Banking in Luxembourg Trends & Figures 2018

Transcription

1 Banking in Luxembourg Trends & Figures 2018

2 All information used and presented in this publication relates to the data provided in the CSSF s annual report and in the individual annual accounts of legally independent banking companies (e.g. S.A.s and S.C.A.s). As there is no publication requirement, it was not possible for us to carry out an analysis of the data in the annual reports of legally dependent branches that are not recognised separately. In case banks have changed country, the previous year figures are adapted accordingly in both country s. Therefore, previous year figures may vary from the figures disclosed in the previous year version of this brochure. The values used and calculated have been rounded up or down as appropriate. Annual accounts reported in a different currency (USD/CHF) were converted at the exchange rate on the relevant closing date. To accommodate the differences between Lux GAAP and IFRS, we have depicted these banks balance sheet and income-statement data in a schematic representation that we use with Lux GAAP, and have therefore presented a number of assumptions in a simplified manner. The main assumptions are the following: The unused risk provisioning presented pursuant to IFRS has been deducted on a pro rata basis from loans and advances to customers and credit institutions; Financial instruments valued at fair value through profit or loss (transferable securities and derivatives) have been assigned to the bonds and other transferable securities or other assets/liabilities items item in accordance with the notes to the accounts available to us; Derivative fair values from hedge accounting have been assigned to the Other assets/liabilities item; The revaluation reserve has been added to own funds ; The profit or loss from financial instruments valued at fair value through profit or loss, as well as the profit or loss from hedge accounting, have been assigned to Net profit/(loss) on financial operations by virtue of their financial character; The profit or loss from financial fixed assets has been assigned to the risk provisioning item insofar as it relates to unrealised profit or loss components. Realised components, where identifiable, have been assigned to Net profit/(loss) on financial operations. The figures presented have been established on the basis of internal calculation methods and may vary from the calculations shown in the individual annual accounts. The choice and classification of companies and the determination of the total number of banks per country were made based on internal data and on statistics published by the CSSF.

3 Table of contents Foreword... 5 Overview of the market s evolution... 9 Comparative analysis of the six country s Overview of developments in each German French UK/US Luxembourg Swiss Chinese Contacts

4 4 PwC Luxembourg

5 Foreword Banking in Luxembourg - Trends & Figures

6 Foreword Roxane Haas Banking Leader Home to 139 banking institutions from all over the world and with a range of varied business models, Luxembourg has, justifiably, earned its reputation as an international banking centre. Our annual banking review once more takes an analytical look at this diversified banking landscape. Like in previous years, in our publication Banking in Luxembourg Trends and Figures, we have categorised the banks according to their country of origin and analysed the financial statements of the six largest country s of banks present in Luxembourg. The review also reflects on the diversity of the local banking community and illustrates the dynamics within the different country s as well as their relative development against the overall market. In order to ensure comparability and continuity we have kept the composition of the six main country s. Our analysis, therefore, covers the country s of German, French, Swiss, US/UK and Chinese banks alongside Luxembourg banks, they being part of the home. For each of these s we highlight changes compared to the previous year and discuss observed trends. The Luxembourg banks continue to exercise a relatively diversified business model in their home market, with various focal points in private, retail and corporate banking as well as asset servicing. In comparison to this, the other country s still remain focused on one or two main business areas along the themes of investment fund servicing, depositary banking, private banking, (international) loans business or trade financing. The Chinese, this time, shows the highest growth of all s in aggregated balance sheet totals in compared to, which underlines the dynamics in which the Chinese economy unveils its activities in Europe. The growth of this is further substantiated by new Chinese banking groups coming to Luxembourg and, by extension of business activities, into the EU via an extended branch network. China Everbright Bank (Europe) S.A. and China Everbright Bank Co. Ltd, Luxembourg branch obtained the approval of the European Central Bank and the CSSF in July. Accordingly, there are now seven Chinese banking groups established in Luxembourg, operating through six subsidiaries and seven branches and more Chinese players are expected in the future. 6 PwC Luxembourg

7 The group of US and UK banks is mainly focused on asset servicing, i.e. rendering custodian, fund administration and transfer agent services. The UK/US once again leveraged the positive growth in the Luxembourg investment fund industry and increased annual profit totals at 28.1% whilst also leading the crowd in net commission income compared to other s. The group of Swiss banks in Luxembourg also has a major focus on asset servicing, as well as a tradition of private banking. Additionally, the advantage of the EU passport for the cross-border distribution of financial services is a key factor in making Luxembourg a location of choice for all non-eu banks. The Swiss banks in Luxembourg make intensive use of the possibility given by the EU passport to distribute their services through branches in Europe. The banks currently have 26 branches in 13 different countries. Twenty-five of these branches are in Europe and one in Asia. The group of German banks remains the representing the biggest number of banks, in. German banks offer a large variety of services that range from private banking via asset servicing to lending business. They also specialise in covered bonds with three out of four covered bond banks in Luxembourg having a German origin. The group of French banks follows the business model of universal banking with a focus on private banking, asset servicing and lending and represents the second largest country in terms of number of banks. Our analysis of the annual accounts of Luxembourg banks provides once more an insight into the ever-growing diversity of the Luxembourg financial centre and illustrates the dynamics taking place in a fast changing financial services world. Banking in Luxembourg - Trends & Figures

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9 Overview of the market s evolution Banking in Luxembourg - Trends & Figures

10 Overview of the market s evolution Key takeaways Overall market - With 139 authorised banks at year-end, the number has slightly decreased by of the 139 authorised banks have a universal banking licence, whereas 4 banks (3 of them belonging to the German ) have a mortgage-bond banking licence. Regarding the legal status, 94 banks are under Luxembourg law, 32 are branches of banks from EU Member States or a country considered on equal terms and 13 are branches of banks from non- EU Member States. The staff count has slightly increased from 26,060 in to 26,149 in. In terms of geographical representation in the Luxembourg financial centre, German banks still make up the largest group at 17.3%, followed by French banks with 10.8% and Chinese banks at 9.4%. The following banks were deregistered during : - BSI Europe S.A. (absorbed by EFG Bank (Luxembourg) S.A.); - UBI Banca International S.A. (absorbed by EFG Bank (Luxembourg) S.A.); - La Française Bank S.A. (transfer of Head Quarter to France); - Banque Havilland Institutional Services S.A. (merger with Banque Havilland S.A.); - The Bank of New York Mellon (Luxembourg) S.A. (cross-border merger into the Bank of New York Mellon SA/NV); - Garanti Bank (Luxembourg Branch) (transfer of European business to Malta). The following banks have started operations in : - China Everbright Bank (Europe) S.A.; - China Everbright Bank Co. Ltd, Luxembourg Branch; - River Bank S.A.; - The Royal Bank of Scotland International Limited, Luxembourg Branch. Number of banks 19.4% 2.9% 3.6% 3.6% 4.3% 4.3% 5.0% 20.6% 2.8% 3.5% Subsidiaries Branches Total Countries of origin of banks established in Luxembourg 5.8% 6.5% 17.3% 10.8% 9.4% 7.2% 17.0% 11.3% 3.5% 4.3% 4.3% 5.0% 5.0% 7.1% 7.8% 7.8% Germany France Switzerland China Italy UK Sweden USA Japan Luxembourg Belgium Brazil Other Balance sheet total (in EUR million) 769, ,902.0 In, the balance sheet total decreased by EUR 18.1 billion (-2.3%). This decline has been principally driven by the decrease of EUR 19.8 billion (-13.5%) in bonds and other transferable securities, due to maturities with limited new investments being made. Loans and advances to customers grew by 3.5% to reach EUR billion, whereas loans and advances to credit institutions grew by just 0.1% in. The trend of consisting of a shift from loans and advances to credit institutions, into loans and advances to central banks and central governments, in order to comply with the Liquidity Coverage Requirement (LCR) slowed down throughout. Fixed assets and other assets decreased notably by EUR 4.2 billion (-26.6%) and EUR 2.3 billion (-24.5%) respectively. 10 PwC Luxembourg

11 Total equity ratio (weighted) 24.8% 25.9% The Luxembourg-based banks continue to have a high and further improving capitalisation rate, well above the 8.0% required by Basel III. According to the CSSF annual report, 82 out of the 94 subsidiaries have a Tier 1 capital ratio of over 11.0%. Annual net profit and loss (in EUR million) 4,740.0 * without the one-off effect 3,999.0* 3,788.0 Net profit for the year substantially dropped (-20.1%) compared to the financial year. In one bank had an exceptional transaction, which positively influenced the annual net profit. Compared to the result without the one-off effect of the annual net profit in has decreased by 5.3% (EUR million). The lower annual result was largely influenced by other operating income, which fell by 14.0% (excluding the one-off effect). The growth in current operating expenses (+3.2%), driven by an increase in administrative expenses, further reduced annual profits and was experienced by 64.0% of all banks. The significant increase in administrative expenses (+4.9%) was on the one hand due to new investments in infrastructure, and on the other hand linked to compliance with new accounting and regulatory standards. Net interest and commission result (in EUR million) 4, , , ,877.0 Net interest income has increased by 3.4% over the previous year. 59.0% of banks representing 60.0% of banking income have experienced positive growth in the volume of activities. Due to the negative interest regime, some banks have passed on negative interest charges to their institutional clients. Net commission income has increased by 2.7%. This growth being shared by 58.0% of banks which could benefit from a favourable stock market climate in. Net interest result Net commission result Return on assets Return on equity 0.62% 0.52%* 0.50% 7.73% 6.52%* 6.26% Return on assets remains at a rather stable level compared to the adjusted figures of. The slight decrease is driven by lower net profits (-5.3%) while total assets decreased only slightly (-2.3%). The decrease in return on equity is largely due to the decrease in annual net result (-5.3%). Own funds have decreased by 1.3% compared to the adjusted figures from the previous year. * without the one-off effect Banking in Luxembourg - Trends & Figures

12 Overview of the market s evolution Cost-income ratio (in %) 57.44** 55.62* The cost-income-ratio has grown due to the increase in current operating expenses of EUR million (+3.2%) compared to the adjusted figures. At the same time, excluding the one-off effect, banking income remained at a stable level of EUR 10.8 billion (: EUR 10.8 billion). The CSSF disclosed a cost-income ratio of 54% in its annual report(: 49%) * without the one-off effect ** our formula is the following: CIR = staff costs+administrative costs (incl.depreciation) net interest and commission result+net result on financial operations +other operating result+risk provisioning Annual net profit and loss per member of staff (in KEUR) Headcount , * , * without the one-off effect Staff costs per member of staff (in KEUR) Administrative costs per member of staff (in KEUR) The headcount has experienced slight growth (+0.3%). Staff costs per member of staff rose by 1.2%; while staff cost grew by 1.5% as a consequence of the salary indexation. Administrative costs per member of staff have risen by 4.9%, largely due to continuing investments in infrastructure and the cost of compliance with regulations. Annual net profits per member of staff have decreased by 5.6%, due to the fall in net profits (-5.3%*). * without the one-off effect 12 PwC Luxembourg

13 Banking in Luxembourg - Trends & Figures

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15 Comparative analysis of the six country s Banking in Luxembourg - Trends & Figures

