The Commission de Surveillance du Secteur Financier (CSSF), Luxembourg's financial sector regulator, has confirmed that, in 2020, the result before provisions and taxes of the Luxembourg banking sector amounted to €4,726.9 million, a decrease of 1.1% compared to 2019.
In 2020, the interest margin fell by 2.4% year-on-year; this decrease is mainly explained by a drop in margins at the level of interbank lending operations.
Net commission income is up 14.6% year-on-year. The magnitude of this increase is the result of variations in the scope of data collection and aggregation due to intra-group reorganisations, including the integration of new foreign branches. Without these effects, the increase in net commission income would be around 5%. The increase particularly concerns banks which provide services in relation to wealth management. Indeed, the increase in the average amount of assets on deposit and the high volatility of the markets in 2020 have led to an increase in commissions on custody of assets and on client securities transactions.
General expenses (+ 7.7%) remain on the rise for the majority of banks. However, this increase is strongly impacted by the previously mentioned intragroup reorganisations.
Thus, the aforementioned developments led to a deterioration in the expense-to-income ratio, which dropped from 60% to 62% at the end of 2020.
The net result for the year 2020 is down 18.1% given the increase in allocations to provisions for an amount of €600 million. These provisions mainly concern credit risk in the context of the COVID-19 pandemic and mainly impact universal banks and banks specialising in corporate finance. Although the rate of non-performing loans did not increase significantly in 2020, the application of the IFRS 9 accounting framework leads to the inclusion of allocations to provisions also on performing loans.