Banking in Luxembourg: a diversified and international-oriented ecosystem

From the founding of the Eurobond market to the development of services in private-wealth management and the successful implementation of the UCITS directive, Luxembourg has emerged as the second-largest fund location in the world.

This process has been accompanied by an increase in the number of banking players operating in the country, but also by a diversification and complexification of their activities and business models to adapt them to  meet the prevailing market requirements and regulatory requirement.

 

The result has been a diversified and international-oriented ecosystem featuring 143 entities authorised in 2015, according to the PwC Banking in Luxembourg:Trends and Figures 2016 report, recently published. Of the 143 entities authorised, 139 have a universal banking licence while four have a mortgage-bond banking licence.

Figure 1: Number of Banks in Luxembourg 2014 - 2015

Source: PwC, Banking in Luxembourg, Trends and Figures 2016, 2016

A profitable business

Although the number of banks has decreased by one compared to 2014, the total of the balance sheet increased by EUR 6bn (+ 0.8%) to EUR 743.2bn. The increase was caused by loans and advances to customers growing by 11.5% due to the rise of loans granted to private and corporate customers (up 10.6% and 15.8% respectively). This led to loans and advances to customers becoming an increasingly important source of income for banks in the financial centre. Moreover, with regards to net interest, it stood at EUR 4.2bn, an increase of 5.2% due to both the limited number of banks and a slight growth in assets.

Net commission income has also increased consistently over the last four years. At EUR 4,3bn (+5.8%), it is at a historic high. The growth in net commission income is characterised by positive year-on-year stock-market developments despite increased volatility, and by the increased demand for financial products in the field of asset management.

Figure 2: Net interest and commission income

Source: PwC, Banking in Luxembourg, Trends and Figures 2016, 2016

A very international environment

In terms of geographical representation, Luxembourg is also well diversified with six main identified country segments grouping German, French, Swiss, UK/US, Luxembourgish and Chinese banking institutions. In this regard, German banks make up 18.3% of the study sample, followed by French banks at 10.6% and Swiss banks at 7.7%. In addition, Italian and Chinese banks represent 7.1% of the sample, while UK and Swedish banks make up 4.9%.

Figure 3: Country of origins of banks established in Luxembourg

Source: PwC, Banking in Luxembourg, Trends and Figures 2016, 2016

Diverse business model to serve diverse clients

With regards to business activities, the banks in the country segments are primarily active in the fields of depositary banking, investment-fund servicing and private, retail and corporate banking, making Luxembourg a diversified environment in terms banking services provided to clients.

More specifically, the French and German banks are characterised by their universal banking model in their respective home countries. In Luxembourg, they have a highly diversified business model, which includes private banking and asset servicing, but above all the lending business and mortgage bonds. The group of Swiss banks in Luxembourg also has a major focus on asset servicing, as well as a tradition of private banking. In this context, the EU passport for the cross-border distribution of financial services is strategic in making Luxembourg a location of choice for all non-EU banks.

While the Luxembourg banks exhibit a relatively diversified business model in their home market, with various focal points in private, retail and corporate banking as well as asset servicing, other country segments are strongly focused on one or two business areas. Finally, Chinese banks are emerging on an untapped yet segment - i.e. commercial activities, showing the overall highest growth per bank. They now already counts ten institutions, active primarily in corporate banking (trade and project financing and syndicated loans) and aim at expanding a European hub function for their respective parent companies.

The diversity of the Luxembourg's banking system is decisive for the financial centre's competitiveness, and with inspiration from all sides, allowing the individual institutions' business models to develop successfully into the future.

For more information, please take a look at the full report: Banking in Luxembourg: Trends and Figures 2016.

Contact us

Roxane Haas

Partner, PwC Luxembourg

Tel: +352 49 48 48 2451

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