16 Comparative analysis of the six country s Key takeaways comparison of the six country s The number of banks examined by PwC as part of the analysis of the six country s remained stable at 88; the number of subsidiaries decreased by two whereas the number of branches increased from 33 to 35 in. With 23 institutions, the German has the most representatives, followed by the UK/US (16 institutions) and the French (14 institutions). The following banks have started their operations in the financial year: - River Bank S.A. (Luxembourgish ) - China Everbright Bank (Europe) S.A. and China Everbright Bank Co. Ltd, Luxembourg Branch (Chinese Segment) - The Royal Bank of Scotland International Limited, Luxembourg Branch (UK/US ) The following banks ceased operations in the financial year: - La Française Bank S.A. has transferred their headquarters to France. It does not have any branches in Luxembourg. The group continues to be present in Luxembourg via its management company La Française AM International S.A. - Banque Havilland Institutional Services S.A., formerly called Banco Popolare Luxembourg S.A., merged with its parent Banque Havilland S.A. - BSI Europe S.A. and UBI Banca International S.A. have been absorbed both by EFG Bank (Luxembourg) S.A. Number of banks Business areas Investment fund servicing 16.0% Custody 14.7% Service centre 10.3% 2.6% Mortgage bonds 7.7% Treasury Subsidiaries Branches Total Private banking 19.2% Corporate Banking 20.5% Retail Banking 9.0% Change in the aggregated balance sheet total from to Aggregated balance sheet total (in EUR million) 15% % 5% 0% -5% -10% -15% -16.0% -1.8% French -1.8% Swiss 6.1% 4.8% Luxembourg UK/US 13.5% Chinese -2.3% , , , , , , , , , , , , % German 0 German French Swiss Luxembourg UK/US Chinese The Chinese (+13.5%), Luxembourg (+6.1%) and UK/US (+4.8%) s grew their on-balance sheet business. The development in the French and Swiss is in line with the overall market trend. The increase in the Chinese is primarily due to a growth in loans and advances to customers (+22.0%) as well as in loans and advances to credit institutions (+5.3%), mainly driven by Bank of China (Luxembourg) S.A., China Construction Bank (Europe) S.A. and Bank of Communications (Luxembourg) S.A. The growth in the Luxembourgish is driven by a EUR 7.2 billion increase in loans and advances to credit institutions and by a EUR 4.0 billion increase in loans and advances to customers (mainly BGL BNP Paribas S.A. and Banque et Caisse d Epargne de l Etat, Luxembourg). The increase in the UK/US is mainly driven by PayPal (Europe) S.à r.l. et Cie, S.C.A. (EUR +0.7 billion) followed by HSBC Private Bank (Luxembourg) S.A. and J.P Morgan Bank Luxembourg S.A. (EUR +0.3 billion for both). A major cause of the German s drop was the decrease in the interbank business (EUR billion) and the decrease in bonds and other transferable securities (EUR -5.3 billion). Deutsche Bank Luxembourg S.A. has decreased their assets by EUR 14.1 billion (-27.2%), driven by the bank s efforts to reduce the total balance sheet. Nine out of eleven German banks have decreased their balance sheet between 1.6% and 55.5%. 16 PwC Luxembourg

17 Change in the annual net profit and loss from to 120% Annual net profit and loss (in EUR million) % 80% 100.6% % 40% 20% 0% -20% -40% -60% -43.7%* -3.9% -13.3% -12.4% German French Swiss Luxembourg 28.1% UK/US Chinese -5.3% * German French Swiss Luxembourg The UK/US benefited from increases in net interest result and net profit on financial operations (EUR million and EUR million respectively) and from lower staff costs (EUR million). All of the seven banks were profitable this year and PayPal (Europe) S.à r.l. et Cie, S.C.A. contributed the most with the amount of EUR million. The Chinese has doubled their annual net profit due to an increase in the net interest result of EUR 28.9 million (+25.6%), resulting from expansion of its credit volume, and due to an increase in other operating income by EUR 13.7 million, resulting primarily from an allocation of costs and transfer pricing between China Construction Bank (Europe) S.A. and its branch. Despite the increase in activity, costs remained under control as staff costs rose only by 14.8% whereas the headcount increased by 38.9%. The annual net profit in the Luxembourgish dropped by 12.4% which was driven mainly by a decrease in the profit of BGL BNP Paribas S.A. and Société Nationale de Crédit et d Investissement compared to last year (EUR million and EUR million respectively). The largest contributor to the net profit is Banque et Caisse d Epargne de l Etat, Luxembourg which has kept his profit stable at EUR million. The German s decrease of EUR million (-76.0%) was strongly influenced by Deutsche Bank Luxembourg S.A. (EUR -0.8 billion) and by Commerzbank Finance & Covered Bond S.A. (EUR million, %). The high result of Deutsche Bank Luxembourg S.A. in (EUR 1.1 billion) was due to the sale of its interest in Hua Xia Bank Company Limited in which has generated a net gain of EUR 741 million. Excluding this one-off effect, the annual net profit of Deutsche Bank Luxembourg S.A. decreased by EUR 0.1 billion, while the net annual result of the German decrease by 46.7%. The Swiss s annual net profit decreased by EUR 16.5 million (-13.3%), driven by the decrease of Bank Julius Baer Luxembourg S.A. s annual result from EUR million to EUR million. This is mainly explained by the fact that previous year s figures contained many one-time components (e.g. sale of the participating interests in Argor Heraeus S.A. for EUR 49.1 million) and was strongly influenced by the bank s client onboarding activities and regulatory projects, which is reflected in doubled staff costs and in the increase of operating expenses by EUR 17.9 million UK/US Chinese * without the one-off effect Change in net interest result from to 40% 30% 20% 10% 0% -10% -20% -30% German -48.7% French -2.6% 35.5% Swiss Luxembourg -5.9% 16.9% UK/US 25.6% Chinese 3.4% Net interest result (in EUR million) , , % -50% 0 German French Swiss Luxembourg UK/US Chinese The Swiss, the Chinese and the UK/US s recorded a double digit growth in net interest result (35.5%, 25.6% and 16.9% respectively). The French remained stable while the German and Luxembourg s recorded a decrease (-48.7% and -5.9% respectively). The Luxembourgish contributed the most in total net interest result (39.6%), which was primarily due to BGL BNP Paribas S.A. (EUR million). In the Swiss six out of eight banks have increased their net interest result and the growth in the is principally attributable to Edmond de Rothschild (Europe) S.A. (EUR million, %). The German has recorded a drop of nearly half of the amount compared to last year, resulting mainly from Deutsche Bank Luxembourg S.A. s decrease (EUR million; -65.8%). This was due to lower negative interests that the bank charged to other credit institutions for their deposits (EUR million) and lower income from transferable securities (EUR million). The level of income from transferable securities remained stable for the French, whereas it increased significantly for the Swiss (EUR million; %) due to significant dividends from a subsidiary of Edmond de Rothschild (Europe) S.A. The Luxembourg experienced a decrease of 21.5% (EUR million), largely due to BGL BNP Paribas S.A., which saw its income from transferable securities decreased by EUR 91.4 million. Banking in Luxembourg - Trends & Figures

18 Comparison of the six country s Change in net commission result from to Net commission result (in EUR million) 50% 40% 30% 20% 10% 0% -10% 43.8% German French 13.8% Swiss -3.7% Luxembourg 8.5% UK/US Chinese -1.5% -2.9% 2.7% German French Swiss Luxembourg UK/US Chinese 4, ,727.0 The German, French and Luxembourg s recorded a growth in net commission result (43.8%, 13.8% and 8.5% respectively) while the other s remained flat. The largest contributor to the net commission income remains the UK/US with a portion of 36.1%. State Street Bank Luxembourg S.C.A. contributed the most among all s (EUR million). The increase in the net commission result in the German is due to an increase in 8 out of 11 banks. The largest growth was incurred by Deutsche Bank Luxembourg S.A. (EUR million). DekaBank Deutsche Girozentrale Luxembourg S.A. contributed a growth of EUR 21.7 million compared to last year, resulting from a growth in custody fees. The growth in the French Segment results mainly from the increase in the net commission income of CA Indosuez Wealth (Europe) S.A. (EUR million) and Société Générale Bank and Trust S.A. (EUR million) while the net commission result remained rather stable at the other 8 banks (between EUR -3.8 million and EUR +3.6 million). 18 PwC Luxembourg

19 Return on assets 0.28% 0.57% 0.39% 0.46% 1.73% 0.23% 0.50% German French Swiss Luxembourg UK/US Chinese Return on assets 0.42%* 0.58% 0.45% 0.55% 1.42% 0.13% 0.52%* German French Swiss Luxembourg UK/US Chinese The UK/US ranks by far the highest for return on assets, because of its business models being characterised by off-balance sheet business (such as depositary banking and central administration service), their balance sheet totals are consequently lower than country s that are primarily in lending (on-balance sheet business). The French, which has a balanced business model characterised by private and retail banking, private and corporate loans and asset servicing, was able to maintain its position above the market average. * without the one-off effect Return on equity 2.75% 8.06% 9.12% 4.19% 8.81% 2.37% 6.26% German French Swiss Luxembourg UK/US Chinese Return on equity 5.09%* 8.72% 9.33% 4.86% 6.87% 1.23% 6.52%* German French Swiss Luxembourg UK/US Chinese The Swiss, UK/US and French s maintained their above market average equity ratio. This was due to a business model that has low capital intensity and lower default risks (with the exception of PayPal (Europe) S.à r.l. et Cie, S.C.A.). The UK/US furthermore profited from strong growth in assets under management. Since a large part of the banks business is off-balance sheet (i.e. acting as custodian bank), this positively influenced the ratio. The high ratio of the Swiss and French s is largely due to their level of own funds (4.3% of total assets and 7.0% of total assets respectively) and sustained, albeit slightly decreased levels of net profit. The UK/US has seen a strong growth in the return on equity (+1.94%) and the Chinese has nearly doubled the return on equity rate. Both s have kept the level of own funds stable (UK/ US : -0.2%; Chinese : +3.9%) while increasing their level of annual net profit (UK/US : +28.1%; Chinese : %). The German s return on equity remains below the market average and has declined significantly due to its capital-intensive business model at a time of low interest rates. * without the one-off effect Banking in Luxembourg - Trends & Figures

20 Comparative analysis of the six country s Cost-income ratio (in %) 100% 80% 60% 40% 20% 0% 44.03%* 58.33% German 51.51% 55.46% French 77.42% 80.33% Swiss 61.52% 65.85% Luxembourg 52.04% 44.15% UK/US 76.98% 74.00% Chinese 55.62%* 57.44% The overall market s cost-income ratio increased from 55.62% to 57.44%. All s, except the UK/US and the Chinese s, experienced higher cost-income ratios. Very high staff costs and further decrease in total income for the Swiss (due to lower other operating income at Bank Julius Baer Luxembourg S.A.) led to an increased cost-income ratio of 80.33% in, representing the highest ratio of all s. The UK/US decreased most significantly to 44.15% due to reduced staff costs (-4.8%), overheads and depreciation expenses (-7.0%) and rising income (+16.9% net interest income), both strongly driven by J.P. Morgan Bank Luxembourg S.A. and PayPal (Europe) S.à r.l. et Cie, S.C.A., who decreased their ratio from 69.2% to 56.7% and 32.0% to 24.7% respectively. * without the one-off effect Annual net profit and loss per member of staff (in KEUR) Overall, there is a slight decrease in the annual net profit per staff member from KEUR in to KEUR for the market. This 5.6% decrease corresponds largely to the 5.3% decrease of net profits (without the one-off effect) as the headcount increased slightly by 0.3%. A slightly decreasing staff count and an improved income situation led to a 30.8% increase in the UK/US. Compared to the other s, UK/US banks are with a KEUR profit per employee significantly above market average, partially due to good margins and economies of scale. The strongest annual net profit increase per member of staff (+44.4%) was reported by the Chinese, stating KEUR 35.6 profit per employee. Nevertheless, this is by far the lowest absolute figure compared to the other s analysed. A significant decrease in the annual net profit led to a 76.3 % decrease in the German. The German reduced its profit per employee from KEUR to KEUR 131.9, which is now below the market average. The French, Luxembourgish and Swiss reduced their profit per employee year on year between 3.6% and 13.0%, but still the French ascended in the ranking to the second highest result after UK/US * German French Swiss Luxembourg UK/US Chinese 153.5* * without the one-off effect 20 PwC Luxembourg

