The banking sector in Luxembourg saw profits before provisions of more than €1.4 billion over the first quarter of 2017, an increase of 7.3% over the same period last year, according to figures released today by finance sector watchdog, the CSSF.
With profits at €1,407 million, the report says the rise resulted from a sustained increase in banking income, up 6.3%, which offset the continued increase in general expenses.
However, the positive returns are not equally distributed across institutions in Luxembourg. As at 31 March 2017, 33% of banks (representing 9% of banking income) had a revenue-to-income ratio of over 80%.
The increase in the aggregate banking product is explained by a favourable development of all its components. Concerning the interest margin, it increased by 2.6%, despite the context of low or even negative interest rates. The interest margin has increased positively for more than half of Luxembourg credit institutions.
In the report, this favourable development is linked, among other things, to two major phenomena, namely an increase in the volume of activities, and an impact of negative interest rates by certain banks on their institutional clients.
The increase in net commission income was observed for more than half of banks in Luxembourg, and are largely attributed to asset management activities on behalf of private and institutional clients, linked to the very favourable year-on-year stock market environment, which also contributed to the very favourable Investment fund industry during the same period.
Other net income also increased sharply, by 22.3%, compared to the same period last year. In a volatile area, the increase observed in the first three months of 2017 compared to the same period in 2016 is largely due to non-recurring factors specific to a limited number of banks in the financial centre.
General expenses increased by 5.5% year on year. This increase is related to other general expenses, up 10.5%, while personnel costs increased by only 0.9% over one year. The increase in other overhead costs concerns the majority of the banks in the financial center and reflects investments in new technical infrastructures, extraordinary events expenses and the costs to be borne by the banks to bring them into line with a framework Increasingly large and complex regulatory framework.
As a result of the above developments, earnings before provisions increased by 7.3% year on year, concludes the report.
