Earnings: the first line of defence for banks during market stresses

Delano spoke with Jerry Grbic at the Luxembourg Bankers’ Association (ABBL) about the 2022 aggregated profit and loss accounts of credit institutions recently released by the Luxembourg Financial Sector Supervisory Commission (CSSF).

Net earnings increased by only 2.0% in 2022 compared to +30.8% in 2021. Net interest margin improved by 39.0% following the decision by the European Central Bank to raise its key interest rates in the second half of 2022. Offsetting this positive development, the level of provisions also rose (details not reported) whereas “other net income” declined by 26.3% to a more normalized level of €1.4bn after the large one-off positive impacts of two large transactions in 2021 as per the ABBL. The higher provisions reflected the lower valuation of Russian assets and the expected losses related to a weakening economy as per the IFRS9 requirements.

For Jerry GrbicJerry Grbic, CEO at the ABBL, it is important to maintain a robust banking sector and his organisation is working at defending their profitability through a favourable regulatory framework. Contrary to the US, where capital markets are a major source of credit, the European economies are mainly financed through the banking system. He explains that profitable banks will more easily “provide credits, invest in its IT systems and their digitalisation and green transformations”. Moreover, Luxembourg banks are run conservatively with a capitalisation “of around 24% compared to 18-19% elsewhere in Europe, which is an additional pillar to maintaining the trust of their clients,” said Grbic.