Luxembourgish banks recorded a 67.3% increase in profits, largely thanks to leaning on the European Central Bank for liquidity. ABBL highlights red flags like a drop in loan production and legal entities facing difficulties in opening accounts.
Yves Stein, CEO of Banque Edmond de Rothschild, provided an overview of the banking sector in his first annual press conference as chairman of the Luxembourg Bankers’ Association (ABBL). He replaced Guy Hoffman, who was ineligible after six years in the position. 2023 was marked by an increase in key interest rates by the European Central Bank, which affected the bottom line of households and entrepreneurs alike. This created difficulties in loan repayments. The banks now face challenges related to the regulatory framework and attracting talent.
“Banks must remain sustainably profitable and sustainably compliant,” analyses Yves Stein, chairman of the ABBL. “However, we have now reached a point where the scope of regulation has exceeded the capacity of both the industry and the supervisory authorities.”
The financial institutions have continued their cautious lending policy, and the production of loans has fallen due to a lack of demand. A certain number of interested parties no longer meet the conditions, which has also contributed to their decrease. The ABBL highlighted their recommendations to the political parties ahead of the legislative elections and having taken part in the national round table on housing as part of its efforts to steady the ship. It put forward proposals to provide additional guarantees for first-time buyers and to broaden the nature of equity contributions for rental investment (“buy to let”) and tax incentives for energy renovation projects.
Banking hiccups for businesses
Legal entities have faced challenges in opening accounts, according to the banking association. Camille Seillès, Secretary General of the ABBL, pointed to the regulatory obligations to which banks are subject and the complexity of certain structures as some of the major challenges businesses face. Also, startups are often not fully aware of the full range of banking services available in the country, according to Seillès.
The banking association has introduced tools to guide entrepreneurs in their relationship with their banker at the time of opening their account and throughout its activity. It has also made available a list of dedicated contacts within banks and other banking service providers. Training initiatives, particularly for compliance officers, complete the ABBL’s efforts to make the banking sector better able to respond to the challenges it faces.
