Total interest income at Luxembourg’s 120 credit institutions last year surged 39 percent as most banks were able to boost their margins from borrowing and lending activities on the back of higher central bank interest rates, according to data posted by financial supervisor CSSF. The supervisor also said, like last year, that 23 banks in the grand duchy were not profitable.
The average costs-income ratio for Luxembourgish banks stood at 56 percent at the end of last year, below the 60 percent reported for the end of 2021. “This average reflects significant disparities between banks,” CSSF said. Per year-end, 23 banks out of 120 had an costs-income ratio of over 100 percent, CSSF said, indicating that more than one out of five banks in the grand duchy is not profitable. CSSF had reported the same number - 23 - for 2021, when Luxembourg was home to 124 banks.
CSSF did not name individual banks. Bank association ABBL said it could confirm the CSSF number and attributed the absence of profits to increasing cost of compliance, investments require to innovate and to meet sustainability requirements, growing overhead costs and - until last summer - negative interest rates. “But also, like any other business, some banks may have taken some bad strategic decisions in terms of their business development,” said a ABBL spokesman. ”Why is it worrisome? In a nutshell, because banks that are not profitable will be less shock-resistant and/or less capable of supporting their private or business customers (i.e. make loans).”
‘Significant increase’ in provisions
Collectively, Luxembourg’s banks saw the financial results before provisions and taxes increase substantially to 6.21 billion euros last year, up 22 percent from the results for the previous year. Without elaborating, CSSF said Luxembourg’s banking sector booked “a significant increase” in provisions, leaving the sector’s net income at 4.10 billion euro, up 2 percent.
Total banking income rose 11 percent last year to 14.1 billion euro. Interest income surged to 6.80 billion euro, 39 percent higher than the 4.89 billion for 2021. Income from fees and commissions essentially remained stable at 5.90 billion euro, down 0.6 percent. Other income declined 26 percent to 1.40 billion euro.
Operating costs increased slightly and stood at 7.90 billion euro, up 3.4 percent.
Profits and loss account for Luxembourg’s banking sector:
