Luxembourg’s construction sector is grappling with significant financial strain. One in ten loans to companies in the industry has either defaulted or is at risk of defaulting, according to data reported by Luxembourg banks to the European Banking Authority. As of the last quarter of 2024, the default ratio on loans to the sector reached 10.4%, more than doubling from 4.7% a year earlier. This marks the fastest deterioration among all EU member states.
The sharp rise in defaults places Luxembourg at the top of the EU rankings for construction loan failures, surpassing Italy, where 9.6% of construction loans were in default. However, while Italy’s rate increased only modestly from 8.9% a year earlier, Luxembourg’s spike has been far more steep, reflecting mounting financial pressures in the sector.
However, despite the increase in defaults, construction loans remain a relatively small part of Luxembourg’s banking sector, accounting for less than 5% of total business lending.
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Real estate sector
In contrast, the broader real estate sector, which represents 35% of the total book value of bank loans, saw its default rate climb to 6% in Q4 2024, up from 5.1% a year earlier. This category includes loans to both households and businesses in residential as well as commercial real estate but excluding the construction industry.
Earlier, European Central Bank data that in Q2 2024, business loan defaults in Luxembourg reached 6.43%, while household defaults stood at 2.52%, highlighting the widespread impact of economic pressures.
Paperjam has requested comment from the Luxembourg Bankers’ Association (ABBL).