How Adavanced Analytics will transform Banking in Luxembourg
Luxembourg Banking Insights 2019 · 2020-03-30 · Luxembourg Banking Insights 2019 4 Evolution of...
Transcript of Luxembourg Banking Insights 2019 · 2020-03-30 · Luxembourg Banking Insights 2019 4 Evolution of...
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Luxembourg Banking Insights 2019
Luxembourg Banking Insights 2019
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Contents
Degree of internationalization within Luxembourg’s banking industry
Banking performance indicators
Evolution of the Luxembourg banking industry
10 Countries of origin: Worldwide
11 Countries of origin: Europe
13 New entries and leavers in Luxembourg in 2018
14 Brexit: impact on Luxembourg
15 Brexit: relocation types
17 Banking industry segmentation
18 Regulatory classification
19 Universal banks
22 Depositary banks
25 Private banks
28 Commercial banks
31 Performance indicators
4 Size of the Luxembourg banking industry: 2015 to 2018
5 Assets
6 Liabilities
7 Banking performance outlook
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Evolution of the Luxembourg banking industry
Size of the Luxembourg banking industry: 2015 to 2018Total assets
Banking income
Cost-income ratio
Number of banks
Number of staff
€ billion743€ billion770 € billion752 € billion774
€ billion11.5€ billion12.4 € billion11.6 € billion11.7
52%
22%
49%
25%
54%
26%
57%
25%
143 141139
135
25,942 26,060 26,149 26,317
€ billion5.5€ billion6.3 € billion5.5
€ billion5.0
Profit before tax and net provision
Total capitalratio
2015 2016 2017 2018
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Source: CSSF & BCL
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The banking market’s asset structure has remained relatively consistent in recent years. Its overall amount has increased by EUR 22.5 billion to reach EUR 774.4 billion, while the asset breakdown has remained stable compared to the last two years.
Structure of banking assets (total in EUR billion and asset components in %)
Assets
Deposits from customers and credit institutions remain the main source of funding for the Luxembourg banking market.
Luxembourg has a cash-rich economy that ensures the banking sector is well funded. This has led to a funding surplus that banks cannot dissipate through lending. Deposits continue to grow despite negative interest rates being applied by some banks, increasing the central bank’s cash over the past 3 years.
LiabilitiesStructure of banking liabilities (total in EUR billion and liabilities components in %)
Source: CSSF
2016 2017
Loans and advances to credit institutions
Loans and advances to customers
Loans and advances to central banks and administrations
Fixed-income securities
Real estate assets and other assets
2018
35.47%34.81%
29.67%27.99%
15.49%14.88%
15.89%17.81%
1.53%1.02%
0.93%
2.03%1.27%1.21%
35.40%
29.72%
15.82%
15.29%
1.98%
0.95%
0.84%
Variable-yield securities
Financial assets held for trading
770752
774
Source: CSSF
2016 2017
Amounts owed to customers
Amounts owed to credit institutions
Debts evidenced by certificates
Capital and reserves
Other liabilities
Amounts owed to central banks
Liablilties (other than deposits) heldfor trading
Subordinated liabilities
Provisions
2018
770752
774
48.84%48.15%45.82%
31.10%30.97%
32.94%
8.52%8.25%
7.70%
7.34%8.05%
7.96%2.00%
1.41%
1.14%
0.57%0.46%
1.78%
1.14%
0.66%
0.55%
0.45%
1.60%
0.91%
0.79%0.51%
0.39%
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2018 banking income and expenses
Income trend (total in EUR billion and components in %) Expenses trend (total in EUR billion and components in %)
Banking performance outlook Banking performance outlook
10.46
13% 21% 20% 25% 18%
38%
49%
40% 41%
39%
37%
38%
40%
42%
10.3811.48
12.3611.76
2013 2014 2015 2016 2017
15%
42%
43%
11.69
2018
Other net revenues Fees & commision Interest margin
Source: CSSF
39%
The total banking income decreased slightly in 2018. The main sources of income remain commissions and interest-rate margin despite the negative interest-rate environment.
Total expenses have trended upwards over the last five years. The reason for this increase varies according to the financial institution type and its respective business model. The banking performance indicators section gives a more detailed breakdown of how and why total operating costs have changed for each respective banks’ category.
