The Commission de Surveillance du Secteur Financier (CSSF) has announced that the result before provisions of the Luxembourg banking sector stood at €3,982 million at the end of the third quarter of 2018.
Compared with the same period of the 2017 financial year, the result before provisions decreased by 5.3%.
The interest margin continued its upward trend: over one year, it rose 7.5%. The main factors for this increase are the prolonged application of negative interest rates on deposits collected from institutional clients, an increase in activities as measured by balance sheet growth or a better average return on assets.
Nevertheless, the favourable evolution of the interest margin could only be observed for half of the banks in the financial centre. In particular, retail banks and private banks experienced, on average, less favourable changes in interest margin, despite an increase in their balance sheet.
The increase in net fee and commission income (+8.1%) was observed by half of the banks. This increase was largely due to the positive development of the asset management businesses on behalf of private and institutional clients. With the persistence of interest rates at very low levels, commissions are becoming an increasingly important source of revenue for many banks in the financial centre.
Other net income narrowed (-31.9%) compared to the same period last year. By its composition, this position is highly volatile and its evolution is often linked only to non-recurring factors specific to a limited number of banks in the financial centre.
Overhead expenses continued to increase (+6.5%) throughout 2018. This increase was linked to other general expenses (+9.3%) as well as to staff costs (+3.8%).
Aggregated, overheads grew faster than the banking product, thus continuing to reduce the profitability of banks as expressed by the expense-to-income ratio, up 52% to 55% year-on-year. Due to the above developments, the result before provisions decreased by 5.3% year-on-year.