21 Administrative costs per member of staff (in KEUR) German French Swiss Luxembourg UK/US Chinese The German, the French and the Luxembourg saw administrative costs per staff member increase, whereas all other s saw this ratio decrease. The reasons for the increase in both the German and French s were higher administrative costs mainly (+24.7% driven by IT systems upgrades at Deutsche Bank Luxembourg S.A. and +16.1%, driven by increased IT costs and the creation of new office spaces at Société Générale Bank & Trust S.A., respectively). Administrative costs per member of staff in the UK/US are significantly above the market average due to high maintenance and investment costs in operational infrastructure, as well as high expenses for purchased services from group service centres. In the Luxembourg and Chinese, the figure is significantly lower due to a high staff count in relation to the administrative costs, as well as the number of outsourced services being below the market average. Staff costs per member of staff (in KEUR) Already being the with the highest staff costs per member of staff, the Swiss has increased further, largely due to the growth at Bank Julius Baer Luxembourg S.A. (+25.6%), which also has grown its staff by 58.1% due to increased business expansion. The German decreased its staff costs per member of staff by 16.3%. This can be explained by high one-off staff costs at UniCredit Luxembourg S.A. in due to a EUR 52.0 million provision for future staff reductions, as the bank restructured its Luxembourgish activities. Without this effect, staff costs have slightly increased from KEUR to KEUR per member of staff, and being the lowest across all s, remain far below market average. The Chinese decreased its staff costs per employee by 17.3%, due to the fact, that the headcount increase is taking place mainly in branches outside Luxembourg where the salary level is lower. Interestingly the French, Luxembourg, US/UK and Chinese s have similar figures this year, ranging from KEUR to KEUR German French Swiss Luxembourg UK/US Chinese Headcount Segment German 2,324 2,360 French 2,824 2,817 Swiss 2,108 2,100 Luxembourg 7,602 7,486 UK/US 1,968 1,928 The overall staff count increased slightly by 0.7% (+117 staff) year on year. The main driver for this development is the Chinese sector, which increased its headcount by 251 employees to 896 in. The French and the Swiss reported a stable headcount, while Luxembourg reduced employment figures by 116 (-1.5%) and UK/US by 40 or (-2.0%). Besides the Chinese, the German is the only that increased the staff count (+37 employees; +1.6%). Chinese ,060 26,149 Banking in Luxembourg - Trends & Figures

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23 Overview of developments in each Banking in Luxembourg - Trends & Figures

24 German Key takeaways German The German is stable in terms of number of banks. In the following main activities happened: - Following the approval of the competent supervisory authorities, Hauck & Aufhäuser Privatbankiers AG has completed in the acquisition of Sal. Oppenheim jr. & Cie. Luxembourg S.A. In the course of the integration into the Hauck & Aufhäuser Group Sal. Oppenheim jr. & Cie. Luxembourg S.A. has been renamed and will operate as Hauck & Aufhäuser Fund Platforms S.A. - UniCredit Group restructured its activities in Luxembourg with the aim to cease all business activities of UniCredit Luxembourg S.A. by the end of December It is planned to merge UniCredit Luxembourg S.A. (remaining business at that time) into its direct sole shareholder, UniCredit Bank AG in July 2018 by way of a cross border merger. In this context the transfer of the Italian Private Banking activities to UniCredit International Bank (Luxembourg) S.A. happened during. In addition to that, the German Private Banking Insurance business and Investment Management Services were transferred to UniCredit International Bank (Luxembourg) S.A. with effect as of 1 January The German banking groups in Luxembourg have increased overall their total equity ratio from 22.1% to 29.6% and underpinned their very good capitalisation compared to other market s. In terms of total balance sheet and annual net profit the German experienced a decrease of 16.0% and 43.7% year on year (without the oneoff effect in ). Deutsche Bank Luxembourg S.A. dominated the German in terms of balance sheet total (twice the size of the second ranked competitor) and annual net profit (three times the size of the second ranked competitor). Number of banks Subsidiaries Branches Total Business areas Investment fund servicing 20.0% Service centre 6.7% Mortgage bonds 10.0% Treasury 10.0% Private banking 16.7% Corporate banking 16.7% Custody 16.7% Balance sheet total (in EUR million) 130, ,365.0 The balance-sheet total decreased by EUR 20.8 billion or 16.0% (compared to a 2.3% decrease for the market as a whole), primarily due to a huge drop in interbank business (EUR billion; -19.0%) and further reduction in bonds and other transferable securities (EUR -5.3 billion; -22.3%). Nine out of eleven German banks have decreased their balance sheet total between 1.6% and 55.5%. The only two banks having increased their balance sheet total in were M.M. Warburg & CO Luxembourg S.A. (+7.1%) and Hauck & Aufhäuser Fund Platforms S.A. (+5.2%). Deutsche Bank Luxembourg S.A. played a major part in this development with a total assets decrease of EUR 14.1 billion (-27.2%). The decline in total assets reflects the bank s effort to reduce its total balance sheet and was driven primarily by the repayment of interbank receivables and liabilities of EUR 7.0 billion. Total equity ratio (weighted)* 22.1% 29.6% * not including M.M. Warburg & CO Luxembourg S.A. Total equity ratio went up to 29.6%. Own funds once again increased year on year, up EUR 0.4 billion (+4.1%) to EUR 11.3 billion. The key driver here was Commerzbank Finance & Covered Bond S.A., which increased own funds by EUR 1.0 billion (+87.9%) with regards to the implementation of IFRS 9 in 2018, which will impact the bank with a first time adoption effect of EUR 1.1 billion. The EU solvency ratio under CRD IV of Deutsche Bank Luxembourg S.A. increased from 16.7% to 22.1% by issuance of subordinated capital (EUR 1.0 billion) in the first quarter of and by reduction in risk-weighted assets at year end. The regulatory requirements of either 8.0% or 10.5% (minimum plus conservation buffer) have been comfortably met across all German banks. Banks in the forefront were DEPFA Pfandbrief Bank International S.A. (281.0%), who kept the regulatory own funds while further downsizing the risk weighted assets in, Commerzbank Finance & Covered Bond S.A. (67.1%, following the capital increase) and HSH Nordbank Securities S.A. (42.8%). 24 PwC Luxembourg

25 Annual net profit and loss (in EUR million) 1,294.1 * The year yielded moderate annual net profits (excluding the one-off effect ) for the German decreased by EUR million (-43.7%) (compared to adjusted market average of -5.3%) mainly due to declining annual net profits at Commerzbank Finance & Covered Bond S.A. (EUR million year on year) and Deutsche Bank Luxembourg S.A. (EUR million year on year). Leaders of the annual net profit ranking were Deutsche Bank Luxembourg S.A. (EUR million), UniCredit Luxembourg S.A. (EUR 69.3 million) and DekaBank Deutsche Girozentrale Luxembourg S.A. (EUR 57.2 million). * without the one-off effect Net interest and commission result (in EUR million) Net interest result Of which income from transferable securities Net commission result The German s reliance on net interest result was higher than the one of the market as a whole (70.3% relative share for the German compared to a 50.8% relative share for the market as a whole), mostly because the credit business is a key component of the banks business models. Net interest result (including income from transferable securities) decreased by EUR million respectively 48.7% (overall market +3.4%). For Deutsche Bank Luxembourg S.A. (EUR million), the main drivers of the decline was lower negative interests that the bank charged other credit institutions for their deposits (EUR 76.0 million) and lower income from transferable securities of EUR million year on year. Eight out of eleven banks increased their net commission result, totalling a EUR 52.4 million (+43.8%) increase compared to prior year. Deutsche Bank Luxembourg S.A. improved its net commission result by EUR 23.1 million and DekaBank Deutsche Girozentrale Luxembourg S.A. contributed with a growth of EUR 21.7 million to this increase thanks to a growth in custody fees and retrocessions. Return on assets Return on equity 0.99% 0.42%* 0.28% 11.91% 5.09%* 2.75% With a rate of 0.28%, the return on assets in the German was characterised by an on-balance-sheet business (such as lending) stronger than the market as a whole, which carried out a large amount of off-balance-sheet business (e.g. asset management, depositary banking and fund services). The significant decline of the return on assets ratio was due to a higher decrease in net profits (-43.7%) than the decrease in total assets (-16.0%). Return on equity declined more significantly compared to the overall market, as the increase of own funds by 4.1% was countered by a decrease of net profits by 43.7%. The German banking sector s return on equity remained below the market average due to its capital-intensive business model at a time of low interest rates. * without the one-off effect Banking in Luxembourg - Trends & Figures

26 German Cost-income ratio (in %) * * The cost-income ratio has increased and is above market average for the first time, due to reduced annual income for the German overall and a large increase of administrative expenses and depreciation of tangible and intangible assets of 24.7%, which was due to specific situations at some German banks. * without the one-off effect Annual net profit and loss per member of staff (in KEUR) Headcount * * 2, , Staff costs per member of staff (in KEUR) Administrative costs per member of staff (in KEUR) * without the one-off effect The annual net profit per staff member decreased due to a declined income situation in combination with a stable headcount. The staff costs per employee have decreased by 16.3%, mainly due to decreased staff costs at UniCredit Luxembourg S.A. (EUR million). Those were exceptionally high in due to provisions for future staff reductions (EUR 52.0 million), as the bank aims to cease all business activities by the end of 2018 because of a group-wide restructuring plan. Excluding this exceptional effect the average staff costs have slightly increased from KEUR to KEUR per staff member and are below the market average. Six out of eleven banks recorded an increase in administrative costs (including depreciation of tangible and intangible assets) per staff member. Key drivers were Deutsche Bank Luxembourg S.A. with an increase of their administrative expenses by 32.7% (mainly due to expenses for upgrading the bank s IT systems; EUR +30 million year on year) and at DZ PRIVATBANK S.A. mainly due to the increase in contributions to the deposit guarantee scheme and the bank levy in accordance with regulatory requirements as well as due to write-off of intangible assets acquired during. 26 PwC Luxembourg

27 Ranking of balance sheet totals Bank Balance sheet total (EUR million) Shift Change in rank Deutsche Bank Luxembourg S.A. 37, % = UniCredit Luxembourg S.A. 17, % = DZ PRIVATBANK S.A. 15, % +2 NORD/LB Luxembourg S.A. Covered Bond Bank 15, % = Commerzbank Finance & Covered Bond S.A. 14, % - 2 DekaBank Deutsche Girozentrale Luxembourg S.A. 4, % = M.M. Warburg & CO Luxembourg S.A. 1, % = Hauck & Aufhäuser Fund Platforms S.A % +1 HSH Nordbank Securities S.A % -1 DEPFA Pfandbrief Bank International S.A % = Freie Internationale Sparkasse S.A % = Banking in Luxembourg - Trends & Figures

28 Assets German Breakdown of assets - (% relative share of balance sheet total) German 0.5% 2.1% 17.1% 0.4% 2.9% 18.4% 41.9% 36.3% 39.9% 40.4% 16.9% 29.7% 0.9% 1.5% 19.1% 2.0% 1.2% 28.0% 49.7% The balance-sheet total decreased by EUR 20.8 billion or 16.0% (compared to a 2.3% decrease for the market as a whole), primarily due to a large drop in interbank business (EUR billion; -19.0%). The relative share of the main balance sheet items remained stable with approximately 40% for Loans and advances to credit institutions 51.0% and to customer, and approximately 17% for Bonds and other transferable securities. Bonds and other transferable securities have been declining for years in the German and continued to do so by EUR 5.3 billion (-22.3%). Loans and advances to credit institutions Loans and advances to customers Fixed assets Other assets Bonds and other transferable securities Loans and advances to credit institutions (in EUR million) 54, ,223.1 Six banks recorded a drop totalling EUR 12.4 billion, while five banks increased by a total of EUR 2.0 billion. The key driver for the decrease of total assets was Deutsche Bank Luxembourg S.A., which declined its total assets from EUR 51.8 billion to EUR 37.7 billion (-27.2%), and reflects the bank s effort to reduce its total balance sheet. This was driven primarily by the repayment of interbank receivables and liabilities in the amount of EUR 7.0 billion. Increases could be seen at DekaBank Deutsche Girozentrale Luxembourg S.A. (EUR +1.1 billion mainly from money market transactions with group institutions located in Germany) and DZ PRIVATBANK S.A. (EUR +0.5 billion mainly relates to amounts due from the Swiss National Bank). Loans and advances to customers (in EUR million) Loans and advances to customers decreased by 7.8% (overall market +3.5%). Two banks saw their loans and advances to customers increase by a total of EUR 0.4 billion, while nine banks saw a decrease totalling EUR 4.1 billion. Deutsche Bank Luxembourg S.A. recorded a decrease of 2.0 billion (-14.9%) in this caption. UniCredit Luxembourg S.A. s downward trend (EUR million; -6.7%) was mainly driven by the decision of booking more and more syndicated and structured financing in UniCredit Bank AG. DZ PRIVATBANK S.A. decreased its loans and advances to customers from EUR 5.5 billion to EUR 4.9 billion within the past financial year. The caption includes EUR 4.4 billion (: EUR 4.9 billion) in customer loans guaranteed by local corporate banks. 47, ,591.1 Bonds and other transferable securities (in EUR million) 24, ,663.7 German banks were historically very strong in this caption. However, in all German banks reduced their bonds and transferable securities by overall EUR 5.3 billion (-22.3%). Key drivers have been Commerzbank Finance & Covered Bond S.A., DekaBank Deutsche Girozentrale Luxembourg S.A. and NORD/LB Luxembourg S.A. Covered Bond Bank, totalling a decrease of EUR 4.2 billion. DekaBank Deutsche Girozentrale Luxembourg S.A. recorded a shift from bonds and other transferable securities (EUR -1.2 billion) to loans and advances to credit institutions (EUR +1.1 billion). 28 PwC Luxembourg

