselves into shape. This week, UBS boss Sergio Ermotti said the best his bank could hope for in private banking was to maintain or keep profitability such as through pricing measures, not to improve margins.

Roughly one-quarter of all money that is managed offshore is held in Switzerland. Offshore money makes for roughly half the overall funds managed in Switzerland, which relies heavily on finance for economic growth.

Between 2006 and 2014, the number of private banks operating in Switzerland has slid by nearly 24 percent to 134, with only three new private banks opening up in the last five years.

For existing firms, the choice is to grow or die, according to PwC. Maintaining the status quo is also an option, but only if private banks can clamp down on costs while finding new sources of revenue.