Bankers in tune with the country’s concerns

Against a backdrop of uncertainty, the Luxembourg Bankers’ Association (ABBL) and its members took a number of initiatives in 2023 to address the concerns of households and businesses in the areas of mortgages, opening business accounts and cybersecurity. The association’s annual press conference provided an opportunity to give details of these initiatives and to review the banks’ exceptional results, which were mainly due to the more favourable conditions for the replacement of liquidity with the Central Bank.

The conference followed the ABBL’s General Meeting, at which Yves Stein, CEO of Banque Edmond de Rothschild (Europe) S.A., was elected Chairman of the association, succeeding Guy Hoffmann. Hoffmann will now take on the role of Vice-Chairman.

Many causes for concern

The year 2023 was marked by the rapid and significant rise in key interest rates by the European Central Bank (ECB), which took many households and entrepreneurs by surprise and pushed some into difficulties with their loan repayments. “It should be remembered that the banks are not the cause of this rate rise but are merely an instrument in the ECB’s fight against inflation,” notes Guy Hoffmann.

Several voices also raised concern to highlight the difficulties encountered in opening accounts for legal entities. These difficulties mainly concern SMEs, start-ups and hedge fund promoters. Finally, the diversification and increasing complexity of online fraud attempts have also had an impact on customer confidence in banking services.

Housing: being part of the solution

The banks have continued their cautious lending policy, framed by regulations that were further tightened in 2020. The production of loans fell due to a lack of demand and because a certain number of interested parties no longer met the conditions set out in the legislation. The banks have introduced closer monitoring of cases in difficulty and have contacted their customers to find individual solutions.

The banks have also taken the initiative to help prevent a potential housing crisis. In 2020, the ABBL approached the Commission de Surveillance du Secteur Financier (CSSF) to obtain greater flexibility and legal certainty for bridging loans. It submitted recommendations to the political parties prior to the legislative elections, many of which were included in the coalition agreement.

Lastly, the ABBL took part in the national round table on housing, putting forward new proposals concerning the possibility of providing additional guarantees for first-time buyers, broadening the nature of equity contributions for rental investment (“buy to let”) and tax incentives for energy renovation projects.

Opening business accounts: three challenges, four initiatives

Together with its members, the ABBL acted on several fronts. Educational communication tools have been developed with the ABBL Foundation for Financial Education, the Chamber of Commerce and the House of Entrepreneurship. These tools aim to guide entrepreneurs in their relationship with their banker at the time of opening and throughout the life of the account. The ABBL also wants to help bring supply and demand closer together. A list of dedicated contacts within banks and other banking service providers potentially interested in integrating specific corporate segments has been drawn up. The association has also stepped up its training initiatives, particularly for compliance officers, to help them better understand the complexity of certain investment structures. Finally, the ABBL has explored ways of pooling services.

Cybersecurity: an ongoing battle

The ABBL and its members, as well as the ABBL Foundation for Financial Education, are stepping up their initiatives to combat this scourge. The extension of the services of the 491010 Hotline, now available 24/7 to report attempted fraud, illustrates the renewed commitment to security. At the same time, the Sécher am Internet platform was launched, participation in European awareness campaigns was consolidated, and major technological advances such as the migration of the GO6 Token to LuxTrust Mobile were made.

One swallow does not make a summer

The press conference also provided an opportunity for ABBL officials to review the exceptional results achieved by Luxembourg banks, which recorded a 67.3% increase in profits in the 2023 financial year. “These results can be explained essentially by the liquidity that the banks are replacing with the Central Bank, as part of their prudential obligations. After a decade of low or even negative interest rates, and very low banking profitability, these investments are once again earning interest,” explains Guy Hoffmann. To a lesser extent, reversals of provisions also had a positive impact on banks’ profit and loss accounts.

As a corollary to these favourable results, direct taxes paid by the banks rose by 104.6%. “Banks paid more than EUR 1.6 bn in direct taxes, making a significant contribution to the country’s prosperity“. However, the outgoing chairman warned that these results would not be repeated this year, notably because of the rise in the cost of bank refinancing and the increase in provisions linked to bank risk management in a context of economic slowdown.

Overcast skies with some sunny spells

Yves Stein, the newly elected president of the association, painted a picture of the challenges and opportunities for the banking sector. The challenges relate in particular to the regulatory framework and attracting talent. “Banks must remain sustainably profitable and sustainably compliant,” he analyses. “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 consequences are a deteriorated customer experience and their alienation, as they no longer understand how this regulatory complexity benefits them. Luxembourg and European banks are also losing agility and competitiveness against their peers and find themselves limited in their ability to support the economy.

The issue of talent is intimately linked to the issue of regulatory amplitude. “In a context of increased competition between the private and public sectors, we need to be able to attract enough talent to help us manage this regulatory complexity. But we must also be careful not to demotivate this talent by entrusting them only with repetitive control tasks.” Yves Stein therefore hopes that the ABBL and its members will continue to reflect on the issue of attracting talent and encourage the search for innovative solutions. “My wish is also for the banking profession to once again become inspirational for our children.“

As for the bright spots, Yves Stein sees a favourable window of opportunity between a government whose declared will is to support the growth of the financial sector and a potential awareness at European level that the competitiveness factor should be considered in discussions on new regulatory developments. He sees Luxembourg banks in a good position to play an active role in financing the digital and sustainable transition at European level.