29 Liabilities Breakdown of liabilities - (% relative share of balance sheet total) 10.6% 1.0% 28.9% German 10.3% 8.3% 0.2% 9.1% 26.3% 5.8% 5.8% 50.3% 43.3% 2.9% 8.0% 0.5% 8.0% 3.6% 0.6% 8.3% 7.7% 48.1% 45.8% 34.3% 32.1% Although there was a large decline in interbank borrowing (partly due to Deutsche Bank Luxembourg S.A. s repayment of interbank receivables and liabilities), it remains the main source of refinancing in the German. Amounts owed to customers (e.g. deposits by companies, retail clients, private clients, accounts balances of investment funds) are clearly still below the market average of 48.1%, although they now represent 28.9% of total balance sheet volume. Amounts owed to credit institutions Debt securities Amounts owed to customers Own funds Other liabilities Subordinated debts Amounts owed to credit institutions (in EUR million) 65, ,342.7 Following the trend on the asset side this caption (-27.6%) was mainly impacted by efforts of some banks to reduce the total balance sheet. Overall seven banks showed a decrease of EUR 18.4 billion, whereas only four banks showed an increase of EUR 0.3 billion. Notable decreases were shown at Deutsche Bank Luxembourg S.A. (EUR billion; -40.3%), Commerzbank Finance & Covered Bond S.A. (EUR -1.9 billion; -25.2%) and UniCredit Luxembourg S.A. (EUR -1.8 billion; -12.7%). Amounts owed to customers (in EUR million) Nearly all German banks experienced a slight decrease totalling 7.7%. Deutsche Bank Luxembourg S.A. (EUR -0.9 billion; -8.5%); DekaBank Deutsche Girozentrale Luxembourg S.A. (EUR -0.4 billion; -10.4%) and DZ PRIVATBANK S.A. (EUR -0.4 billion; -4.3%) showed reduced customers deposits. Only M.M. Warburg & CO Luxembourg S.A. saw an increase of this caption by EUR 70.0 million (+5.6%), which mainly consisted of deposits of investment funds. 34, ,610.0 Banking in Luxembourg - Trends & Figures

30 Liabilities German Debt securities (in EUR million) 11, ,600.3 Securitised liabilities which are a significant refinancing component for the three German banks that issue mortgage bonds remained overall stable in. Two banks increased their securitised liabilities: NORD/LB Luxembourg S.A. Covered Bond Bank (EUR +0.5 billion, due to issuance of Lettres de Gage and EMTN (overall nominal: EUR 0.9 billion)) and DZ PRIVATBANK S.A. (EUR +0.3 billion), whereas Commerzbank Finance & Covered Bond S.A. reduced this source of financing by EUR -0.9 billion. Own funds (in EUR million) Own funds are an increasingly important source of financing, as they rose by 4.1% and still represent the fourth largest source of financing with 10.3%, especially considering the fact that all other captions have decreased since. Six out of eleven banks increased their own funds by a total of EUR 1.0 billion. The key driver here was Commerzbank Finance & Covered Bond S.A., which did a capital increase by EUR 1.0 billion (+87.9%) with regards to the implementation of IFRS 9 in 2018, which will impact the bank with a first time adoption effect of EUR 1.1 billion. 10, ,306.3 Ranking of annual net profit or loss Bank Annual net profit or loss (EUR million) Shift Change in rank Deutsche Bank Luxembourg S.A % = UniCredit Luxembourg S.A % +2 DekaBank Deutsche Girozentrale Luxembourg S.A % -1 NORD/LB Luxembourg S.A. Covered Bond Bank % +1 DZ PRIVATBANK S.A % +2 HSH Nordbank Securities S.A % +3 M.M. Warburg & CO Luxembourg S.A % +1 Freie Internationale Sparkasse S.A % +2 DEPFA Pfandbrief Bank International S.A % -3 Hauck & Aufhäuser Fund Platforms S.A % +1 Commerzbank Finance & Covered Bond S.A % PwC Luxembourg

31 Overview of change in aggregated income statements from to (in EUR million) % Net interest result Net commission result , % Net profit/(loss) on financial operations Other operating income and expenditures Income taxes 1, % Risk provisioning Current operating expenses Annual net profit and loss Net interest result (in EUR million) Net interest result Of which income from transferable securities Net interest result (including income from transferable securities) decreased by EUR million (-48.7%) but still remains the most important income source for the German. This drop was largely the result of lower income from transferable securities, which decreased by EUR million (-80.5%). Two out of the Top 3 contributors to the net interest result could increase their result by EUR 18.7 million (NORD/ LB Luxembourg S.A. Covered Bond Bank; +20.7%) and by EUR 5.0 million (UniCredit Luxembourg S.A.; +4.7%). For Deutsche Bank Luxembourg S.A. (EUR million; -65.8%), the main driver of the decline was lower negative interests that the bank charged other credit institutions for their deposits (EUR 76.0 million), and lower income from transferable securities of EUR million year on year. DekaBank Deutsche Girozentrale Luxembourg S.A. s dividends from its subsidiaries Deka International S.A. and International Fund Management S.A. dropped from EUR 65.2 million in to 36.1 million in. Bank EUR million Shift Change in rank Deutsche Bank Luxembourg S.A % = UniCredit Luxembourg S.A % = NORD/LB Luxembourg S.A. Covered Bond Bank % = DZ PRIVATBANK S.A % = DekaBank Deutsche Girozentrale Luxembourg S.A % = Banking in Luxembourg - Trends & Figures

32 German Net commission result (in EUR million) The net commission result in the German increased by EUR 52.4 million (+43.8%) to which eight out of eleven banks contributed. Deutsche Bank Luxembourg S.A. improved its net commission result by EUR 23.1 million and DekaBank Deutsche Girozentrale Luxembourg S.A. contributed to this increase with EUR 21.7 million due to a growth in custody fees and retrocessions HSH Nordbank Securities S.A., Hauck & Aufhäuser Fund Platforms S.A. and UniCredit Luxembourg S.A. decreased their net commission result by a total of EUR 6.4 million. Bank EUR million Shift Change in rank DZ PRIVATBANK S.A % = DekaBank Deutsche Girozentrale Luxembourg S.A % = M.M. Warburg & CO Luxembourg S.A % +1 UniCredit Luxembourg S.A % -1 Hauck & Aufhäuser Fund Platforms S.A % = Other operating income and expenses (in EUR million) 1, The year on year decrease of EUR 1.0 billion to EUR 0.3 billion resulted mainly from the sale of Deutsche Bank Luxembourg S.A. interest in Hua Xia Bank Company Limited which generated a net gain of EUR 741 million in. In, Deutsche Bank Luxembourg S.A. contributed to this caption, with a total non-recurring effects of EUR million from the sale of the participating interests in Deutsche Asset Management S.A., DB Vita S.A., DB Re S.A. and Aqueduct Capital S.à r.l. and recurring income collected on loans in the Credit Portfolio Strategies Group fair value portfolio in the amount of EUR 188 million. Breakdown of current operating expenses - (in EUR million) Current operating expenses increased by a total of 2.9%, composed of a decrease of staff costs by 15.0% and an increase of overheads and depreciation of 24.7%. Staff costs decrease related to an exceptional expense at UniCredit Luxemburg S.A. in (provision for planned staff reduction of EUR 52.0 million). Key drivers of overheads and depreciation were Deutsche Bank Luxembourg S.A. with an increase of their administrative expenses by 32.7% (mainly due to the increase of expenses for upgrading the Bank s IT systems; EUR +30 million year on year), and DZ PRIVATBANK S.A. mainly due to the increase in contributions to the deposit guarantee scheme, and the bank levy in accordance with regulatory requirements, as well as due to writeoff of intangible assets acquired during. 54.9% German 45.4% 54.6% 45.1% 49.4% Staff costs Overheads 48.5% 51.5% 50.6% 32 PwC Luxembourg

33 Risk provisioning (in EUR million) Five banks recorded gains from the release of provisions resulting in an income of EUR 29.8 million, two banks recorded provisions creating a total expense of EUR 9.1 million. DEPFA Pfandbrief Bank International S.A. showed the largest reversal of value adjustment for assets sold, with EUR 24.1 million. Net profit/(loss) on financial operations (in EUR million) The improvement of EUR million resulted in a net profit for. This was mainly due to an income of EUR 49.3 million at DEPFA Pfandbrief Bank International S.A. in compared with the large drop to a net loss in mainly derived from the bank s loss on financial operations amounting to EUR million (therein one-off effects amounting to EUR million due to the repurchase of covered bonds and corresponding asset sales). Beside DEPFA Pfandbrief Bank International S.A., the main contributors to the positive result in were NORD/LB Luxembourg S.A. Covered Bond Bank (EUR 22.6 million), driven by changes in the Hedge Fair Values of their financial instruments, and DZ PRIVATBANK S.A. (EUR 18.6 million) thanks to the release of their value adjustments in respect of the non-callable bonds within the liquidity reserve (EUR 9.6 million) and 8.6 million generated through currency brokerage. The positive results were offset by Commerzbank Finance Covered Bond S.A. s negative result of EUR 81.0 million, driven mainly by EUR -8.4 million from Hedge Accounting and EUR million from fair value shifts of the derivatives (EUR million) and foreign currency translation (EUR -2.5 million) Banking in Luxembourg - Trends & Figures

34 French Key takeaways French The overall French has a balanced business model characterised by private banking, asset servicing (depositary banking and investment-fund servicing), and lending. Société Générale Bank and Trust S.A. and Banque de Luxembourg S.A. make up together 73.7% of the balancesheet total, 88.2% of the annual net profit, and 73.9% of the head count. The revenue situation reflects the diversified business model, which consists of a mix of net interest result (49.3% relative share) as well as income from transferable securities and commission result (24.6% and 26.1% relative share). The following events occurred in the French in : -- La Française Bank S.A. has transferred its headquarters to France. Thus, the group has no remaining banking entity in Luxembourg, but continues to be present through its management company La Française AM International S.A. We kept the bank s figures in scope of our analysis. -- Keytrade Bank Luxembourg S.A. has been sold by the Belgian bank CRELAN to the French banking group Crédit Mutuel Arkéa in, and is thus included in the French. We have included its figures for both and. -- BGL BNP Paribas S.A. has been allocated to the Luxembourgish. Therefore, figures have been restated to ensure better comparability of the figures. Number of banks Business areas Investment fund servicing 13.3% Custody 13.3% Service centre 6.7% 3.3% Mortgage bonds 6.7% Treasury 13.3% Subsidiaries Branches 4 4 Total Retail Banking Private banking 20.0% Corporate banking 23.3% Balance sheet total (in EUR million) 73, ,570.6 The balance sheet total decreased by 1.8% (compared to a 2.3% decrease for the overall market). The overall decrease was primarily due to a decline in bonds and other transferable securities (EUR -1.9 billion; -14.0%), fixed assets (EUR -1.0 billion; -61.9%), and clients receivable (EUR -0.9 billion; -3.3%), countered however by an increase in loans and advances to credit institutions of EUR 2.9 billion (+9.0%). The largest decline was observed at Société Générale Bank & Trust S.A. (EUR -1.8 billion; -4.2%) and Banque de Luxembourg S.A. (EUR -0.3 billion; -2.5%). The exit of La Française Bank S.A. represented a decrease of EUR 0.3 billion. In order to adhere to the liquidity coverage ratio under Basel III (80% as at 31 December ), cash assets were deposited as high-quality liquid assets (HQLAs) with the Central Bank of Luxembourg. Thus, cash on hand and deposits with central banks increased from EUR 7.1 billion to EUR 8.8 billion. 34 PwC Luxembourg

