Björn Ebert, Partner at PwC Luxembourg;
Credit: PwC Luxembourg
PwC Luxembourg has just published the fourth edition of “Banking in Luxembourg - Trends & Figures 2019”; the survey found that whilst the Grand Duchy's banks’ balance sheets experienced a 3.0% growth compared to 2017, their profitability declined by 3.2%.
This year's survey, conducted between May and early September, was sent to more than 500 banking executives based in Luxembourg. In addition, the PwC Luxembourg banking team conducted face -to- face interviews with more than 15 banking CEOs. In total, 67% of the Luxembourg banking establishments are represented in the results of the survey.
Banking in Luxembourg, Trends & Figures, contains the views of Luxembourg’s bankers on the state of their current and future (until 2021) business, including their talent search and acquisition difficulties at the time. It also elaborates on the transformation that both the banking industry in the Grand Duchy and banks in general are experiencing. Following the remarks on what banks are doing to better understand their customers’ needs, the report illustrates the priorities for Luxembourg bankers in the short term as well as the trends that will impact their business the most over the next three years.
The main results of this survey included the realisation that banks need to rethink their strategies, reactivate their entrepreneurial spirit and set a real "commercial DNA" in motion. The survey also found that competition for talent is fierce, so banks have to be more open minded when it comes to recruiting the right talents, and that upskilling employees is a key solution to help banks keep up with the ongoing technological and business transformation of the banking industry.
In addition, the survey revealed that banks will need to transform the way they operate if they want to survive, the banking industry needs to put the digital tools at the service of their jobs and use them to perform better and the future will be sustainable. The study also showed that FinTech and Payment Services companies should not be seen as competitors, but rather as potential collaborators for Luxembourg's banks, and finally, that negative interest rates have become the new normal.
Roxane Haas, Partner and Banking Leader at PwC Luxembourg, explained: “At this point, the transformation journey of the banking industry has become “do or die". For me, that is what really stands out from the responses in this report".
Björn Ebert, Partner, PwC Luxembourg, agreed: “The responses to our survey this year clearly show that it’s time for the banks to step out of their comfort zones and reimagine their strategies built upon a foundation of strong commercial DNA and the demands of their clients".
Nevertheless, Luxembourg’s banking sector ended 2018 in good shape based on its quality of assets, capitalisation and liquidity. Overall, the banks’ balance sheets experienced a 3.0% growth compared to 2017, although their profitability declined by 3.2%. In this context, the survey asked Luxembourg-based bankers how they see their business in both 2019 and the mid-term (until 2021). In general, outlook was positive as the bankers expecting a turnover increase counterbalanced those who foresee a decline for 2019.
In fact, those who anticipated a decline in 2019 expressed hope for a slight increase in revenues by 2021. Of the banks convinced of a revenue increase over the coming three years, Private Banking & Wealth Management was the business segment offering the largest growth potential at 42%. In contrast, the banks expecting a decrease in revenues highlighted Corporate Banking and Treasury/Trading as offering the largest downsizing potential.
To fill the gaps, according to PwC, Luxembourg's banks are expanding their geographical focus for their skills search. Interviewed bankers reported that they were looking for people beyond Luxembourg. However, this can prove challenging as some profiles require knowledge of Luxembourgish legislation/regulation.
When they need to source staff members, banks cited collaboration with universities to find young employees. In parallel, they work with specialised headhunters to fill positions that require more experienced people. Faced with a shortage of, but increased need for, specific skills, bankers were asked about the impact this may have on their organisation’s growth prospects. 37% of participants indicated that their quality standards and/or the customer experience was impacted, for instance, by increasing the time to market of certain products. This was highlighted by two thirds of players operating in the retail space. In addition to this, banks reported surging people costs and an impact on the organisation’s capacity to innovate.