The BCEE, one of Luxembourg’s main domestic banks commonly known as the Spuerkees, credited rising interest rates as playing a key role in increasing its increased banking income portion of its overall annual report for the year ending in 2022 through over 20% increase to its interest margin. According to a bank press release, this was also due to an increase in lending activities.
Despite the interest margin bounty, the bank also announced a bottom line overall net profit of 234.7 million euros, in line with the previous year. The bank made it clear in its release that it is going through tough times. “2022 was marked globally by a geopolitical, economic and social polycrisis,” according to the release.
The bank’s annual report included 753.9 million euros in banking income as of year-end 2022, a 16.5% increase, up 106.8 million euros over the previous year. “This good performance was driven by all the Bank’s business lines,” said a BCEE press release. However, it called attention to the increased interest margin, which rose by 22.1%.
Net interest margin or NIM is a measure of the difference between the interest income generated by banks and other financial institutions and the amount of interest paid out to people holding money in savings deposit accounts.
Interest rates started to increase sharply starting from last Spring. The interest rate rise cut both ways for the bank, because interest began to be paid on deposit products, once again. This increased spending on interest by 11.4%. On the other hand, “the end of the negative interest rate policy also meant that the bank no longer had to pay interest on the still high surplus of its deposits with the European Central Bank.
Monitoring risk
Spuerkees explained in its annual report document that manages interest rate risk through maintaining an integrated daily monitoring of its banking book. This integrated view can be broken down along two lines – money market and ALM. Money market include the positions taken in the trading rooms with a maturity date of less than two years, while the ALM line covers all other positions susceptible to interest rate risk.
The indicators produced for the banking book for analysing susceptibility to interest rate risk includes the impact various interest rate scenarios on the economic value of the banking book, susceptible to interest rate risk or (delta EVE), as well as the impact of various interest rate scenarios on the net interest margin.
Resilient
On 30 March, the Banque Internationale à Luxembourg reported a net income of 153 million euros, up by 13%. In a press release, the bank put that down to slightly increased customer deposits (up 1.7% to 21 billion euros) and customer loans (up 0.8% to 16.5 billion euros). The bank put the limited loan growth down to “a general slowdown in mortgage loan production in Luxembourg, due to the rise in interest rates, delays in new construction projects caused by the rising cost of raw materials and supply chain stress as a result of the Russia-Ukraine conflict.”
The bank’s assets under management decreased slightly from 2021. The bank reported limiting the impact of the negative market effect caused by the sharp decline on equity markets, by increasing new assets under management.
While BIL’s latest semi-annual report from June 2022 emerged “in an interest rate environment showing the first signs of an upturn”. It could already report that its Luxembourg Market and CIB business line achieved a higher net income contribution of 11 million euros resulting from cash deposit inflows and loan book. The bank specified in the report that this had grown to 16.5 billion at the end of June 2022 over 15.9 billion at the end of June 2021.