35 Annual net profit and loss (in EUR million) Annual net profit slightly declined by 3.9% (overall market -5.3%). Six out of ten banks improved their prior year results, and all French banks showed a positive annual result. Frontrunners were Société Générale Bank and Trust S.A. (EUR million), Banque de Luxembourg S.A. (EUR 63.4 million), and CA Indosuez Wealth (Europe) S.A. (EUR 25.8 million). Natixis Bank S.A. recorded an increase of EUR 9.8 million, mainly due to a higher net interest income (EUR million; %) resulting from a financing operation within the Natixis-group which started in December. CA Indosuez Wealth (Europe) S.A. showed a decrease of EUR 16.8 million (lower net interest result of EUR -8.6 million and a one-off extraordinary gain of EUR 12.5 million resulting from the absorption of CA Indosuez Wealth (Global Structuring)). Société Générale Bank and Trust S.A. showed a decrease of EUR 11.6 million (lower net interest and commission result of EUR 29.5 million countered by increase of net result on financial operations of EUR million and risk provisioning of EUR +9.8 million). Net interest and commission result (in EUR million) , , Net interest result Net commission result Of which income from transferable securities The 2.6% increase (overall market +3.1%) was attributable to an increase in net commission result (+13.9%) mitigated by a decrease in net interest result (-2.6%). A significant part of the net interest result is income from transferable securities, which has been stable at EUR million (previous year EUR million). Half of the banks were able to scale up their net interest result by a total of EUR 42.1 million (of which EUR 17.7 million due to Banque de Luxembourg S.A.), whereas the remaining half dropped by EUR 54.3 million (of which EUR million due to Société Générale Bank and Trust S.A.). The portion of the net commission result has increased from 31.2% to 34.6%. All but three banks (Banque BCP S.A., -2.8%, Banque de Luxembourg S.A., -2.7%, and Keytrade Bank Luxembourg S.A., -5.9%) recorded a growth. Return on assets Return on equity 0.58% 0.57% 8.72 % 8.56 % At 0.57%, the French s return on assets was above the market trend (0.50%). It still represents a very good cross-section of the market while also showing an equal measure of on- and off-balance-sheet transactions. Return on equity is above the market average (6.26%). The decline within the is primarily attributed to the decrease in the annual net result (-3.9%), especially because of the net interest result (EUR million, -2.6%) and the increase of overheads (EUR million; +16.1%) and to the decrease of own funds compared to the previous year (-2.0%). Banking in Luxembourg - Trends & Figures

36 French Cost-income ratio (in %) * The cost-income ratio increased to 55.46%, but still remains slightly below market average. The increase within the can be explained by an increase of general administrative costs (Staff costs +2.6% and overheads +16.1%) *without the one-off effect of EUR 741 million at Deutsche Bank Luxembourg S.A. Annual net profit and loss per member of staff (in KEUR) Headcount , * 2, Staff costs per member of staff (in KEUR) Administrative costs per member of staff (in KEUR) The decrease in the annual net profit per staff member of 5.5% (in line with overall market development) was due to the drop in annual net profit (EUR million; -3.9%), whereas the headcount remained stable (-0.2%). The main contributor to the headcount decrease was La Française Bank S.A. because the bank exited the Luxembourgish market with 25 staff members in. Administrative costs per member of staff increased by 16.4%. This change is attributed to an increase in administrative costs of EUR 38.7 in total (+16.1%). This movement is due to Société Générale Bank and Trust S.A. having increased its costs by EUR 22.5 million. This increase is mainly due to increased IT costs (EUR +9.3 million) and other administrative costs (EUR million) including intragroup recharges. * without the one-off effect 36 PwC Luxembourg

37 Ranking of balance sheet totals Bank Balance sheet total (EUR million) Shift Change in rank Société Générale Bank and Trust S.A. 40, % = Banque de Luxembourg S.A. 13, % = Société Générale Capital Finance S.A. 7, % = CA Indosuez Wealth (Europe) S.A. 6, % = Natixis Bank S.A. 3, % = Banque BCP S.A % = Banque Transatlantique Luxembourg S.A % = Keytrade Bank Luxembourg S.A % = Société Générale LDG S.A % = Société Générale Financing and Distribution S.A % = Banking in Luxembourg - Trends & Figures

38 Assets French Breakdown of assets - (% relative share of balance sheet total) 15.9% French 0.8% 1.2% 2.2% 1.8% 18.2% 42.8% 47.6% 16.9% 0.9% 1.5% 19.1% 2.0% 1.2% 49.7% 51.0% Interbank business has a share of 47.6%, below the market average of 51.0%. Loans to customer represent 34.5%, above the market average of 29.7%. Bonds and other transferable securities however are in line with the market average. 34.5% 35.0% 29.7% 28.0% Loans and advances to credit institutions Loans and advances to customers Bonds and other transferable securities Fixed assets Other assets Loans and advances to credit institutions (in EUR million) 31, ,513.9 Loans and advances to credit institutions increased by 9.0 %, accounting for 47.6% of total assets in. Eight banks recorded an increase totalling EUR 3.1 billion, while two banks recorded a decrease totalling EUR 0.1 billion. For the concerned banks, on the one hand the increase is mainly due to the deposit made at the Central Bank of Luxembourg, allowing a high quality asset structure to be maintained within the framework of the LCR (Liquidity Coverage Ratio). CA Indosuez Wealth (Europe) S.A. shows the largest growth with EUR 1.3 billion (+67.0 %), almost completely deposited at the Luxembourgish Central Bank (EUR 1.2 billion). On the other hand, for most of the banks, loans and advances to credit institution consisted mainly of loans granted to related parties. Loans and advances to customers (in EUR million) Six out of ten banks increased their loans and advances to customers by a total of EUR 0.6 billion, the other four banks decreased by a total of EUR 1.5 billion. The largest decrease was registered by Société Générale Bank and Trust S.A. (EUR -1.2 billion; -9.4%), the second largest by Natixis Bank S.A. (EUR -0.2 billion; -11.0%). Société Générale Capital Finance S.A. (EUR +0.3 billion; +5.5%) and CA Indosuez Wealth (Europe) S.A. (EUR +0.2 billion; +8.5%) showed the highest increase, the latter due to commercial success in their private banking division. 25, ,032.9 Bonds and other transferable securities (in EUR million) 13, ,552.5 Bonds and other transferable securities in the French declined by 14.0% (EUR -1.9 billion), with all banks experiencing a decrease. Among them, CA Indosuez Wealth (Europe) S.A. showed the largest decrease with EUR 1.1 billion (-77.1%), resulting from a settlement of bonds transactions that were not reinvested during the last quarter of, followed by Natixis Bank S.A. with a decrease of EUR 0.4 billion (-91.4%), resulting from a loan portfolio of EUR million having expired in March. 38 PwC Luxembourg

39 Liabilities Breakdown of liabilities - (% relative share of balance sheet total) 1.1% 7.0% 0.6% 49.7% French 1.5% 2.3% 6.6% 3.0% 0.5% 50.2% 38.1% 39.3% 2.9% 8.0% 0.5% 8.0% 3.6% 0.6% 8.3% 7.7% 48.1% 45.8% Amounts owed to credit institutions Amounts owed to customers Debt securities Subordinated debts Own funds Other liabilities 34.3% 32.1% Interbank transactions among the French banks (39.3%) was above market trend (32.1%), and increased by 1.3% (market overall -8.7%). Borrowing by companies, private and retail clients, as well as account balances of investment funds, remain by far the largest sources of refinancing in the French (representing 49.7%), being in line with the market average. Furthermore, the 2.9% decrease of the amounts owed to customers in the French is below market trend (+2.6%). Amounts owed to credit institutions (in EUR million) 28, ,525.9 Amounts owed to credit institutions slightly increased by EUR 0.3 billion (+1.3%). Five banks increased their amounts owed to credit institutions by a total of EUR 0.6 billion, especially Société Générale Bank and Trust S.A. (EUR 0.4 billion; +1.8%). Being its most important source of refinancing, the latter represents 86.7% of the s amounts owed to credit institutions. The other five banks remained mostly flat. The most notable decrease was at CA Indosuez Wealth (Europe) S.A. with EUR 0.1 billion (-71.0%). The exit of La Française Bank S.A. represented a further decrease of EUR 0.2 billion. Amounts owed to customers (in EUR million) French banks decreased the amounts owed to customers in total by EUR 1.1 billion (-2.9%). Six banks increased their amounts owed to customers in total by EUR million, most notably Société Générale Capital Finance S.A. (EUR +0.5 billion) and CA Indosuez Wealth (Europe) S.A. (EUR +0.4 billion). Société Générale Bank and Trust S.A. and Banque de Luxembourg S.A. recorded a decrease in customer term deposits of EUR 1.5 billion and EUR 0.5 billion respectively, both mainly due to less term deposits in a negative and low interest environment. 37, ,056.5 Own funds (in EUR million) 4, ,795.6 Own funds remained flat (EUR -0.1 billion). The small decrease was attributable to Société Générale Bank and Trust S.A, as its revaluation reserves for assets categorised as Available for sale decreased by EUR million, and to La Française Bank S.A. s exit of the French (EUR million). Société Générale Bank and Trust S.A. accounted for 62.9% of the French s own funds with EUR 2.5 billion. Banking in Luxembourg - Trends & Figures

40 French Ranking of annual net profit or loss Bank Annual net profit or loss (EUR million) Shift Change in rank Société Générale Bank and Trust S.A % = Banque de Luxembourg S.A % = CA Indosuez Wealth (Europe) S.A % = Natixis Bank S.A > 100.0% = Société Générale Financing and Distribution S.A % +1 Banque Transatlantique Luxembourg S.A % +2 Société Générale LDG S.A % -2 Keytrade Bank Luxembourg S.A % -1 Banque BCP S.A. 0.9 > 100.0% = Société Générale Capital Finance S.A. 0.1 > 100.0% = Overview of change in aggregated income statements from to (in EUR million) Net interest result Net commission result % Net profit/(loss) on financial operations Other operating income and expenditures Income taxes % Risk provisioning Current operating expenses Other taxes % PwC Luxembourg

