Companies Harmed by Minus Rates, But Start-ups Benefit12 November 2019
Negative interest rates continue to be the hot topic in Switzerland with many financial players taking a stand for or against record low rates. Latest opinion comes from companies in a new survey, and at the same time there was data published on number of start-ups, in which aftermath the subject of negative rates also came up.
Companies Believe Rates Are Harmful
UBS has conducted a survey on 2,500 Swiss companies to check their opinion on negative interest rates and their impact on business and economy. Almost two-thirds of them has answered that record low interest rates are influencing economy in a bad way and that costs of them are outweighing benefits. Even though most of companies are not directly influenced by negative interest rates, because just small part of them pay interest on deposits held in banks. This is why companies are not very much concerned about interest rates, however they can be indirectly influenced, if the economy is hurt by monetary policy. Among companies there is one group that is more influenced by rates and this is exporters’ industry, as such policy keeps franc from getting overvalued, and the EUR CHF exchange rate from futher falling, which is important for exchange rates of multinational transactions. Thus exporters are glad rates are ultra-low. In the same manner companies taking loans benefits from low rates. But still majority of companies that make profits from export believe very low rates are generally harmful for the Swiss economy.
Start-ups business – fintech, biotech, IT start-ups and others – are becoming more and more popular in Switzerland as only this year new 36,590 were entered in the register, according to startups.ch platform. It is a rise of 2.75 percent comparing to last year period from January to October. This spike is credited, among others, to low interest rates. Investors due to low interest prefer to invest money in start-ups, instead, for instance, to store them in banks, which is not beneficial, or to use it to buy Swiss francs or other currencies, assets. Low interest rates environment is making start-ups business flourishing and – according to startup.ch – is guaranteeing that this industry will grow for years to come.
Rise of Part-Time Founders
Apart from low rates, other factor that is making start-ups industry booming, is the fact that part-time founders of companies are becoming thing. People who manage new companies while working full time at others entities, which guarantee they have steady profits, so they are not desperate to make income from start-ups in first period of its existence. This give founders some freedom and also means they can increase or decrease workload depending if start-up turns out to be successful.
Banks not satisfied, SNB not impressed
In recent months also banking business many times has given signs that low rates are harmful for them due to the need to pay huge rates for deposits. Commercial banks consider low interest policy long overdue and not beneficial. But still the Swiss National Bank defends its policy, claiming that the main priority is keeping the Swiss franc exchange rate stable. Moreover Thomas Jordan, the chairman of the SNB, has stated that rates may go even lower soon.