The ABBL has just received the results of our annual Retail Banking Survey and our Private Banking Survey, collecting information from our members active in those sectors, in collaboration with the CSSF. As always, these surveys provide a unique insight into the health of the banking sector in Luxembourg.
More detailed figures can be found here:
Retail Banking – stable growth, marked shift to digital banking
Overall, the Retail Banking sector has handled the pandemic well. Massive efforts were made to continue to service clients, despite many obstacles, and the local retail banks provided special ‘covid loans’ and worked with the government to create special state-guaranteed loans to support businesses during the pandemic.
Trends already identified in recent years continue, with stable employment figures and client numbers, increased assets and lending. As expected, there are major changes in customer behaviour due to the health pandemic, particularly with the use of digital solutions for financial transactions.
Growth in assets
Money under management (assets and liabilities) increased by 9.3%, demonstrating that clients continued to borrow during 2020, mainly for real estate projects. Cash withdrawals from ATMs fell by 25%, whilst cash withdrawals in branch fell by a massive 51%, as physical cash was generally avoided in favour of card and contactless payments.
The majority of assets are held on current or savings accounts, with no significant shift to investment products. Overall spending is down, due to the slowdown of the economy and a more cautious consumer behaviour linked to the health pandemic.
Unsurprisingly, e-banking use is up significantly (7%). It should be noted that the most significant increase (32%) comes from professionals (self-employed, liberal professions..). Whilst this is a continuation of an already existing trend, it has been accelerated by the pandemic.
Private Banking – asset growth, continued market polarisation
Assets under management rose, whilst the number of private banks remained the same, at around 55-60 banks. There was some consolidation activity, but an influx of several new banks over the last 2 years (post-Brexit) kept the number stable and has led to an overall net increase in assets under management. Employment in the sector ralso emains stable at around 6,000 people.
Profitability remains an issue for private banking, especially for smaller organisations, who are disproportionally hit by the cost of regulation. Despite this, Luxembourg has managed to maintain its position and develop as an international private banking centre, due to its AAA rating, political and social stability, cross-border expertise, qualified workforce, and the comprehensiveness of the financial ecosystem that can be found here. The banking sector contributes around 30% of the GDP in Luxembourg, and is a significant contributor to the public purse.
Growth in assets
Assets under management rose by almost 10% year on year, to reach € 508 bn. at the end of 2020. The growth is due to normal net inflows for existing banks, assets from new banks relocating parts of their business to Luxembourg post-Brexit, and overall market performance in 2020.
In another existing trend, client segmentation continues to polarise. The proportion of ‘affluent’ clients, that is clients with less than € 1 mn. in assets, is around 7% compared to 13% in 2015. At the other end of the scale, ultra high net worth clients, with assets above € 20 mn. has increased to 58% compared to 54% in 2015.
21% of assets are from Luxembourg, with the UK, Belgium, Italy and Switzerland completing the top 5. Around 15% of assets are from outside Europe. There has been a marked change in the source of assets, with a much wider range of geographies compared to 15 years ago, when Belgium, France and Germany accounted for around 50% of client assets.