41 Net interest result (in EUR million) Net interest result Of which income from transferable securities The net interest result (including EUR million income from transferable securities) has slightly dropped by 2.6%. The income from transferable securities is mainly attributable to Société Générale Bank and Trust S.A. (EUR million) and Banque de Luxembourg S.A. (EUR 94.5 million). On the one hand, five banks grew their net interest result, hereunder Natixis Bank S.A. by EUR 22.4 million (>100%), explained by interest coming from an intragroup financing operation that started in December. Likewise, Banque de Luxembourg S.A. showed an increase of net interest result by EUR 17.7 million (+12.2%), driven by an increase of income from transferable securities by EUR 15.6 million (+19.8%). On the other hand, five banks showed a decrease in net interest result. The drop of EUR 44.5 million at Société Générale Bank and Trust S.A. was due to lower interest income as well as lower income from transferable securities (EUR million). Likewise CA Indosuez Wealth (Europe) S.A. s net interest result declined by EUR 8.6 million (-11.5%) explained by a decrease in interests received on fixed income securities. Again, this was due to the decrease of its bond portfolio from EUR 1.5 billion to EUR 0.3 billion. Bank EUR million Shift Change in rank Société Générale Bank and Trust S.A % = Banque de Luxembourg S.A % = CA Indosuez Wealth (Europe) S.A % = Natixis Bank S.A % +1 Société Générale Capital Finance S.A % -1 Net commission result (in EUR million) In total, the commission result increased by EUR 47.2 million (+13.8 %). Six banks recorded a growth in net commission result; most importantly CA Indosuez Wealth (Europe) S.A. (EUR million; 29.4%) as well as Société Générale Bank and Trust S.A. (EUR million; 10.8 %). In a low interest environment, the latter has managed to develop its investment fund servicing business, while CA Indosuez Wealth (Europe) S.A. has experienced strong growth in its product lines offered to private banking customers. Four banks recorded a decrease in. The highest drop was at Banque de Luxembourg S.A. by EUR -3.8 million (-2.7%) Bank EUR million Shift Change in rank Société Générale Bank and Trust S.A % +1 Banque de Luxembourg S.A % -1 CA Indosuez Wealth (Europe) S.A % = Natixis Bank S.A % = Banque Transatlantique Luxembourg S.A % = Banking in Luxembourg - Trends & Figures

42 French Other operating income and expenses (in EUR million) Other operating result decreased by EUR 11.6 million (-20.4%) due to CA Indosuez Wealth (Europe) S.A. and its drop of EUR 12.2 million which was mainly due to an extraordinary merger surplus recorded in for the merger between the bank and its subsidiary CA Indosuez Wealth (Global Structuring) S.A. The other operating result in the was largely generated by Société Générale Bank and Trust S.A. with EUR 47.2 million, slightly up from the prior year (EUR +3.6 million; +8.3%). This increase is mainly related to an insurance indemnification on a bad debt. The level of other operating result of the other banks of the French remained stable. Breakdown of current operating expenses - (in EUR million) Current operating expenses went up by a total of EUR 46.7 million (+8.5%). This includes a 2.6% increase in staff costs and a 16.1% increase in administrative costs. The increase in staff costs was mainly driven by the January indexation. Administrative costs increased by EUR 38.8 million (15.9%) primarily related to Société Générale Bank and Trust S.A. (EUR million). This was due to higher IT expenses and higher other general and administrative expenses. The bank cites compliance with increasing regulatory requirements (MiFID II, IFRS 9, Volcker Rule, French Banking Act, etc.), as well as investment in new office spaces, as reasons for this development. Due to the stronger growth in administrative costs, the French has slightly lowered the share in staff costs (52.4%), compared to administrative expenses (47.6%), thus following the trend of the relative shift in the market. 47.6% French 44.5% 55.5% 52.4% 49.4% Staff costs Overheads 48.5% 51.5% 50.6% 42 PwC Luxembourg

43 Risk provisioning (in EUR million) Risk provisioning increased by EUR 10.7 million. The following significant movements were made during the year: - Banque de Luxembourg S.A. recorded an income of EUR 4.3 million from the release of allowances for receivables and provisions for contingent liabilities for EUR 15.2 million, while booking a value adjustment on receivables and a provision for contingent liabilities for EUR million. - Société Générale Bank and Trust S.A. recorded an income of EUR 3.6 million in risk provisioning due to a reversal of a value adjustment (EUR -6.2 million in ). Net profit/(loss) on financial operations (in EUR million) Société Générale Bank and Trust S.A. and Banque de Luxembourg S.A. still remain the main contributors to the net loss on financial operations in the French (EUR million and EUR million respectively). Société Générale Bank and Trust S.A. s loss was driven by the further impairment of its shares in its subsidiary Société Générale Private Banking Switzerland (EUR million), due to a delay in the restructuring plan. This was partially countered by gains on financial instruments, especially derivatives for hedging purpose of EUR 60.0 million, as well as gains on disposal of available for sale assets of EUR 39.2 million Banking in Luxembourg - Trends & Figures

44 UK/US Key takeaways UK/US The main business model of the UK/US is asset servicing for investment funds, i.e. rendering custodian, fund administration and transfer agent services. The UK/US gained from the positive growth in the Luxembourg investment fund industry (assets under management grew by 10.9% in to EUR 4,182.5 billion), which was reflected in a 2.7% increase in net commission result for banks with USD as functional currency, and a 11.2% increase for banks with EUR as functional currency (overall market +2.7%). Converting to the exchange rate (USD to EUR) at year end, there was a decrease in net commission result by 1.5%*. The revenue structure in the UK/US historically depended heavily on the net commission result, however its relative share has decreased over the last years (63.0% in 2015, 56.9% in, and 52.0% in ). The reason was the strong growth of PayPal (Europe) S.à r.l. et Cie, S.C.A., which now accounts for 84.8% of the s net interest income. In comparison to an overall market average of 49.2% relative share, asset servicing remains a key component of most UK/US banks business model. The activities undertaken by The Bank of New York Mellon (Luxembourg) S.A. have been transferred to the The Bank of New York Mellon SA/NV, Luxembourg Branch upon completion of the cross-border merger, which occurred on 1 April. Therefore, figures have been adjusted by excluding the bank to ensure comparability of the reported figures. Internaxx Bank S.A. has entered the. The former subsidiary of the Canadian Toronto-Dominion Bank was previously called TD Bank International S.A., before the rebranding following the sale to the UK based bank Interactive Investor Limited. Number of banks Business areas Investment fund servicing 20.0% Custody 20.0% 6.7% Treasury Subsidiaries 7 7 Branches 8 9 Total Private banking 6.7% Corporate banking 26.7% Retail Banking 20.0% *The results of banks with USD as functional currency was weakened by the US Dollar, with the exchange rate (USD to EUR) decreasing from to , which corresponds to a 12.4% devaluation. Concerned are Brown Brothers Harriman (Luxembourg) S.C.A., J.P. Morgan Bank Luxembourg S.A. and PayPal (Europe) S.à r.l. et Cie, S.C.A. Balance sheet total (in EUR million) 34, ,810.2 The total assets increased by 4.8% (overall market: -2.3%), primarily due to an increase of loans and advances to credit institutions by EUR 1.4 billion, mainly driven by HSBC Private Bank (Luxembourg) S.A. (EUR +1.0 billion). Overall, five out of seven banks have increased their total balance sheet between 2.6% and 11.9%, for a total of EUR 1.6 billion. On the liability side, the rise of the funding is also due to HSBC Private Bank (Luxembourg) S.A., which recorded a EUR 0.9 billion increase in the deposits from its parent company, HSBC Private Bank (Switzerland) S.A. Furthermore, amounts owed to customers increased by EUR 0.6 billion, largely due to PayPal (Europe) S.à.r.l et Cie, S.C.A. (EUR +0.6 billion) and J.P. Morgan Bank Luxembourg S.A. (EUR +0.3 billion), countered by three banks with an overall decrease of EUR 0.4 billion. J.P. Morgan Bank Luxembourg S.A., PayPal (Europe) S.à r.l. et Cie, S.C.A. and HSBC Private Bank (Luxembourg) S.A. account for 90.7% of the aggregated balance sheet on the UK/US. 44 PwC Luxembourg

45 Annual net profit and loss (in EUR million) The UK/US experienced a strong annual profit increase (+28.1% compared to a market average decrease of 5.3%), mainly driven by an increase in net interest result of EUR million or 16.9% (market increase of 3.4%), slightly compensated by a decrease in net commission result of EUR 13.5 million or 1.5% (market increased by 2.7%). Dividend income was negligible for the UK/US. All of the seven banks have made a profit this year, for a total of EUR million of which PayPal (Europe) S.à r.l. et Cie, S.C.A. contributed for EUR million (+29.5%), State Street Bank Luxembourg S.C.A. for EUR million (+11.8%) and J.P. Morgan Bank Luxembourg S.A. for EUR million (+66.1%). Net interest and commission result (in EUR million) , ,747.6 Net interest result Net commission result Of which income from transferable securities Net interest result is becoming a significant source of revenue for the UK/US market, increasing its share in the core operating income from 43.8% to 48.0%; net commission result decreased from a 56.2% to a 52.0% share. The growth in the net interest result (+16.9% compared to a market average of +3.4%) is principally attributable to PayPal (Europe) S.à r.l. et Cie, S.C.A. (EUR million; +15.4%), due to the strong growth in its credit activity. J.P. Morgan Bank Luxembourg S.A. recorded a growth of EUR 53.6 million (+156.7%), due to enhanced yields following the full-year impact of treasury management capabilities introduced in. The net commission income for the mainly stems from State Street Bank Luxembourg S.C.A. (EUR million; assets under custody and administration EUR billion) and J.P. Morgan Bank Luxembourg S.A. (EUR million; assets under custody USD billion, assets under administration USD billion). Return on assets Return on equity 1.42% 1.73% 6.87% 8.81% The UK/US s above-average return on assets of 1.73% has noted a slight increase since and is characterised by off-balance-sheet business (e.g. acting as custodian bank) compared to the market as a whole. The return on equity has noted an increase from 6.87% to 8.81%, supported by the increase in net profits (+28.1%), as own funds have slightly decreased by 0.2%. The UK/US is still higher-yielding than the market average due to economies of scale in depositary banking and fund administration, as well as the fact that it is less affected by the low interest rate thanks to its business model. Banking in Luxembourg - Trends & Figures

46 UK/US Cost-income ratio (in %) * The year on year decrease in cost-income ratio was driven by the significant growth in relevant income (+10.6%), which combined with a fall in relevant costs (-6.2%) determined the decrease of the ratio in. The decrease in administrative expenses (staff costs -4.8%; market +1.5% /Overheads and depreciations -7.0%; market +4.9%) is beating the market trend. Furthermore head count decreased by 2.0%. * without the one-off effect of EUR 741 million at Deutsche Bank Luxembourg S.A. Annual net profit and loss per member of staff (in KEUR) Headcount , * ,968 Staff costs per member of staff (in KEUR) Administrative costs per member of staff (in KEUR) The annual profit per staff member has improved significantly due to the significant increase in net profit (+28.1%) and a stable staff count (-2.0%). Salary costs remain below market average. State Street Bank Luxembourg S.C.A., J.P. Morgan Bank Luxembourg S.A. and Brown Brothers Harriman (Luxembourg) S.C.A. have the highest staff counts (800, 379 and 378 respectively). On the other hand, administrative costs per member of staff are significantly above the market average due to high maintenance and investment costs in operational infrastructure, Digital Transformation as well as the outsourcing of services to both group and external service centres * without the one-off effect 46 PwC Luxembourg

47 Ranking of balance sheet totals Bank EUR million Shift Change in rank J.P. Morgan Bank Luxembourg S.A. 13, % = PayPal (Europe) S.à r.l. et Cie, S.C.A. 9, % +1 HSBC Private Bank (Luxembourg) S.A. 9, % -1 John Deere Bank S.A. 2, % = State Street Bank Luxembourg S.C.A % = Internaxx Bank S.A % NEW Brown Brothers Harriman (Luxembourg) S.C.A % = Banking in Luxembourg - Trends & Figures

