Credit: CSSF
The Luxembourg banking sector profits decreased by 8.1% last year, according to the Commission de Surveillance du Secteur Financier (CSSF).
The earnings for the banking sector, before provisions, amounted to €5.059 million at the end of 2018, representing a decrease of 8.1% compared to the previous year.
Moreover, the interest margin increased by 2.0%. The two main factors explaining this increase were a growth in business volume as measured by the balance sheet total and a better average return on assets. For a limited number of banks, the application of negative interest rates on deposits collected from their institutional clients also contributed to an improvement in their interest margin. Nevertheless, the interest margin showed an upward trend only for 56% of banks in the financial centre.
An increase in net fee and commission income (+5.4%) was similarly observed for 56% of banks. This increase was largely due to the positive development of asset management businesses for private and institutional clients.
Meanwhile, other net income narrowed (-19.6%) 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. Year-on-year, the decrease is due, among other things, to reclassifications of commissions to other net income as well as to the unfavourable change in capital gains on the various securities portfolios.
Finally, overhead costs continued to increase (+6.0%) throughout 2018. This increase was related to other overheads (+9.1%), as well as to personnel costs (+2.9%). The sustained increase in general expenses was the main cause of the negative evolution of earnings before provisions. As a result, the profitability of banks, as expressed by the expense-to-income ratio, deteriorated from 53% in 2017 to 57% at the end of 2018.
