In recent decades, these groups have developed and adapted their models based on regulatory requirements, market and their country of origin. PwC Luxembourg, latest study "Banking in Luxembourg - Trends & Figures 2016" provides an international overview of the Luxembourg banking sector and establishes a comparison between the trends by segment and the market as a whole. In total, six countries are analysed.

Panorama: Fewer banks, lower net profit but higher net interest

With 143 entities authorised in 2015, the number of banks slightly fell from 2014 (144). Of the 143 entities authorised, 139 have a universal banking licence while 4 have a mortgage-bond banking licence.

PwC Luxembourg also highlights in its study that the balance sheet total increased by EUR 6 billion  (+ 0.8%) to EUR 743.2 billion. The increase was caused by loans and advances to customers growing by 11.5% due to the rise of loans granted to private and corporate customers (up 10.6% and 15.8% respectively). This led to loans and advances to customers becoming an increasingly important source of income for banks in the financial centre.
 
According to this publication, annual net profit or loss has decreased by EUR 267 million (or 6.3%) to EUR 3,986 million. This is primarily due to three factors:

• the 4.9% increase in banking income, in which all three income pillars have played a part (interest income, commission income and other net income);
•  a significant 8.5% increase in overheads, which is due to IT investment and the increased cost of implementing and complying with regulatory requirements; and
• the allocation for risk provisioning (EUR 665.0 million) has doubled year on year as a result of a limited number of banks.

As for net interest, it stood at 4,276 million euros, an increase of 5.2% due to both the limited number of banks and a slight growth in assets.

As far as country segments are concerned, German banks are most widely represented with 27 institutions in Luxembourg, followed by French banks (15) and Swiss banks (12).

Finally, the number of employees slightly declined with 21 fewer jobs, bringing the number of employees to 25,942 people.

A diverse and internationally-oriented sector

While the Luxembourg banks exhibit a relatively diversified business model in their home market, with various focal points in private, retail and corporate banking as well as asset servicing, other country segments are strongly focused on one or two business areas.

The group of Swiss banks in Luxembourg also has a major focus on asset servicing, as well as a tradition of private banking. In this context, the advantage of the EU passport for the cross-border distribution of financial services is a key factor in making Luxembourg a location of choice for all non-EU banks.

The French and German banks are characterised by their universal banking model in their respective home countries. In Luxembourg, they have a highly diversified business model, which includes private banking and asset servicing, but above all the lending business and mortgage bonds.

Chinese banks are emerging on an untapped yet segment – i.e. commercial activities.

“The group of Chinese banks has shown the overall highest growth per bank and now already counts ten institutions, which are primarily active in corporate banking (trade and project financing and syndicated loans). Furthermore, they are exercising and currently expanding a European hub function for their respective parent companies,” says Jörg Ackermann, partner at PwC Luxembourg.

The main business model of the UK/US segment is asset servicing for investment funds, i.e. rendering depositary banking, fund-administration and transfer-agent services.

"Our analysis reveals the strikingly high degree of diversity and internationality that Luxembourg displays. This diversity is a decisive factor for the financial centre’s competitiveness, and with inspiration from all sides, allowing the individual institutions’ business models to develop successfully into the future," said Olivier Carré, partner and Banking Leader at PwC Luxembourg.

The publication "Banking in Luxembourg - Trends & Figures 2016" is available on PwC Luxembourg website.