48 Assets UK/US Breakdown of assets - (% relative share of balance sheet total) 0.4% 7.5% 9.0% UK/US 17.3% 20.8% 0.5% 10.6% Loans and advances to credit institutions 3.3% 64.8% Loans and advances to customers Fixed assets Other assets 65.7% 16.9% 29.7% 0.9% 1.5% 19.1% 2.0% 1.2% 28.0% 49.7% Bonds and other transferable securities 51.0% The UK/US bank s assets are characterised by interbank business (65.7% of total assets). John Deere Bank S.A. and PayPal (Europe) S.à r.l. et Cie, S.C.A. have significant loans and advances to customers (EUR 1.9 billion and EUR 0.9 billion respectively). The large decrease (EUR -3.9 billion) is due to PayPal (Europe) S.à r.l. et Cie, S.C.A. having signed an agreement in November to sell its US consumer credit receivable portfolio. The settlement of the transaction should be executed in the second half of This portfolio was presented as disposal group (IFRS 5) and therefore there has been a large shift between loans and advances to customers and Other Assets. Bonds and other transferable securities stake in the business is below the market average due to the UK/US banks business model. Loans and advances to credit institutions (in EUR million) 22, ,541.0 The increase of EUR 1.4 billion (+6.4%) is primarily attributable to HSBC Private Bank (Luxembourg) S.A. (EUR +1.0 billion) and J.P. Morgan Bank Luxembourg S.A. (EUR +0.2 billion). Loans and advances to customers (in EUR million) Loans and advances to customers decreased significantly by 54.5% compared to due to the sale of the US consumer credit receivables portfolio to Synchrony Bank by PayPal (Europe) S.à r.l. et Cie, S.C.A. John Deere Bank S.A. s increase (EUR 0.2 billion; +11.2%) was mainly due to the increase of receivable balances from retail customers and John Deere dealers. 7, ,228.2 Bonds and other transferable securities (in EUR million) 3, ,668.7 saw a decrease of bonds and other transferable security by approximately EUR 1.0 billion (or 26.6%). Only PayPal (Europe) S.à r.l. et Cie, S.C.A. (EUR 1.6 billion), HSBC Private Bank (Luxembourg) S.A. (EUR 1.0 billion) and Internaxx Bank S.A. (EUR 2.4 million) held bonds and other transferable securities as at 31 December. Both HSBC Private Bank (Luxembourg) S.A. and PayPal (Europe) S.à r.l. et Cie, S.C.A. decreased their holdings by EUR 0.6 billion and EUR 0.3 billion respectively. 48 PwC Luxembourg

49 Liabilities Breakdown of liabilities - (% relative share of balance sheet total) 0.1% 19.7% UK/US 3.3% 2.7% 20.6% 21.7% 0.1% 23.0% 2.9% 8.0% 0.5% 8.0% 3.6% 0.6% 8.3% 7.7% 34.3% 32.1% Deposits by corporate, institutional (funds), private and retail clients are the biggest source of refinancing in the UK/US. Interbank funding is below market average. 54.0% 54.8% 48.1% 45.8% Amounts owed to credit institutions Amounts owed to customers Debt securities Subordinated debts Own funds Other liabilities Amounts owed to credit institutions (in EUR million) 7, ,227.6 Amounts owed to credit institutions have increased by EUR 0.8 billion (+11.0%) compared to, reaching EUR 8.2 billion as of 31 December. The increase is primarily attributable to HSBC Private Bank (Luxembourg) S.A., which recorded an increase of EUR 0.7 billion, mainly resulting from intra-group transactions. Amounts owed to customers (in EUR million) The deposits from customers have increased by EUR 0.6 billion (+3.2%) compared to. PayPal (Europe) S.à r.l. et Cie, S.C.A. recorded an increase of EUR million (+15.1%), due to continuing strong consumer acquisition, adding globally 30 million active accounts in (+15.0%) and thus reaching approximately 227 million active customer accounts across markets. 18, ,337.2 Own funds (in EUR million) Own funds remains stable. With EUR 4.7 billion, PayPal (Europe) S.à r.l. et Cie, S.C.A. remain by far the largest contributor, J.P. Morgan Bank Luxembourg S.A. being on second place with EUR 1.1 billion. PayPal (Europe) S.à r.l. et Cie, S.C.A. has increased its share capital by a further USD 450 million during. 7, ,038.1 Banking in Luxembourg - Trends & Figures

50 UK/US Ranking of annual net profit or loss Bank Annual net profit or loss (in EUR million) Shift Change in rank PayPal (Europe) S.à r.l. et Cie, S.C.A % = State Street Bank Luxembourg S.C.A % = J.P. Morgan Bank Luxembourg S.A % = Brown Brothers Harriman (Luxembourg) S.C.A % = John Deere Bank S.A % = Internaxx Bank S.A % NEW HSBC Private Bank (Luxembourg) S.A % -1 Overview of change in aggregated income statements from to Net interest result % Net commission result Net profit/(loss) on financial operations Other operating income and expenditures % Income taxes Risk provisioning Current operating expenses % PwC Luxembourg

51 Net interest result (in EUR million) The increase in net interest result was mainly driven by PayPal (Europe) S.à r.l. et Cie, S.C.A., which recorded a EUR 95.0 million growth (+15.4%) since, due to the strong growth in credit activity. The result of PayPal (Europe) S.à r.l. et Cie, S.C.A. accounts for 84.8% (or EUR 0.7 billion) of the net interest income of the US/UK as a whole. J.P. Morgan Bank Luxembourg S.A. also positively contributed with a growth of EUR 53.6 million (+156.7%), due to enhanced yields following the full-year impact of treasury management capabilities introduced in. John Deere Bank S.A. and Internaxx Bank S.A. showed a quite stable net interest result of EUR 66.7 million and EUR 3.0 million (EUR +2.3 million, and EUR +0.8 million) respectively. Bank EUR million Shift Change in rank PayPal (Europe) S.à r.l. et Cie, S.C.A % = J.P. Morgan Bank Luxembourg S.A % +1 John Deere Bank S.A % -1 Internaxx Bank S.A % NEW Brown Brothers Harriman (Luxembourg) S.C.A State Street Bank Luxembourg S.C.A % +1 HSBC Private Bank (Luxembourg) S.A > ,0% -2 Net commission result (in EUR million) Banks with USD as functional currency grew their net commission result by 2.7% (USD million). Translated into EUR, the growth turns into decrease of 10.0% (EUR million). Banks with EUR as functional currency increased by 41.6 million. This resulted in a net decrease (EUR million; -1.5%), largely due to the weakening US Dollar. The strongest growth was at State Street Bank Luxembourg S.C.A. with EUR 38.8 million (+10.8%) stemming from implementation of new business, new products, and organic growth from existing clients. The second largest growth happened at Brown Brothers Harriman (Luxembourg) S.C.A. (USD million; +11.2%), with assets under custody and fund administration increasing by USD 62.0 billion (+18.7%) and USD 42.0 billion (+20.2%) respectively Bank EUR million Shift Change in rank State Street Bank Luxembourg S.C.A % = J.P. Morgan Bank Luxembourg S.A % = Brown Brothers Harriman (Luxembourg) S.C.A % +1 PayPal (Europe) S.à r.l. et Cie, S.C.A % -1 HSBC Private Bank (Luxembourg) S.A % = Internaxx Bank S.A % NEW John Deere Bank S.A % = Banking in Luxembourg - Trends & Figures

52 UK/US Other operating income and expenditures (in EUR million) The slight improvement of the other operating result was mainly driven by J.P. Morgan Bank (Luxembourg) S.A. through strong decrease in other operating charges, due to a restructuring one-off provision of USD 14.7 million in. Breakdown of current operating expenses - (in EUR million) Total current operating expenses decreased by 6.3% (market average +3.2%). Staff costs decreased by 4.8%, with four banks decreasing staff costs by a total of EUR 19.7 million; overheads and depreciations decreased by 7.2%, as all banks decreased their overheads and depreciations by a total of EUR 27.2 million. UK/US 35.9% 36.5% 51.5% 50.6% Compared to the overall market, the UK/US banks cost structure was more driven by overheads rather than staff costs, as many banks outsourced certain services within the group. 63.5% 64.1% 49.4% 48.5% Staff costs Overheads 52 PwC Luxembourg

53 Risk provisioning (in EUR million) The risk-provisioning costs for the are mainly determined by the balance recorded by PayPal (Europe) S.à r.l. et Cie, S.C.A. (EUR million), which increased by EUR 8.7 million or 2.1% compared to. In USD terms, the increase of its collective impairment allowances on loans and advances to customers was from USD million in to USD million in (+16.5%). Net profit/(loss) on financial operations (in EUR million) The net profit on financial operations is primarily attributable to HSBC Private Bank (Luxembourg) S.A. (EUR 56.0 million), mainly driven by interest received on cross currency swaps used for synthetic alterations. Three banks recorded losses on financial operations in : State Street Bank Luxembourg S.C.A. (EUR -6.8 million), PayPal (Europe) S.à r.l. et Cie, S.C.A. (EUR -2.4 million), and John Deere Bank S.A. (EUR -2.1 million) Banking in Luxembourg - Trends & Figures

54 Luxembourg Key takeaways Luxembourg The Luxembourg as a whole has a balanced business model characterised by private and retail banking, private and corporate loans and asset servicing (depositary banking and investment-fund servicing). We have included BGL BNP Paribas S.A. in the Luxembourgish this year, and thus readjusted figures for better comparability. The rationale of the reclassification lies on the Bank s country of origin and its significant local presence in Luxembourg. The Luxembourg is dominated by three banks Banque et Caisse d Epargne de l Etat Luxembourg, BGL BNP Paribas S.A. and Banque Internationale à Luxembourg S.A. which together make up 85.0% of the balance sheet total, 86.4% of the annual net profit or loss and 80.3% of the staff count. The revenue allocation reflects the business model, made up by net interest result (64.5% relative share), net commission result (23.0% relative share), and dividends from participating interests (12.5% relative share). In, Banque Havilland Institutional Services S.A., which entered into the Luxembourgish in, merged with its parent company, Banque Havilland S.A.; RiverBank S.A. obtained its banking license in March and is thus now included in our analysis for the first time. The bank s core business model is granting loans to small and medium businesses in Germany and the Benelux countries. Number of banks Business areas Investment fund servicing 11.9% Custody 14.3% Service centre 9.5% Treasury 9.5% Subsidiaries Branches 0 0 Total Private banking 21.4% Corporate banking 21.4% Retail Banking 11.9% Balance sheet total (in EUR million) 119, ,308.7 The positive balance sheet growth (+6.1%) continued in. The increase (EUR +7.3 billion) is due to rises in both loans and advances to credit institutions (+29.8%; EUR +7.2 billion), loans and advances to customers (+7.4%; EUR +4.0 billion), countered however by a decrease in bonds and other transferable securities (-11.7%; EUR -4.1 billion). Private and corporate banking continue to be the key factors behind the balance sheet growth especially the demand for property loans, collateral loans, and investment loans followed by the expansion of the deposit business due to the uncertain market environment, and the resulting increase in clients demand for savings deposits and fixed-term deposits. Total equity ratio (weighted)* 19.8%* 20.0%* Own funds increased by EUR 0.2 billion to EUR 13.8 billion from to. The total equity ratio of 20.0% shows that the Luxembourgish banks have very good capitalisation and high-quality equity instruments. The regulatory requirements of either 8.0% or 10.5% have been met comfortably. The top three are KBL European Private Bankers S.A. (36.5%), Banque et Caisse d Epargne de l Etat, Luxembourg (18.8%), and Banque Internationale à Luxembourg S.A. (16.5%). *Four out of the eleven banks, excluding: BGL BNP Paribas S.A., Banque Raiffeisen S.C., Banque Havilland S.A., Fortuna Banque S.C., Bemo Europe Banque Privée S.A., Société Nationale de Crédit et d Investissement, and RiverBank S.A. 54 PwC Luxembourg

