For Jörg Ackermann, partner at PwC Luxembourg and in charge of the study for the ABBL, the corporate banking sector in Luxembourg is solid and profitable: “The hidden gem of the banking industry in the grand duchy.” (Photo: PwC Luxembourg)

For Jörg Ackermann, partner at PwC Luxembourg and in charge of the study for the ABBL, the corporate banking sector in Luxembourg is solid and profitable: “The hidden gem of the banking industry in the grand duchy.” (Photo: PwC Luxembourg)

The corporate banking sector grew by 58.8% between 2016 and 2020, when it reached turnover of around €3bn, according to extrapolated data collected for the 2022 Corporate Banking Survey.

A little-known sector, corporate banking contributes to 27% of the Luxembourg banking sector’s activity and is ahead of the private banking segment, which achieved €2.2bn in turnover.

“Financing products and interest-based activities are the main contributors to growth. Multinational companies remain at the heart of the banks’ business, and non-financial institutions represent a key client segment,” says PwC Luxembourg, which conducted the study for the ABBL banking association.

This growth trajectory is reflected in the evolution of profit margins, which rose from €832.4m in 2016 to €1.1bn in 2020. This represents a growth of 36.7%. Around three quarter (74%) of these margins--a level that has remained stable since 2016--are linked to the interest management activity.

The range of corporate banking services in Luxembourg extends from the provision of financing (bilateral and syndicated) and treasury services to cash flow management and trade finance solutions.

“These products are typically the core business of an equally diverse set of service providers, who collaborate with other market players--all of whom perform a variety of functions in a dynamic, but challenging environment. Based on the observed relationships between products, functions and service providers, PwC has demonstrated how these moving parts collectively contribute to the efficiency of the Luxembourg banking landscape for businesses,” the study says. The provision of finance accounts for 76% of the business and 81% of the profit margin.

The corporate banking sector in Luxembourg is internationally oriented: 72% of banks serve multinational clients, mainly based in Europe. Europe accounts for 71% of business.

An optimistic sector for the years to come

Beyond the figures, which testify to a “solid and profitable” sector, the business climate seems to be in good shape.

“Having achieved steady revenue and profit growth in the past--mainly through their financing solutions--banks are looking forward to further gains in the future and will rely heavily on their financing products. With this in mind, 90% and 65% of our respondents are looking to expand their interest and fee-based and fee-paying businesses respectively. This course of action is also supported by recent inflationary pressures, which are allowing banks to increase both their interest and fee-based businesses,” the survey said.

It also reveals a growing recognition of the importance of innovation and digital transformation. Digitalisation is high on the agenda of 70% of the companies surveyed. “Many banks are on the cusp of a total transformation journey, marked by a focus on sustainability, digitalisation and acquiring the right talent.”

Among the challenges, respondents mainly mention over-regulation and cybersecurity. “While Luxembourg’s regulatory ecosystem positions it strongly as a global hub, the issues of over-regulation and cybersecurity remain to be addressed if the country is to continue to attract and retain more global corporate banking players,” say the professionals.

The study can be found .

This story was first published in French on . It has been translated and edited for Delano.