Luxembourg’s banking sector: Facts & Figures
Updated September 2018 – For earlier editions of Facts & Figures click here
The financial services industry, and more specifically the banking sector plays a key role in the Luxembourg economy. Contrary to conventional wisdom, the Luxembourg economy is well diversified; the financial services industry represents approximately 27% of total GDP.
In comparison with other countries, Luxembourg can boast an economic growth close to 3.5% in 2017 and forecasted to increase in 2018. Unemployment stood slightly lower than 6%. Both services and industries contribute to this positive trend.
The 140 banks based in Luxembourg are part of the financial services industry and conduct activities across multiple strategic pillars leading to a broad and sophisticated product offer as well as a diversified client base. Five of these are of Luxembourgish origin, the others coming from 30 different countries, meaning an internationalisation rate of 96.5%, the highest in Europe.
In the aftermath of the 2008 financial crisis, many financial groups had to reorganise and restructure their businesses internationally. These changes had an impact on the Luxembourg banking centre, where the number of banks has decreased, essentially due to mergers and acquisitions, resulting in fewer but larger entities.
However, in the last few years, new banks from third countries have established their European hubs in Luxembourg, including the seven largest Chinese banks, including Bank of China, ICBC, the world’s largest bank; Bank of Communications, Agricultural Bank of China, China Construction Bank, China Merchants Bank and China Everbright bank. In addition, many international banking groups are establishing competence centres in Luxembourg, either in private banking, fund administration, custodian services, in treasury management, or as booking centres for international loans.
Luxembourg has a long-standing experience in e-commerce and is the European home to headquarters of leading companies such as Skype, Amazon and PayPal. E-payment companies have mainly been attracted in large numbers to Luxembourg to support global e-commerce brands.
Credit institutions in Luxembourg enjoy a high level of capitalisation. On the credit side, the trend is, as in the previous years, on a positive path, recording an increase of 1.3% from February 2017 to February 2018: retail banking, corporate banking and private banking all contributed to this increase. During the same period, with regards to deposits, the evolution is stable. On a general basis, deposits are still higher than loans, ensuring a strong and robust stability in all credit institutions.
Luxembourg is the leading wealth management centre in the euro area. In line with the financial centre as a whole, local private banks, financial advisers and family offices specialise in handling international clients who often have complex business and family profiles stretching across several countries or even continents.
The Luxembourg financial centre is a major worldwide distribution platform for investment funds. Collective investment management has been developing since the mid-1980s. Luxembourg is the world’s second investment fund centre after the United States, and Europe’s first with around €4,187 billion assets under management end of January 2017. As demand for green finance is rising, Luxembourg financial centre is proud it can rely on the Luxembourg Green Exchange (LGX) launched in 2016 and already home of 160 Green Bonds amounting to more than EUR 80 billion in 20 currencies from 30 international issuers. LGX has the highest number of listed Green Bonds worldwide. Furthermore, Luxembourg is the leading European centre domicile for impact funds. Since 2015, the Luxembourg government and Luxembourg’s financial services industry have been working together in a dedicated Climate Finance Task Force, implementing a coherent and fully integrated Climate Finance Strategy with the dual objective of contributing in a meaningful way to the international fight against climate change and cementing Luxembourg’s role as an international centre for climate finance.
Despite an unfavourable global environment, as well as very challenging low interest rates, credit institutions managed to increase their global net results slightly, allowing banks to control their costs and create growth in incomes efficiently. Banking employment recorded a slight decrease from 2016 to 2017, from 26,063 to 26,111 end of year 2017. Reserves expanded by 8% from 2016 to 2017.
Luxembourg aims to develop the financial centre by focusing on key areas including responsible investing and green finance, managing Renminbi business, be it through listing, issuing instruments, RQFII scheme, or trade finance, becoming a European hub for fintech and opening up to new market segments, including Islamic finance.
Contributor: Benoît Cerfontaine email@example.com