Banking in Europe: EBF publishes 2018 Facts & Figures

Published 11.09.2018

The European Banking Federation today has published Banking in Europe; the 2018 Facts & Figures, its annual update on the banking sector in Europe. The publication shows that the contraction in the European banking sector, both as measured in terms of staff numbers and branches, continued in 2017 as the industry continued to improve efficiency while enhancing its profitability.

The special theme section in this year’s edition of Banking in Europe is dedicated to non-performing loans (NPLs). EU NPL stocks declined considerably in recent years due to enhanced loan selling activities of banks. In fact, as of 2017, the ratio for the EU stood at 3.7 percent, down from an EU-wide peak of 7.5 percent in 2012 and just below the world average of 3.74%, showing that NPLs are no longer a specific European problem.

A close look to the composition of total NPLs in the EU shows that only a fraction is problematic. The total amount of cumulative NPLs was reduced by some 25% during 2016 and 2017 to around €800 billion. The real problem to tackle is a portion between €150 billion and €200 billion, representing no more than a quarter of the total.

“European banks are clearly making significant progress on NPLs. Although there is still room for improvement, it should also be clear that the problem no longer is as big as it used to be. The question we now face is whether we really need additional European regulation that forces banks to undersell NPLs and that would leave bank clients worse off.”

Gonzalo Gasos, Head of Banking Supervision at the EBF.

Banks continue to scale back brand networks

The Banking in Europe overview shows that banks continue to scale back their physical presence across Europe as having a widespread branch network become less important. Clients increasingly interact with banks through digital channels instead of branches.

The total number of credit institutions in the European Union fell by 5% in 2017 to 6.250 institutions, down by 2.275 since the contraction began in 2009. Last year’s decline was led by Germany, Italy, Hungary and Austria. The number of credit institutions increased in the United Kingdom and Sweden last year.

The number of bank branches in the EU last year declined to approximately 183,000, showing that about 5,900 branches were closed last year, down 3.1 percent. Compared to 2007 the total number of bank branches has declined 21%, or by almost 50,000, reflecting the rapid uptake of online and mobile banking services in recent years. In 2017 more than half of all people in the EU, 51 percent, used Internet banking, compared to 29 percent in 2008.

The number of people working for credit institutions in the EU fell to the lowest level since the ECB started measuring this in 1997 and stood at approximately 2.74 million people at the end of 2017, compared to 2.78 million a year earlier. This compares to 3.13 million in 2009. About two-thirds of all bank staff in the EU is employed by a bank headquartered in one of the five largest EU member states.

The total deposits from businesses and households grew by 2.5 percent to €16.3 trillion, with €12.1 trillion in deposits in the euro area. Deposits from households rose 2.9 percent compared to a year earlier while business deposits increased 6.7 percent.

The value of loans to EU households recovered last year and increased 2.5 percent to €7.8 trillion, led higher by loans to households in the euro area, which grew for a third consecutive year. The value of loans to households in the eurozone has risen by some €500 billion since 2014.

Banking in Europe; the 2018 EBF Facts & Figures is a multi-faceted digital resource with key data about banking in Europe. It also includes data on the European economy, the performance and structure of the banking sector and the digital transformation of banks. The data is based on publicly available information from the European Central Bank, the European Commission, Eurostat, the European Banking Authority and the EBF and its the members.

In addition to the public data, Banking in Europe 2018 includes comprehensive national bank sector data provided through all 32 national banking associations that are members of the EBF. For a first time, this year’s edition also includes descriptions of national banking sectors by a number of EBF Associate members, including Albania, Andorra, Armenia, Azerbaijan, Bosnia and Herzegovina, The Former Yugoslav Republic of Macedonia, Monaco, Moldova, Montenegro, Serbia and Turkey.

Luxembourg’s banking sector: Facts & Figures

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.

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