How digital can help Luxembourg banks save money

Now that the largest Luxembourg banks have published their balance sheet, we have a clearer view on what 2016 looked like. Let’s face the music, all credit institutions share the same reality: cost control remains a top concern. At stake: new regulations and low rates definitely make their life harder. So, where they stand, what business models they’ve developed and how digitisation can help them reduce costs are in this article.

Regulations and lower rates are top bankers’ concerns

Whereas most of the largest Luxembourg banks grew in 2016, they all mentioned it was a tough year. Indeed, the hard-to-cope-with regulatory environment and the low interest rates made cost get out of control or so.

While these financial institutions acknowledge the benefits of those new rules, implementing them is another story. Indeed, those measures had a significant impact on costs as some banks had to hire staff or invest massively in new technologies.

As far as low interest rates are concerned, banks saw their profit margins literally shrink. There’s little to do on this side as rates are set by the European Central Bank to fight inflation.

Understanding Luxembourg banks’ business model

Luxembourg banks have a balanced business model made up of private and retail banking, private and corporate loans and asset servicing (depositary banking and investment fund servicing).Luxembourg Banks

Luxembourg banks mainly focus on providing loans to the domestic market. Therefore, loans and advances to customers represent a substantially high proportion of their total balance sheet. This is largely due to the overall high amount of private and corporate banking, as well as the public-sector financing.

Bonds and other transferable securities are significantly above the market average because income from bonds and other transferable securities represent an important source of Luxembourg banks’ overall balanced mix of earnings.

Client borrowing represents by far the biggest source of refinancing for Luxembourg banks. This is due to 1) their local presence and 2) their business model, which generates greater customer deposits in Luxembourg, and no parent company is available for refinancing.

Making digital pay

The banking sector can use digitisation to make internal developments. And, this is precisely how banks can ally with FinTech.

Olivier Carré, Banking Leader


Digitisation and FinTech bring another way of managing costs and transactional monitoring. Blockchain and robot advisory are surely the most famous technologies but other ones are at play. In the end, these technologies don’t change the business models but help banks to be more efficient and save money.

A striking example lies in the combination of big data and cloud to manage data efficiently. Doing so, organisations group their data to make them more effective. These technologies have been particularly relevant – not to say helpful – to deal with the recent banking secrecy reform.

To learn more on the Luxembourg banking industry, check out our dedicated web page.

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