It’s worth noting that the wage indexation mechanism did not have a big impact on the overall total expenses trend.
5.20
47% 48% 48% 49% 49%
53% 52% 52% 51% 51%
5.01 5.94 6.04 6.25
2013 2014 2015 2016 2017
51%
49%
6.63
2018
Other administrative expenses Employee costs
Source: CSSF
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Degree of internationalization within Luxembourg’s banking industry
Below are the number and geographical origin of financial institutions from non-European countries.
Countries of origin: Worldwide
United States
5
Brazil
4
Canada
1China
14
Israel
2Japan
6Qatar
2
Russia
2
Source: CSSF (December 2018)
73%
America16%
Middle East
8%
Asia & Pacific
3%
Europe
Area of origin of credit institutions in Luxembourg
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Below are the number and geographical origin of financial institutions from European countries.
Countries of origin: Europe Countries of origin: Europe
Source: CSSF (December 2018) Source: CSSF (June 2019)
Norway
2Sweden
6
Greece
1
Denmark
1
Italy
6
Ireland
2
Portugal
2
United Kingdom
7
Jersey
1
Andorra
2Spain
3Cyprus
1
France
14
Germany
25
Netherlands
2
Belgium
4
Luxembourg
6
Switzerland
11
Finland
1
Latvia
1
99 banks in Luxembourg are from Europe and 43% are from cross border countries.
EU segmentation of legal entities in Luxembourg
Non-EU segmentation of legal entities in Luxembourg
34% Branch
5%
Head office61%
Subsidiary
31%
3%
66%
Branch
Head office
Subsidiary
13 14
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New entries and leavers in Luxembourg in 2018
European banks have always strongly influenced the evolution of Luxembourg’s banking market. However, the number of Chinese banks has more than doubled in five years, reaching 14 institutions by the end of 2018.
Number of credit institutions
Source: CSSF(2018)
1
0
2
-3
-2
-1
Germany France Spain United Kindgom
Italy Brazil
Brexit: impact on LuxembourgThe graphs below show the number of banks and asset management companies that announced that they would relocate part of their business out of the UK following the Brexit decision. The map also highlights the target nation of the respective financial institutions.
30 7
2342
21
Source: STATEC, KPMG, press (as of Apr 2019)
Breakdown of relocations by target nation
Luxembourg
Luxembourg
34%
Ireland
Ireland
24%
Germany
Germany
19%
France
France
17%
Netherlands
Netherlands
6%
Number of credit institutions
Entries 2 6Exits
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Type of relocation in LuxembourgBank
# of institutionsAsset Management
# of institutionsTotal
Opening new officeHeadquarters 1 7 8
Subsidiary 4 12 16
Extension of current business in Luxembourg
Staff relocation 0 3 3
Booking center 1 0 1
European retail business
1 0 1
Fund management license
2 7 9
Private equity and infrastructure investment licenses
0 1 1
Depositary license 0 1 1
Not yet disclosed 0 2 2
Brexit: relocation typesThe below table shows the relocation methods that the 42 financial institutions would choose if they moved their main business activities to Luxembourg and/or reinforced their current activities in/from the Grand Duchy.
The uncertainty caused by Brexit drove these financial institutions to seek out a sustainable market infrastructure with a robust financial ecosystem. This transition creates new opportunities and challenges for Luxembourg, ultimately strengthening its position as one of the main European financial centers.
The analysis and classification of the relocation announcements are not set in stone as the public is still waiting for the result of the Brexit deal. However, the below picture will not change as the financial institutions’ decisions were largely made on the assumption of a hard Brexit, and all are already implementing their plans.
Type of relocations in Luxembourg
Source: STATEC, KPMG, press (as of Apr 2019)
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Banking performance indicators
Banking industry segmentationOur study is based on 93 banks* located in Luxembourg covering 70% of the total amount of assets in the market. We have divided them into four different segments based on their business type:
— Commercial banks, that focus on deposits, business loans, payments and basic investment products.
— Private banks, that manage the personal finance of high-net-worth individuals (HNWIs) by providing a wide range of financial services.
