The Luxembourg banking market has recorded an overall 2% increase in net profit for the year 2022, according to a recent report. The German, Swiss, French and Luxembourg segments posted increased net profits ranging from 21.6%-67.2%, while the UK and North American segment recorded declines in aggregate balance sheet of 2.4%.
The study, published by the consulting outfit PWC, categorised banks into six main country segments, based on where their corporate parent is located: French, German, Swiss, Chinese, UK and North American, and Luxembourg banks.
Mergers and acquisitions
According to the report, in the French segment, the number of banks declined from 12 in 2021 to 10 in 2022. This decrease was primarily due to the acquisition of Swissquote Bank Europe SA by Keytrade Bank Luxembourg SA in a merger that occurred in April 2022. Additionally, one of the Luxembourg branches of the BNP Paribas group was closed.
In the German segment, the number of banks increased by one, to 16, due to the opening of a new Luxembourg branch by Donner & Reuschel AG, while the Swiss segment maintained a stable number of 12 banks in 2022.
The number of Chinese banks remained stable at seven throughout 2022, with corporate banking continuing as their main area of business.
The UK and North American segment underwent significant changes in 2022. Specifically, JP Morgan Bank Luxembourg SA merged with JP Morgan Bank Ireland plc to form a new entity named JP Morgan SE, headquartered in Frankfurt, Germany. Following the merger, a branch called JP Morgan SE - Luxembourg Branch was established in Luxembourg.
Finally, in the Luxembourg segment, Clearstream Fund Centre SA entered the market in October 2022. Simultaneously, Compagnie de Banque Privée Quilvest SA exited the market following a reverse merger with Fideuram Bank Luxembourg SA. The entity was renamed Intesa Sanpaolo Wealth Management SA. This effectively kept the number of banks in the Luxembourg segment constant at 13.
The PWC report stated that the French segment grew by €3.8bn or up 3.9% in 2022, mainly from a €5.5bn (9.5%) increase in loans to credit institutions. Société Générale and CA Indosuez added €3.7bn (11.2%) and €1.4bn (13.6%), respectively, but this was offset by a €1bn (14%) decline in bonds.
The German segment expanded by €2.8bn, or up 4.2% is the same period, driven by a €3.2bn (12.8%) increase in loans to credit institutions and a €1.6bn (5.9%) rise in loans to customers. This was partly offset by a €1.7bn (12%) decrease in bonds.
The Swiss segment contracted by €2.2bn or 6.1%, primarily due to a €4.1bn (20.5%) decrease in loans to credit institutions, mitigated by gains in bonds of €1.4bn (28.4%) and loans to customers of €0.3bn (3.1%).
In Chinese segment, the aggregate balance sheet surged by €3.5bn or up 21%. Major players were Bank of China, Industrial and Commercial Bank of China and China Construction Bank Europe, making up 94.2% of the sector. Loans and advances to credit institutions jumped by €2.4bn (40.8%), and loans to customers increased by €1.2bn (13.9%). Bank of China added €1.4bn (47.4%), and ICBC contributed €0.9bn (45.2%).
For the UK and North American segment, a 2.4% or €1.2bn decline in the aggregate balance sheet was noted. RBC accounted for a €4.1bn or 20.3% reduction, and Northern Trust for a €1.3bn or 17.9% drop. This was partially offset by HSBC Luxembourg, which grew by €3.1bn or 56.7%.
The Luxembourg segment grew by €5.2bn or 3.1%, led by Spuerkeess, BGL BNP Paribas and Banque Internationale à Luxembourg, making up 81% of the balance sheet. Loans to customers grew by €3.6bn (4.5%).
Liabilities and credit risk provisioning
The French segment saw an increase in amounts owed to customers by €3.5bn or 6.3%. Société Générale Luxembourg was the largest contributor with €1.7bn (7.2%), followed by Société Générale Capital Market Finance SA with €1.1bn (10.2%).
The German segment was characterized by a €3.4bn (12.5%) increase in amounts owed to credit institutions and a €2.5bn (13.3%) increase in amounts owed to customers. DBL and DZ were the main drivers for this growth.
In Swiss segment, the amounts owed to customers registered a decrease of €3.9m or 12.3%, primarily driven by Credit Suisse with a reduction of €3.5bn or 45.2%. However, this was partially compensated by Bank Julius Baer Europe SA, which saw an increase of €1.1bn or 44.1%.
In the Chinese segment, there were notable increases in amounts due to credit institutions and customers, by €2.1bn (35.8%) and €1.2bn (18.9%) respectively. Bank of China mainly drove the former with an increment of €1.4bn (59.9%), while ICBC was the primary contributor to the latter with an increase of €0.9bn (32.7%). Importantly, the risk provisioning went up by €157.5m, largely due to asset value adjustments at ICBC, which increased by €136.6m.
In the UK and North American segment, the PWC report revealed a decline in the amounts owed to customers by €5.7bn, a 15.9% decrease mainly attributed to RBC with a reduction of €5.0bn or 29.0%. However, this was partially offset by an increase in amounts owed to credit institutions, which grew by €3.2bn or 61.6%, primarily due to HSBC’s contribution of €2.6bn, marking a 60.6% increase.
Lastly, in Luxembourg segment, amounts owed to customers remained the key driver, covering 72.9% of the aggregated balance sheet and with a notable increase of €9.0bn or 7.7%. Spuerkeess contributed the most with an increase of €4.2bn (11.4%).
In French segment, net profit increased by €114.9m or 35.7% in 2022, primarily driven by a €137.6m (49.1%) increase in net interest income.
In the German segment, net profits saw robust growth, increasing by €89.6m or 67.2%, mainly due to a substantial rise in net commission income, which grew by €55.0m or 101.3%.
In the Swiss segment, net profit grew by €83.4m or 45.0%, largely because of a significant rise in net interest income, which increased by €145.9m or 148.4%.
For the Chinese segment, banking income increased by €7.2m (3.2%) compared to 2021, mainly due to growth in net interest and commission income, which increased by €55.8m or 30%.
In the UK and North American segment, the revenue structure largely depends on net commission income, which slightly decreased in 2022 by €52.5m or 5.4%. On the other hand, net interest income grew by €103.5m or 35.3%.
In Luxembourg segment, net profits increased by €138.2m or 21.6%, primarily driven by steady growth in banking income, which expanded by €331.8m or 12.5%.
The full report is available here.