Profit and loss account of credit institutions as at 30 June 2018

The CSSF estimates profit before provisions of the Luxembourg banking sector at EUR 2,936 million for the first half year of 2018. Compared to the same period in 2017, profit before provisions thus decreased by 3.0%.

Two main causes, which had already been observed in the first quarter of 2018, continued to negatively impact the profit before provision of credit institutions during this year’s first six months: (i) the ongoing increase of general expenses (+6.3%) and (ii) the significant reduction (-26.3%) of other net income. These adverse effects were partially mitigated by the positive result recorded on the main banking activities such as banking intermediation and asset management.

The net interest income registered an increase of 10.0% year-on-year. This trend was shared by half of the banks of the financial centre. The prolonged application of negative interest rates on deposits collected from institutional customers, the rise of the balance sheets or an improved average return on assets are some factors which, depending on the banks, explain the favourable development of the net interest income compared to the previous year.

The increase in net fee and commission income (+7.0%) was observed in half of the banks. The rise in this net fee and commission income, which is largely attributable to the activities related to asset management on behalf of private and institutional customers, is directly linked to the positive trend of the investment fund industry, supported by the upward trend in financial markets.

The other net income has substantially declined (-26.3%) as compared to the same period last year. Due to its composition, this item exhibits high volatility and its development is often linked only to non-recurring and specific factors affecting a limited number of banks of the financial sector.

General expenses continued to grow (+6.3%) during the first half of the year. This rise is linked to other general expenses (+8.9%) as well as to staff costs (+3.6%). In aggregate terms, general expenses grew faster than banking income thus further reducing the profitability of banks as expressed by the cost-to-income ratio which has risen from 50% to 53% year-on-year.

As a result of the above-mentioned developments, profit before provisions decreased by 3.0% year-on-year.

Profit and loss account as at 30 June 2018