— Depositary banks, that focus on custody services for their own groups and institutional clients around the world.
— Universal banks, that provide combined services offered by the three other banking segments described above.
Three banks specialized in issuing covered bonds were not included in the four segments given their specific business
This categorization aims to provide you with more detailed findings driven by business model. In identifying balance sheet and P&L components together with performance indicators, we were able to report market trends and highlight the main differences within banking segments.
We gathered financial data as of December 2018 from the banks’ annual accounts, which were drafted using LuxGAAP methodology in 75% of the cases and IFRS in the remaining 25%. The two methodologies imply different account measurement types and a diverse level of granularity in the notes section. However, we have standardized all indicators for both accounting schemes to provide accurate and consistent results.
Commercial banks29%
14%
Depository banks
48%
Private banks
9%
Universal banks
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* Branches are excluded from the analysis
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Regulatory classification** of the 93 banks included in our analysis
31
56
6
Other SI = Banks/groups designated as Significant Institutions (SIs) in other Banking Union states. Four of these banks were also identified as Domestic Systemically Important Banks (D-SIBs)
LSI = Less significant institutions. One of these banks was also identified as a Domestic Systemically Important Bank (D-SIB)
LU SI = Banks/groups designated as Significant Institutions (SIs) in Luxembourg by the ECB. Four of these banks were also identified as
Domestic Systemically Important Banks (D-SIBs)
* *“Regulatory Consistency Assessment Programme (RCAP) Assessment of Basel III G-SIB framework and review of D-SIB frameworks – European Union” June 2016 Bank for International Settlements. Recital 38 of SSM Regulation.
Universal banks
Profit & Loss overview
Operating income
Average 2018 Total operating income
Median 2018 Total operating income
EUR 387.06 million
EUR 357.65 million
Total operating income (average in EUR million)
399.30
61% 59% 57% 58% 45%
19%
20%
20% 19%
24%
17%
25%
14%
41%410.36 407.89
391.44
494.50
2012 2013
Other income
2014 2015 2016
55%
20%
25%
385.85
2017
54%
20%
26%
387.06
2018
21%
Net fee and commission incomeNet interest income
Total operating income variation (2017-18) +0.3%
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2012 2013 2014 2015 2016
146.57139.46
147.11 151.51
228.72
110.48 114.85
2017 2018
Net profit (average in EUR million)
Operating costs Balance sheet (in EUR billion)
Loan-to-deposit (customer) ratio
Average 2018 Total operating cost
Median 2018 Total operating cost
EUR 220.02 million
EUR 182.68 million
Total operating cost (average in EUR million)
208.85
51% 51% 53% 54% 57%
49% 49% 47% 46% 43% 47% 45%
217.44 214.23 214.18202.77
2012 2013 2014 2015 2016
53%
223.68
2017
55%
220.02
2018
Other expensesEmployee costs
Total operating costs variation (2017-18) -1.6%
Despite banking regulators implementing several new regulatory requirements, the average operating cost amount decreased by 1.6%, leading to a 4% net profit increase in 2018.
Please note that if the 2016 sale of part of a universal bank’s business hadn’t been factored in, the net profit trend would have been fairly stable over the reporting period for universal banks.
Universal banksUniversal banksBalance sheet overview
Balance sheet
24.20
19.53
AverageMedian
2016
23.66
20.86 2017
24.03
21.92 2018
The average amount of assets in 2018 grew by 1.57% compared to 2017, reversing the negative trend of the last two years.
After a decreasing trend from 2014 to 2017, the customer loan-to-deposit ratio increased slightly in 2018.
