The Grand Duchy banking network is reinventing itself. Its challenge: to build a new profitability model adapted to the issues related to new regulatory requirements, including the MIFID II regulation, the digital transformation and rising costs.
As evidenced by the recent asset under management data, private and retail banks in the Luxembourg ecosystem are resisting the persistence of low interest rates. The Luxembourg funds industry is radiating and facing the upheaval of an economic crisis caused by the pandemic. Nevertheless, like its French neighbour, one of the major challenges facing the sector is profitability. He struggles to profit. According to the Luxembourg Bankers Association (ABBL), banks’ net income is down 18% in 2020. In this context, what are the opportunities and areas for improvement to be adopted in order to restore profitability?
A new economic pattern is emerging, where the need for diversification is felt. New players are changing the banking landscape. In the private banking sphere, Fintechs are asserting themselves, thanks to their agility and flexibility, by offering low-cost services, and by optimising their onboarding client process. These new players are making full use of new technologies such as biometrics, blockchain, big data and machine learning to offer new solutions tailored to market requirements. In this sense, traditional banks are therefore being called upon to innovate in order to strengthen their competitive advantage and continue to demonstrate a great ability to adapt by monitoring customer expectations.
To improve profitability, retail and private banks are trying to control their investment and operating costs. One of the strategic priorities is the implementation of measures to limit the increase in operating expenses and IT investments, but also to resist wage indexation and the inevitable rise in regulatory costs.
To remain attractive, the spearhead of a bank would be to optimise its activities and develop its offering in order to offer innovative services, improve its ability to adapt personalised wealth and tax advice, and reposition itself in a UHNWI (ultra high net worth individuals) customer base.
The managerial culture within the Luxembourg banking sector must be a lever for collective efficiency that enables advisors to enhance their expertise. Banks in Luxembourg are therefore looking into new forms of management. They are experimenting with new managerial practices. In the columns of the Andy à Luxembourg blog, Frédéric Kieffer (ING), Head of Retail Banking, describes all the benefits of the agile transformation within ING. He states: “We measure the benefits of the agile method in terms of marketing times, employee satisfaction and maintaining talent within our organisation. ”
Digital interaction is seen as an opportunity for private banks to make progress. It influences a key component of management: customer relations. “Digitalisation and fintechs should not be seen as obstacles, but rather as facilitators for private bankers, which remain and will remain a business where customer and human relations will be linked”, Pierre Etienne, Chairman of Private Banking Group Luxembourg told Le Quotidien.