Four out of every five Luxembourg banks benefited from rising interest rates in 2023, the market regulator CSSF stated this week. Archive photo: Romain Gamba / Maison Moderne

Four out of every five Luxembourg banks benefited from rising interest rates in 2023, the market regulator CSSF stated this week. Archive photo: Romain Gamba / Maison Moderne

Luxembourg’s banking sector witnessed a remarkable year in 2023, with a 45.1% increase in pre-tax results and net results surging by 67.3%, despite a slight drop in net commission income, the financial regulator CSSF has said.

Luxembourg banks enjoyed a significant boost in interest margins by 50.9% in 2023 and achieved a historically low cost-income ratio of 48%, indicating a year of exceptional profitability, the Luxembourg Financial Sector Supervisory Commission (CSSF) on Monday 18 March 2024. The Luxembourg banking sector indicated to CSSF a pre-tax and pre-provision result of €8.942bn for the year 2023. This figure represents a substantial increase of 45.1% compared to the preceding year, highlighting a period of significant profitability within the sector.

Exceptional year

The CSSF report noted that the net result for the year 2023 increased by 67.3% on an annual comparison, a rebound attributed to the normalisation of provisions for risks. The year 2022 had seen an abnormal spike in these provisions, primarily due to financial commitments linked to Russian counterparts, suggesting a year of exceptional adjustments within the sector.

The CSSF reasoned 2023 as an exceptional year, driven by very favourable interest margins and recoveries from previously allocated provisions. These factors, however, are considered to be of a transitory nature, indicating that such high levels of profitability may not be sustainable in the long term.

Performance indicators

A notable aspect of the financial performance in 2023 was the interest margin, which saw a significant increase of 50.9% compared to 2022. This rise was closely aligned with the increase in interest rates, benefitting 80% of banks within the sector.

Conversely, net commission income experienced a slight decline, falling by 3.2% on a year-on-year basis. This downturn was reported to affect just over half of the banks (53%), with the impact being highly variable across different institutions.

The CSSF’s report also highlighted an upward trend in general expenses, which rose by 7.2% across 81% of the banks. This was mainly attributed to a notable increase in personnel expenses, which surged by 10.8%, reflective of the broader inflationary pressures affecting the economy.

Operational efficiency and challenges

Despite these rising costs, the Luxembourg banking sector achieved a historically low cost-income ratio of 48%, a marked improvement from the 56% reported in the previous year. This indicates an overall enhancement in operational efficiency and profitability among the banks, remarked the CSSF.

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