The Luxembourg Bankers’ Association (ABBL) on 22 April 2024 held a press conference, which saw the presentation of the association’s 2023 annual report, key figures from the banking sector and the official announcement of its .

€10.268bn of net interest income

, the ABBL’s outgoing chairman and newly named vice chair, took the opportunity to review some of the “exceptional figures” from the previous years, drawing attention to a couple of points: net interest income, net provisions and taxes.

Expenses have gone up, while total operating income increased nearly 24% between 2022 and 2023. Net provisions dropped from €1.43bn to €732m (a decrease of 49%).

Net interest income “increased enormously,” noted Hoffmann, climbing from €6.083bn in 2022 to €10.268bn in 2023. That’s an increase of 50.9%. This is mostly thanks to interest rate hikes implemented by the European Central Bank, as well as liquidity replacements that are part of banks’ “prudential obligations” and the reversal of provisions, not customer margins. Customer margins, he noted, “stayed nearly stable.”

Need to stay “vigilant,” but taxes up 104.6%

It’s important to note, he added, that the “results of the banking sector do not reflect the country’s actual economic situation.” Banks’ results often show a lag of six to eight months, compared to the rest of the economy. “We are convinced that we will not return to normality in 2024. We will need to constitute supplementary reserves” as the current crisis is not yet over, and the figures from the start of this year confirm this, said Hoffmann.

“It will be necessary to remain vigilant,” he argued. “But despite all this, we are satisfied.”

The amount of taxes paid by Luxembourg banks in 2023 increased 104.6% to reach €1.607bn, said Hoffmann, and is a sign that banks are making a “significant contribution” to the grand duchy’s economic prosperity. This figure is up from €785m in 2022.

Banking sector relatively stable

In terms of the number of banks in Luxembourg, their balance sheets, the assets under management in the private banking business and the number of employees in the sector, these have all remained relatively stable, noted Hoffmann.

There was a “slight decrease” in the number of banks (from 121 in 2022 to 118 in 2023), which was due to consolidation.

The total balance sheets of banks have seen some “small fluctuations,” but this figure has remained relatively stable as well.

Assets under management in Luxembourg’s private banks saw a “slight decrease” in 2022 to €585bn due to market effects, said Hoffmann, who added that the type of clients have also evolved over the years. They are becoming more multi-jurisdictional and delving into sectors like private equity, highlighting the strength of the Luxembourg financial centre in this regard.

The number of people working in the grand duchy’s banking sector has also remained “relatively stable,” though Hoffmann highlighted that talent attraction and retention remain big challenges.

Main priorities: regulation and talent attraction

Talent attraction and regulation were the two main priorities highlighted by the ABBL’s newly elected chairman, .

“Today, we are confronted with an amplitude of regulation that all the actors have difficulty absorbing,” said Stein, affecting the regulator, banks and clients. Things get slower and more complex, and as a result, “we lose agility” and competitiveness when compared to other global financial centres.

There is also the tendency to shift towards centralising supervision and protectionism, which are not necessarily advantageous moves for Luxembourg--the grand duchy has a regulator that is “professional,” “very strict” and has a good relationship with the financial centre, while protectionism risks cutting Europe off from liquidity available elsewhere. It will be key to find a way to increase agility and remain competitive.

“The second subject is not new: talent,” said Stein. There is a real need to recruit people in order to handle the “regulatory amplitude,” and not just within the banking sector. There’s competition within Luxembourg’s financial industry itself, which Stein described as “a snake biting its own tail.” It is necessary, therefore, for the country to increase its capacity to attract talent--it needs to to look further than the surrounding region and neighbouring countries, and even beyond the EU.

Finally, “we need to be an attractive employer for our children” and future generations, argued Stein. “We need to show that the financial centre is an attractive employer so that we have a ‘stock’ of talent in the future.”

All that being said, Stein added that the horizon had some bright spots, such as the willingness of Luxembourg’s new government to develop the financial centre--with “numerous propositions” taken up in the coalition agreement with regards to talent attraction and taxation--the political recognition of “competitiveness” at the European level with regards to discussion on new regulation and the opportunities available for the banking sector when it comes to financing the digital and sustainable transitions, re-industrialisation and shift towards “strategic autonomy” for Europe.

Find the ABBL’s 2023 annual report .