The retail banking market overall has remained fairly stable in 2022, found a study presented by the ABBL. The amount of money under management was up by about 1%, while employment in the retail banking sector has remained more or less stable.
However, the study, which covers more than 90% of Luxembourg’s retail banking market, also showed that there has been a drop of 38% in the volume of property loans: from €2,939m in the first quarter of 2022 to €1,839m in the first quarter of 2023.
The ABBL’s survey uses 2022 data from members and from the CSSF, Luxembourg’s financial sector supervisory commission. It only includes information from the retail banking sector--individuals and small businesses--not private banking or other sectors.
Money under management up slightly to €95bn
The amount of money under management (assets and liabilities) in Luxembourg’s retail banking segment increased slightly in 2022, moving from €94bn to €95bn. While the money under management has gone up by 22% over the last five years, the increase was much larger between 2019 and 2020 (increase of €8bn) and between 2020 and 2021 (increase of €4bn).
+300% for term accounts, local customers “conservative”
The volume of term accounts have increased by 300%. These low-risk products are appealing, given the backdrop of rising interest rates, said the ABBL.
“Generally speaking, local customers remain very conservative, with current accounts, savings accounts and term accounts still accounting for 86% of deposits,” explained , chair of the ABBL’s retail banking cluster and CEO of ING.
Drop in property loans
The volume of lending activity in the retail banking sector increased by 5% last year, found the ABBL.
However, property loan applications have fallen: when comparing the first quarter of 2023 to the first quarter of 2022, there has been a 38% drop in terms of volume and a 26% decrease in the number of loans.
“In a climate of uncertainty and rising interest rates, many households are postponing their investment plans. So we are in a market where there is less demand,” said Claude Hirtzig, vice-chair of the ABBL’s retail banking cluster, head of the retail & professional banking cluster at Spuerkeess, in a press release. “Every bank wants to lend. But no banker wants to put their customer in a situation where they can’t repay it.”
“We must also note that we are encountering cases where customers do not meet anymore the legal criteria that banks are required to comply with in order to grant a loan,” said Hirtzig. Minimum capital requirements have been certain types of mortgages, noted the ABBL in its press release.
95% of transfers take place via e-banking
95% of transfers took place through e-banking in 2022, up from 86% in 2019, found the ABBL study.
“Covid has accelerated the digitalisation of banking services, particularly payments,” said Ananda Kautz, head of payments, innovation and digital at the ABBL in their press release. “In many areas, Luxembourg is at the top of the European league when it comes to new behaviours and acceptance of innovative solutions.”
In addition, the European Central Bank’s studyon the payment attitudes of consumers in the euro area has found that . This is 18 percentage points higher than the figure for the EU (34%). Only 39% of transactions in Luxembourg used cash.
59% of payment accounts in Luxembourg can be used for instant payments. Instant payments allow the immediate transfer of funds from one account to another, 24 hours a day, seven days a week.
Evolution of bank agencies and ATMs
Luxembourg has “good” coverage of bank branches and ATMs, found the ABBL study. The grand duchy has 80 ATMs per 100,000 inhabitants (2021 figures), the highest figure amongst its neighbours.
Luxembourg also has 34 bank branches per 100,000 inhabitants, second only to France amongst its neighbours.
The number of ATMs and bank branches did, however, drop from 2021 to 2022. In 2022, there were 197 bank branches in Luxembourg (a decrease of 11% from 221 in 2021) and 456 ATMs (a drop of 12% from 517 in 2021).
Employment in the retail banking sector remains stable--employment overall rose by 2%, noted the ABBL study.
ESG offers opportunities in retail banking
“The economic landscape is often reduced to companies that are either green or brown,” said Burch in the press release. “However, most companies are somewhere in between and need financing to undertake their virtuous transformation. That’s what transition finance is all about.” Loans that enable companies to become more energy efficient, for example, would be an opportunity for banks.
Under the Markets in Financial Instruments Directive (Mifid II), since August 2022, banks have been required since to take their customers’ sustainability aspirations into account in investment decisions. “ESG is a fantastic opportunity for banks to broaden the scope of their discussions with their retail and business customers and to demonstrate their ability to support customers’ sustainability aspirations and projects,” added Hirtzig.