Luxembourg Banks Achieve Record €3.1bn Profit in Q2 2024

Luxembourg banks report a historic €3.1bn profit in Q2 2024, highlighting robust financial growth and resilience in a changing market.

In a remarkable turn of events, the net interest margin for banks domiciled in Luxembourg has more than doubled, a phenomenon attributed to the European Central Bank's (ECB) interest rate hikes since mid-2022. This surge has propelled pre-tax profits to unprecedented levels, as reported by the Luxembourg Central Bank. The Association of Banks and Bankers in Luxembourg (ABBL) has credited these gains to what it terms “traditional and historic business practices,” a nod to the enduring resilience of established banking models.

Data reveals that quarterly profits for Luxembourg-based banks, prior to provisions and taxes, soared to an impressive €3.106 billion in the second quarter of 2024. This figure starkly contrasts with the quarterly average of €1.324 billion recorded from 2008 to 2021, effectively more than doubling the historical norm. Furthermore, the net interest margin—the critical differential between the interest income generated by banks and the interest expenses incurred on deposits—has also witnessed a significant uptick. For the past five quarters, this margin has consistently exceeded €2.5 billion, nearly doubling its historical average of approximately €1.259 billion.

However, as inflation approaches the ECB’s medium-term target of 2%, the central bank has commenced a gradual tapering of its interest rate increases. An ABBL representative highlighted that the escalation of ECB rates has led to a sharp rise in mortgage rates, which in turn has precipitated a notable decline in the origination of new loans. Additionally, many clients have opted to postpone their investment initiatives or have found themselves unable to satisfy the regulatory prerequisites for loan approval. It is noteworthy that the lending margins employed by banks have remained relatively stable, suggesting a complex interplay between rising rates and cautious lending practices in the current economic landscape.