Profit and loss account of credit institutions as at 31 December 2016

The CSSF estimates profit before provisions of the Luxembourg banking sector at EUR 6,361 million for the year 2016. Compared to the same period in 2015, profit before provisions thus increased by 14.9%. The extent of this increase is exceptional; it reflects the proceeds from the disposal of a major holding by a bank of the Luxembourg financial centre.¹

In a context of low, or even negative, interest rates, the interest-rate margin recorded a year-on-year rise by 5.3%. This increase, split among slightly more than half of the Luxembourg credit institutions, representing 57% of the financial centre’s banking income, results from volume and price effects. Consequently, 64% of these credit institutions saw an increase in their business volume and 65% in their average return on assets (33% of the banks benefited from the combined effect of these two factors). A certain number of banks also began applying negative interest rates to their institutional clients. Nevertheless, it has to be specified that the extent of the increase was limited to a restricted number of credit institutions.

Net commissions received declined by 2.3% over a year. The drop in net commissions received, which mainly results from asset management activities on behalf of private and institutional clients, is linked to the less favourable stock market environment as compared to the previous year, mostly as concerns the first half of the year. This negative impact could only be partially offset by the positive development of financial markets as from the third quarter of 2016. The decrease in net commissions received concerned more than half of the banks in Luxembourg.

Other net income recorded a significant growth (+33.9%) compared to the same period last year. This item is, in itself, very volatile and typically influenced by non-recurring factors, specific to a restricted number of banks of the financial centre. This is especially the case for the year 2016 due to an exceptional transaction performed by one bank of the financial centre. The capital gain on the disposal of a major holding recorded by this bank alone accounts for 97% of the total growth of the “other net income” item over one year. If the aggregate profit and loss account was adjusted without considering this transaction, the “other net income” item would have grown by 1.1% only in 2016. General expenses rose by 1.2% over a year. While staff costs remained stable (+0.1%), the other general expenses increased by 2.4% compared to last year. The increment in other general expenses affects most of the banks of the financial centre and reflects not only the investments in new technical infrastructures but also the expenses to be borne by banks in order to comply with a more complex and onerous regulatory framework.

Due to the above-mentioned developments, the profit before provisions increased by 14.9% year-on-year. Excluding the exceptional effect of the above disposal, the increase in the result before provisions would have been limited to 1.5%.

Profit and loss account as at 31 December 2016