“Our sector has shown its resilience,” said , chairman of the Luxembourg Bankers’ Association (ABBL) during a press conference on Thursday. “Luxembourg banks are among the best capitalised and most stable in Europe,” Hoffmann stated. That is a necessary clarification at a time when questions about a potential real estate crisis in Luxembourg have raised concerns about the stability of the banking sector and its ability to support the economy.
To face this possible risk and also that of a probable economic slowdown, Luxembourg banks have increased their provisions by more than 401.8% to €1.3bn.
That does not mean that the ABBL expects a credit crisis or a collapse of the Luxembourg real estate sector. Defaults on all loans as at 31 December 2022 amount to 1.6%, “well below the European average of 2.3%”.
Moreover, at the end of 2022, credit activity did not weaken over the year. It increased by 3.5% for companies and 5.4% for households. But since the end of the year, loan volume has fallen sharply, up to 40% in certain segments. This worries Hoffmann. The fall has been attributed to the drop in customer demand rather than to the reluctance of bankers.
Bank profitability still a problem
If provisions are increasing, so are profits. They were up by 2% compared to 2021 to €4.101bn.
The increase can be attributed to the rise in interest rates, which has allowed a 39% increase in banks’ interest income to €6.798bn. It is “an increase that is not due to the bankers,” insisted Hoffmann, but to the European Central Bank. It is a windfall that should dry up, according to the ABBL, but which will have enabled the banks to rebalance their accounts. The boost, however, was not enough for dispel fears about the , which is a “question of public interest,” said Hoffmann. “To ensure their important role in society, banks must be stable. And for them to be stable, they must also be profitable.” Like last year, the ABBL estimates that 20% of financial institutions are not profitable.
Currently, there are 121 banks in Luxembourg, three fewer than in 2021. The ABBL expects this trend to continue. Concentration does not mean a decrease in the number of employees. With 26,012 employees, the workforce remains stable. And talent is scarce.
“The issue of attracting and retaining talent remains one of the major challenges for the sector. It is about the sustainable growth of banks, their ability to take advantage of the opportunities of the digital and sustainable transition, to manage risks in a global way and, ultimately, to continue to provide the quality of service that our customers have a right to expect,” commented , CEO of the ABBL.
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The other major challenge for Luxembourg banks remains the digital and sustainable transformation. They are undergoing the transformation like all companies, but to which they intend to contribute by financing it. “Public money will not be enough. In this challenge, the banks play a pivotal role, whether through their credit activity or through the investment products they offer their customers. However, in order for them to play their role fully, our members need an environment that allows them to remain competitive.”
In this respect, the ABBL called for “a regulatory framework that ensures investor and consumer protection, financial stability, and the fight against financial crime, but that also provides the necessary space for its members to innovate and develop in a sustainable manner.”
Election year, a year of demands...
In this election year, the ABBL has drawn up some forty recommendations that should “enable the financial centre to be strategically positioned as a vital and sustainable player in the international landscape.”
Two demands relating to competitiveness were particularly highlighted: firstly, to reduce the overall nominal corporate income tax rate to the current EU/OECD average of around 21%. Secondly, to modernise the tax subsidy regime for investments in digital and sustainable transformation to better support banks in their efforts in this area. The ABBL hopes to make its voice heard despite the fact that Luxembourg employees in the sector represent only 1.4% of the electorate.
In terms of attracting talent, the ABBL calls for an improved training offer that would better take into account the needs of the sector. It also calls for the establishment of public-private partnerships for the construction of housing for young talent. Finally, the ABBL calls for two days of teleworking per week for all cross-border workers.
Read this article in French on the site