ABBL: Yves Stein replaces Guy Hoffmann

The banks in Luxembourg are reporting brilliant figures. Last year they were able to increase their net profits to a total of 6.6 billion euros. A new record. The banks owe their brilliant business primarily to the increased key interest rate, as the ABBL banking association reported on Monday – the organization previously elected a new chairman. The previous president, Guy Hoffmann, was no longer able to take office after six years in office and continues to act as vice-chairman. The new president of the banking association is Yves Stein.

Guy Hoffmann emphasizes that “the banks’ 2024 results do not reflect the current situation in the country. I believe that the real estate sector best illustrates the difficult situation.” Because dark clouds have gathered, especially over the housing market. Recurring crises such as the economic downturn, rising raw material prices and high interest rates mean that activities in the real estate sector practically come to a standstill and many customers have difficulty getting a loan from banks.

Hoffmann points out that the real estate sector as a whole affects not only construction companies, but all related professions from window fitters to electricians. ABBL CEO Jerry Grbic emphasizes that financial institutions must and want to be part of the solution to the housing crisis: “Customers are asking themselves the question: Where will this lead?”

The increased interest rate means that the demand for credit is falling and the stricter granting of credit is slowing down business. “Every bank is interested in granting loans,” explains the CEO of ABBL. However, he points out that every bank also has a double responsibility: towards the borrowers, by ensuring that they are able to repay the loan. And towards investors, “by avoiding endangering the funds entrusted to them through risky credit policies”.

No record profits at the expense of customers?

Consumer protection ULC had previously criticized banks for making record profits at the expense of customers. But the CEO of ABBL emphasizes that the increase in the key interest rate is not an arbitrary choice by the banks: “The banks can’t just do what they want, they follow certain rules.” The European Central Bank (ECB) has the key interest rate – the current one is around four percent – increased in response to rising inflation.

Guy Hoffmann explains that last year’s bank profits were largely due to the interest that banks receive because they have to deposit their money with the European Central Bank. This is a regulatory obligation that banks must follow. After a decade of partly negative interest rates and weak banks’ profitability, these investments are earning interest again, explains the Vice President.

The banks were also able to release a large part of the provisions due to the risks associated with the war in Ukraine. On the other hand, new provisions had to be created as a result of the deterioration in the economy. The current crisis is not yet over, says Hoffmann.

Last year, banks paid around 1.6 billion euros in taxes on income or profits. This corresponds to an increase of almost 105 percent, because in 2022 this value was still 785 million euros. “The banks thus made an important contribution to the country’s prosperity,” emphasizes Guy Hoffmann.

New ABBL President: “The banking profession must become more attractive”

The newly elected President Yves Stein also points out the challenges facing banks in the financial center. In particular, the increasingly strict regulations that banks have to follow and the lack of talent are a problem in the sector. Stein demands: “The profession of banker should once again become a desirable job for our children.”

Despite the lack of young talent, the new ABBL president sees Luxembourg banks in “a good position to play an active role in financing the digital and sustainable transition”. Banks must pursue the long-term goal of remaining permanently profitable and also being accommodating, demands Yves Stein. Financial institutions have currently “reached a point where the scope of regulation exceeds the capacity of the industry and the supervisory authorities,” sums up the president.

The banking association, representing the 118 banks in the financial center and the staff representatives, is currently working on a new collective agreement for the 26,285 employees. The old one expired on December 31, 2023. “We had a few meetings with the unions, but then came the social elections. We have now resumed negotiations. We are making progress,” says ABBL CEO Grbic.

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