(average per banking segment) 1.5%€2.22billion
Equity
Loan-to-deposits (customers) ratios
Customer deposits (average)Loans to customers (average) Loans/Deposits
2012 2013 2014 2015 2016 2017 2018
4.00
0
6.00
8.00
10.00
12.00
14.00
16.00
2.00
72%
68%
74%
76%
78%
80%
82%
84%
70%
EUR billion
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Depositary banks
Average 2018 Total operating income
Median 2018 Total operating income
EUR 255.14 million
EUR 109.57 million
Total operating income (average in EUR million)
191.20
26% 21% 20% 20% 16%
61%
13%
60% 58%
22%
64%
16%
65%
19%
209.59 217.71 212.66 203.89
2012 2013
Other income
2014 2015 2016
16%
65%
19%
213.56
2017
16%
63%
21%
255.14
2018
19%
Net fee and commission incomeNet interest income
Average 2018 Total operating cost
Median 2018 Total operating cost
EUR 144.16 million
EUR 61.33 million
Total operating cost (average in EUR million)
96.57
42% 39% 41% 35% 36%
61%58%
59% 65% 64% 64%65%
112.44107.02
118.08 119.62
2012 2013 2014 2015 2016
36%
120.33
2017
35%
144.16
2018
Other expensesEmployee costs
Total operating costs variation (2017-18) +19.8%
2012 2013 2014 2015 2016
74.37
63.69
94.20
69.2966.67
72.32
87.96
2017 2018
Net profit (in EUR million)
Profit & Loss overview
Operating income
Total operating income variation (2017-18) +19.5%
Operating costs
Depositary banks’ net profit has increased on average by over 30% since 2016. In 2014, net profit peaked due to an extraordinary income earned by a depository bank selling off part of its business.
Net profit (average in EUR million)
Depositary banks
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Depositary banks
Balance sheet
7.58
1.01
AverageMedian
2016
7.48
1.08 2017
9.44
1.34 2018
The average total balance sheet amount grew by 26% in 2018 compared to the previous year.
Furthermore, the average equity amount rose by more than 30% thanks to an important growth in the share premium of one depositary bank.
Loans-to-deposits ratio slightly decreases after it has been slashed by nearly a half in 2013.
(average per banking segment) 34.1%€0.76 billion
Equity
2012 2013 2014 2015 2016 2017 2018
1.00
0
1.50
2.00
2.50
3.00
3.50
4.50
4.00
5.00
0.50
20%
0%
30%
40%
50%
60%
70%
10%
EUR billion
Customer deposits (average)Loans to customers (average) Loans/Deposits
Balance sheet (in EUR billion)
Loan-to-deposit (customer) ratio
Balance sheet overview
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Private banks Private banks
Average 2018 Total operating income
Median 2018 Total operating income
EUR 63.53 million
EUR 36.78 million
Total operating income (average in EUR million)
58.37
33% 29% 30% 26% 27%
48%
19%
50% 53%
17%
51%
23%
50%
23%
61.57 60.41
70.89
62.63
2012 2013
Other income
2014 2015 2016
28%
50%
22%
65.20
2017
27%
50%
23%
63.53
2018
21%
Net fee and commission incomeNet interest income
Average 2018 Total operating cost
Median 2018 Total operating cost
EUR 49.22 million
EUR 33.30 million
36.24
58% 58% 58% 55% 54%
42% 42% 42%45% 46% 45%
46%36.04 36.45
40.86 41.39
2012 2013 2014 2015 2016
55%
43.95
2017
54%
49.22
2018
Other expensesEmployee costs
Total operating cost (average in EUR million)
Total operating income variation (2017-18)
Total operating costs variation (2017-18)-2.6% +12.0%
After implementation of MiFID II regulation, the average operating income has remained stable. On the other hand average operating costs have shot up since 2015 due to intense regulatory pressure and increased IT investment in order to adapt to the digital and automation trends of the industry causing a negative trend in Luxembourg private banks’ average net profit.
2012 2013 2014 2015 2016
12.29
19.77 19.16
22.8119.78
18.02
10.64
2017 2018
Net profit
Profit & Loss overview
Operating income Operating costs
Net profit (average in EUR million)
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Balance sheet
3.22
1.43
AverageMedian
2016
3.29
1.67 2017
3.35
1.71 2018
The average balance sheet amount has slightly increased over the past three years.
A +80% boost in loan business from 2012 to 2018 is the main driver of the positive trend of the loans-to-deposits ratio.
