Economy & Politics

The optimism of the Place should not last

Drawing up on Wednesday the inventory and prospects of the financial sector in Luxembourg, the Association of Banks fears a tormented year 2020. On the other hand, the ABBL speaks of a “stable and significant contribution of banks to the Luxembourg economy” in 2019.

Drawing up on Wednesday the inventory and prospects of the financial sector in Luxembourg, the Association of Banks fears a tormented year 2020. On the other hand, the ABBL speaks of a “stable and significant contribution of banks to the Luxembourg economy” in 2019.

(JFC, with Marco Meng) – Performed last week by the “Luxemburger Wort”, the compilation of data from players in the banking sector announced the end of a cycle on the Place. But if this ranking carried out even before the impact of covid-19 demonstrates the transformations underway within the main pillar of the Luxembourg economy, Luxembourg banks also made a “stable and important contribution to the economy” in 2019, said wednesday Guy hoffmann, President of the Association of Luxembourg Banks (ABBL).

However, ten years after the 2008-2009 financial crisis, the 2019 annual report also shows that revenues, up 2.7% to reach 12 billion euros, were offset by an increase in costs of 8, 5%, which reduced the profit before provisions by 6.4% compared to 2018. Looking back over the last decade, Guy Hoffmann points out that in 2012, 43% of revenues were still offset by costs, while this figure has since risen to 60%.

However, banks must devote this windfall as a priority to compliance with regulations, but also to IT security, an area that has become essential for them today. In other words, 50 to 60% of banking investments are not made in innovation, but are used to meet simple legal requirements. “But overall, the financial center developed well in 2019”, tempers the president of the ABBL, “even if it is clear”, he adds that “throughout Europe, banks will no longer be able to operate as profitably. “

In addition, the fact that Luxembourg has one of the lowest default rates in Europe has also contributed to the “generally positive development of the Place with its 26,000 direct employees and 50,000 indirect employees” A number of employees which has also remained stable from one year to the next.

Guy Hoffmann, President of the ABBL speaks of

Guy Hoffmann, President of the ABBL speaks of “a generally positive development of the Place”

Photo: Guy Jallay

Although the total capital available for banks fell to 48 billion euros, this is mainly due to the fact that the number of banks in Luxembourg also decreased, from 135 in 2018 to 127 in 2019.

2019 saw a 6.4% increase in loans granted, for a total amount of € 665 billion. In parallel, more money (+18 billion compared to 2018) was deposited in banks by customers, which led to a 6.1% increase in the total balance sheet of the country’s institutions, reaching 815 billion euros.

According to the ABBL, the private banking sector is showing good growth, with some 450 billion euros of assets now under management, partly because 2019 was a good stock market year. In comparison, the sector managed a volume of 225 billion euros ten years ago. Luxembourg banks lent 30 billion euros to Grand Ducal companies last year, which proves “the important role that credit institutions play in the Luxembourg economy”, underlines Mr. Hoffmann.

Enlarged to 20 new members in 2019, the ABBL stresses that “Luxembourg must remain an attractive financial center”. Indeed, the fear is that many international banks from third countries, also subject to cost pressures, will be tempted to reduce their presence in the EU in a few places. According to Guy Hoffmann, Luxembourg banks could then lay the groundwork for sustainable banking products. He sees in it “a good opportunity for them to position themselves”.

Few requests for government guaranteed loans

Looking back to 2020 with, of course, the backdrop of the coronavirus crisis and its consequences, Yves Maas, president of the ABBL declares that “the moment of truth is yet to come”. According to him, the decisive factor is whether the economic engine will soon restart or not, because he admits that “the recovery is taking longer than we initially thought”.

Concerning the various aids put in place during the health crisis, the CEO specifies that 18,000 borrowers were able to benefit from a delay in the repayment of credits offered by the banks, which represents a volume of credit of 3.7 billion euros. . In addition, requests for new state-guaranteed loans have been unsuccessful: only 245 companies have introduced one so far, and 70% of these loans have been granted for a total amount of 71 million euros.

Wirtschaft, Bank Classification, Finanzplatz Luxemburg, Banken, Deutsche Bank, KPMG. Foto: Gerry Huberty / Luxemburger Wort

BCEE, BIL, BGL BNP Paribas, Banque de Luxembourg, Raiffeisen, ING and Bank of China: these are the institutions that validated the new agreement governing the system of loans guaranteed by the State.

The ABBL partly explains this by the fact that “companies are currently more inclined to wait and see how the situation evolves than to make new investments”. In addition, loan applications must meet certain criteria that not all companies meet. As a reminder, these loans benefiting from a State guarantee and for a maximum duration of six years can still be requested until the end of 2020.

At the same time, 770 new loans (without state guarantee this time) were requested from banks, of which 80% were approved for a total volume of 75 million euros. “Luxembourg banks were well positioned to tackle the crisis,” says Guy Hoffmann, “but that doesn’t mean either that the crisis can last forever …”


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