(average per banking segment) 3.4%€0.27 billion
Equity
Loan-to-deposits (customers) ratios
2012 2013 2014 2015 2016 2017 2018
1.00
0
1.50
2.00
2.50
0.50
20%
0%
30%
40%
50%
60%
10%
EUR billion
Customer deposits (average)Loans to customers (average) Loans/Deposits
Private banks
Balance sheet (in EUR billion)
Balance sheet overview
Loan-to-deposit (customer) ratio
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Commercial banks Commercial banks
Average 2018 Total operating income
Median 2018 Total operating income
EUR 67.21 million
EUR 12.66 million
48.32
67% 64% 65%69%
74%
20%
13%
20% 24%
11% 18%
13%16%
10%49.54
44.44
56.3658.85
2012 2013
Other income
2014 2015 2016
79%
14%
7%
63.76
2017
76%
18%
6%67.21
2018
16%
Net fee and commission incomeNet interest income
Total operating income (average in EUR million)
Average 2018 Total operating cost
Median 2018 Total operating cost
EUR 24.14 million
EUR 8.41 million
13.88
43% 43% 43% 45%49%
57% 57% 57% 55%
51% 57%
60%13.84
14.7315.76
20.17
2012 2013 2014 2015 2016
43%
19.42
2017
40%
24.14
2018
Other expensesEmployee costs
Total operating cost (average in EUR million)
Total operating income variation (2017-18)
Total operating costs variation (2017-18)+5.4% +24.3%
Over the past five years, the total operating income has steadily increased largely due to net interest income. However, it’s worth pointing out that in 2018, net commission income increased by 36% compared to the previous year.
Had we not considered two commercial banks’ other operating expenses, 2018’s total operating costs would have been in line with the previous year’s variations.
2012 2013 2014 2015 2016
22.60
18.7517.70
19.2618.01
21.8719.78
2017 2018
Net profit
Profit & Loss overview
Operating income Operating costs
Net profit (average in EUR million)
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Balance sheet
2.50
0.82
AverageMedian
2016
2.55
1.002017
2.18
0.982018
The average equity amount plunged by 39% due to a big commercial bank undertaking a strong capital reduction.
The loan-to-deposit ratio dropped at 121%. This trend demonstrates that on the one hand, banks are increasingly relying on customer deposits for funding. While on the other, the application of NPL guidelines might have negatively affected the total amount of loans.
(average per banking segment) -39.2%€0.25 billion
Equity
Loan-to-deposits (customers) ratios
2012 2013 2014 2015 2016 2017 2018
0.40
0
0.60
0.80
1.00
1.20
1.40
1.60
1.80
0.20
100%
0%
150%
200%
250%
300%
350%
50%
EUR billion
Customer deposits (average)Loans to customers (average) Loans/Deposits
Commercial banks
Balance sheet (in EUR billion)
Balance sheet overview
Loan-to-deposit (customer) ratio
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Performance indicators
Operating costs / Operating income
ROE
ROA
2018 average interest margin
2018 average commission margin
Depositary banks
Private banks
Commercial banks
Net profits / FTEs (EUR)
Employee costs / FTEs (EUR)
Assets / FTEs (EUR)
Number of FTEs variation
Commercial banks
Depositary banks
Private banks
Universal banks
Overall average
2016-2017 9% -1% 1% -1% 1%
2017-2018 10% 7% 2% 1% 5%
Average number of employees per institution and respective banking segment
Performance indicators
58
426
174
1107
2016
64
423176
1101
2017
70
454
180
1111
2018
Commercial banks Depository banks Private banks Universal banks
Universal banks
56.84% 56.50% 77.47% 35.92%
4.86% 10.52% 3.81% 7.93%
0.48% 0.93% 0.32% 0.91%
0.86% 0.43% 0.50% 2.34%
0.33% 1.70% 0.95% 0.55%
100,000 190,000 60,000 280,000
110,000 110,000 150,000 140,000
21,630,000 20,800,000 18,660,000 31,330,000
Key performance indicators Development of staff numbers
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© 2019 KPMG Luxembourg, Société coopérative, a Luxembourg entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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ContactStanislas Chambourdon Head of Banking
KPMG LuxembourgT: +352 22 51 51 - [email protected]
Sonia Dribek Pfleger Financial Services CFO advisory leader
KPMG LuxembourgT: +352 22 51 51 - [email protected]
Marco Weber Partner
KPMG LuxembourgT: +352 22 51 51 - [email protected]