55 Annual net profit and loss (in EUR million) The annual net profit decreased by 12.4%, which was mainly due to a lower net interest result (EUR million; -5.9%), an increased commission result (EUR million; +8.5%), increasing staff costs (EUR million; +6.0%), and increased risk provisioning (EUR million; +39.1%). Five banks decreased their annual net result, most significantly BGL BNP Paribas S.A. (EUR million; -21.4%), Société Nationale de Crédit et d Investissement (EUR million; -41.4%), Banque Havilland S.A. (EUR million; -98.7%) and Banque Internationale à Luxembourg S.A. (EUR million; -13.1%). The only significant increase was the profits reported by KBL European Private Bankers S.A. (+36.5%; EUR million). Net interest and commission result (in EUR million) , , ,038.2 Net interest result Of which income from transferable securities Net commission result 1,515.8 Revenues are more dependent on net interest result than the market average (74.4% vs 50.8% relative share), since private and corporate banking and public sector financing are key components of the business model. The key driver of the lower net interest result has been BGL BNP Paribas S.A. (EUR million; -19.0%), due to lower income from transferable securities (EUR million) and a continuing low or even negative interest environment putting pressure on the margins. Low margins were partially compensated by growth in average credit volumes and strong collection of customer deposits. However, this was countered by the rise of the net interest result achieved by KBL European Private Bankers S.A. (EUR million, +27.4%), driven by a EUR 22.1 million increase in income from transferable securities, i.e. dividend income from its subsidiaries and participating interests from the bank s large European network. Nine out of eleven banks increased their net commission result. The overall increase was driven by Banque Internationale à Luxembourg S.A. and BGL BNP Paribas S.A. They reported a net commission result of EUR million (+10.5%; EUR million, due to fees income from the 4.5% increase in assets under management) and EUR million (+10.3%; EUR million due to increased transactional commissions and commissions on foreign exchange) respectively. Return on assets Return on equity 0.55% 0.46% 4.86% 4.19% Return on assets are stable and in line with the market average, with assets characterised by diversification in loans and advances to customers (45.8% share) and bonds and other transferable securities portfolio (24.2% share), while the interbank business is under-represented, recording lower or negative margins. Frontrunners are Société Nationale de Crédit et d Investissement (1.97%), Banque et Caisse d Epargne de l Etat, Luxembourg (0.53%) and Banque Internationale à Luxembourg S.A. (0.48%). Return on equity is below the market average, slightly falling due to own funds increasing by 1.6%, whereas annual net profits decreased by 12.4%. The only banks in the Luxembourgish sector which exceeded the market average were Banque Internationale à Luxembourg S.A., recording the highest return on equity with 9.35% in (11.1% in ), and Banque et Caisse d Epargne de l Etat, Luxembourg with 6.32%. Banking in Luxembourg - Trends & Figures

56 Luxembourg Cost-income ratio (in %) * The cost-income ratio is above the market average, as certain Luxembourg banks have staff-intensive business models, such as retail banking, with a large network of branches. The Luxembourg banks employed 28.7% of the overall market s headcount. The increase in the ratio stems from increased staff costs (+6.0%), as ten out of eleven banks increased their staff costs by a total of EUR 47.1 million. This was mainly driven by Banque Internationale à Luxembourg S.A. (EUR million; +8.5%), KBL European Private Bankers S.A. (EUR +9.8 million; +11.0%), and Banque et Caisse d Epargne de l Etat, Luxembourg (EUR +8.2 million, +4.1%). All banks were influenced by the January salary indexation, and some by transformation projects. *without the one-off effect of EUR 741 million at Deutsche Bank Luxembourg S.A. Annual net profit and loss per member of staff (in KEUR) * Headcount 7,486 7, Staff costs per member of staff (in KEUR) Administrative costs per member of (in KEUR) The fact, that the Luxembourg s staff costs represents 40.9% of the total net interest and commission result, shows that this has a staff intensive business, furthermore explaining why the annual net profit per staff member figure of KEUR 77.2 is significantly below average. In addition, the Luxembourg s net profits represent 15.3% of the overall market, whereas its headcount represents 28.7% of the overall market. This explains the lower annual net profit per staff member. Staff costs increased by 6.0% (EUR million), led by Banque Internationale à Luxembourg S.A. (EUR million; +8.5%). Banque et Caisse d Epargne de l Etat, Luxembourg and Banque Internationale à Luxembourg S.A. state the January salary indexation as the main reason for the increase. KBL European Private Bankers S.A. states its plan to resize the workforce to its target model and its new platform as factors which negatively affected their staff costs (EUR +9.8 million; +11.0%). Banque Havilland S.A. s increase (EUR +5.8 million; +46.4%) can be explained by the increased number of staff (+27; +26.5%). Overheads and depreciation remained stable (EUR -3.8 million; -0.7%). On the one hand, KBL European Private Bankers S.A. significantly decreased these costs by EUR 34.3 million (-42.6%), as figures were largely influenced by transformation costs and an IT migration. In July, the bank has completed the migration to the new Lombard Odier platform, supporting both front and back offices. The new platform will be rolled out across the network. On the other hand, Banque Internationale à Luxembourg S.A. increased its administrative costs by EUR 17.0 million (+12.5%), driven by the continuing implementation of the bank s IT strategy. Administrative costs per member of staff are significantly below the market average, due to the fact that back-office services, unlike in other country s, are fully provided in Luxembourg (with staff located in Luxembourg) and not outsourced to group companies outside the country (which qualify as administrative costs). * without the one-off effect 56 PwC Luxembourg

57 Ranking of balance sheet totals Bank Balance sheet total (EUR million) Shift Change in rank Banque et Caisse d'epargne de l'etat, Luxembourg 45, % = BGL BNP Paribas S.A. 38, % = Banque Internationale à Luxembourg S.A. 23, % = KBL European Private Bankers S.A. 8, % = Banque Raiffeisen S.C. 4, % = Compagnie de Banque Privée Quilvest S.A. 1, % = Banque Havilland S.A. 1, % = Société Nationale de Crédit et d'investissement 1, % = Fortuna Banque S.C % = Bemo Europe Banque Privée S.A % = RiverBank S.A NEW NEW Banking in Luxembourg - Trends & Figures

58 Assets Luxembourg Breakdown of assets % Luxembourg 3.4% 29.0% 1.8% 3.6% 1.8% 20.2% 45.3% 24.7% 45.8% Loans and advances Loans and advances to credit institutions to customers Fixed assets Other assets 16.9% 29.7% 0.9% 1.5% 19.1% 2.0% 1.2% 28.0% 49.7% Bonds and other transferable securities 51.0% The Luxembourg banks focus is on providing loans to the Luxembourg market. Therefore, loans and advances to customers represent a substantially higher proportion of the balance sheet total than the market average (45.8% vs 29.7%), due to the overall large amount of private and corporate banking as well as the public-sector financing provided by the Luxembourg. Bonds and other transferable securities are significantly above the market average (24.2% vs 16.9%). Income from bonds and other transferable securities represents an important source of the Luxembourg s overall balanced mixture of earnings. Loans and advances to credit institutions increased by 29.8%, now representing 24.7% of total assets. However, interbank business is below the market average of 51.0%, because most of the Luxembourgish banks act as the headquarters for their respective banking groups and consequently no deposits are placed at the parent company. Loans and advances to credit institutions (in EUR million) 24, ,223.5 Loans and advances to credit institutions represent the asset caption with the highest growth since last year, increasing by EUR 7.2 billion (+29.8%). This is mainly due to increases at BGL BNP Paribas S.A. (EUR +3.6 billion; +40.9%), resulting from repurchase agreements within the BNP Paribas Group, and Banque et Caisse d Epargne de l Etat, Luxembourg (EUR +2.4 billion; +35.4%), as the bank increased its deposits with the central bank. All other banks equally recorded slight rises in loans and advances to credit institutions, with the exception of Fortuna Banque S.C. (-1.3%, EUR -0.6 million). The highest growth percentage was reported by Banque Havilland S.A. which grew its loans and advances to credit institutions by 144.8% (EUR million) due to the merger with its subsidiary Banque Havilland Institutional Services S.A. Loans and advances to customers (in EUR million) Seven of the eleven banks recorded an increase of loans and advances to customers by a total of EUR 4.1 billion. Banque et Caisse d Epargne de l Etat, Luxembourg, Banque Internationale à Luxembourg S.A., and BGL BNP Paribas S.A. increased their loans to customers by EUR 1.1 billion (+5.5%), EUR 1.2 billion (+10.4%), and EUR 1.5 billion (+8.5%) respectively. All three banks listed increased mortgage loans to private individuals and investment loans to business clients as reasons. The only significant decline was noted at Banque Havilland S.A. (-32.3%; EUR million), due to a repositioning of the bank towards its core markets. Due to this redefined strategy, certain loans were not renewed at maturity. In percentage terms, Bemo Europe Banque Privée S.A. recorded the largest increase (+18.8%; EUR +8.9 million), thanks to a successful growth of its private banking activities. 53, ,905.4 Bonds and other transferable securities (in EUR million) 34, ,521.1 All banks except Bemo Europe Banque Priveé S.A. and Banque Havilland S.A. reduced its Bonds and other transferable securities portfolio overall by EUR 4.0 billion (-11.7%) since. This trend was led by Banque et Caisse d Epargne de l Etat, Luxembourg, which reduced its investment portfolio by EUR 1.5 billion (-10.0%), by Banque Internationale à Luxembourg S.A., which registered a decrease of its investment portfolio by EUR 1.0 billion (-14.1%), as well as by KBL European Private Bankers S.A. with a drop of EUR 0.7 billion (-18.1%). 58 PwC Luxembourg

59 Liabilities Breakdown of liabilities - Luxembourg 4.6% 2.9% 8.0% 12.5% 10.9% 0.5% 0.4% 5.3% 8.0% 3.6% 11.4% 11.7% 0.6% 8.3% 5.5% 7.7% 0.4% 64.8% 66.1% 6.5% 45.8% 48.1% 34.3% 32.1% Amounts owed to customers recorded a constant year-on-year increase (+8.2%), representing by far the largest source of funding in the Luxembourg. It is therefore significantly above market average (48.1% relative share). This is mainly due to the local presence as well as to the business model, characterised by deposits placed by retail customers and investment funds. Credit institutions represented the second source of funding with a 12.5% share, which is below the 32.1% market average. Own funds (10.9%) remained stable and securitised liabilities decreased by EUR 0.8 billion (-9.8%) during the financial year. Amounts owed to credit institutions Amounts owed to customers Debt securities Subordinated debts Own funds Other liabilities Amounts owed to credit institutions (in EUR million) 13, ,817.9 The rise in amounts owed to credit institutions of EUR 1.9 billion (+14.0%) mainly stems from BGL BNP Paribas S.A. and Banque Internationale à Luxembourg S.A., increasing their balances by EUR 1.8 billion (+94.7%) driven by deposits from other group entities, and EUR 0.5 billion (+20.7%) respectively. However, the majority of banks in this reduced their amounts owed to credit institutions, especially KBL European Private Bankers S.A. (EUR million) and Banque Havilland S.A. (EUR million), which nearly halved its balance within the past year to EUR million. Amounts owed to customers (in EUR million) Nine out of the eleven banks recorded a growth in customer deposits (EUR 6.3 billion; +8.2%). In, as well as in the previous year, Banque et Caisse d Epargne de l Etat, Luxembourg, BGL BNP Paribas S.A., and Banque Internationale à Luxembourg S.A. recorded the strongest increases, namely by EUR 3.3 billion (+12.0%), EUR 2.4 billion (+10.2%) and EUR 0.4 billion (+2.8%) respectively, while KBL European Private Bankers S.A. recorded a decrease of EUR 0.2 billion (-3.9%). The reasons for this general growth were mainly dynamism in the collection of deposits from businesses and individuals for Banque et Caisse d Epargne de l Etat, Luxembourg. For BGL BNP Paribas S.A. the growth was mainly due to increased deposits from corporate banking (EUR +1.4 billion), especially for clients opting for the bank s cash management service. Retail banking contributed further with EUR 0.3 billion, Wealth Management EUR 0.2 billion, and the Corporate and Institutional division EUR 0.4 billion to this growth. The somewhat weaker growth at Banque Internationale à Luxembourg S.A. can be explained by its cash conversion initiative, which led to a favourable evolution of the clients product mix, with an increased share of securities and funds, leading to an overall 4.5% increase of Assets under Management. 77, ,458.4 Debt securities (in EUR million) 7, ,935.8 Debt securities recorded the most significant yearly decline among the liabilities. With a 9.8% decrease, it is continuously losing importance as a source of funding in the Luxembourgish. Three of the eleven banks (BGL BNP Paribas S.A., Banque et Caisse d Epargne de l Etat, Luxembourg, and Banque Internationale à Luxembourg S.A.) accounted for 98.9% of all debt securities issued by the Luxembourg, while four banks did not issue any debt securities at all. Banking in Luxembourg - Trends & Figures

60 Luxembourg Own funds (in EUR million) 13, ,785.0 Own funds increased slightly by EUR 0.2 billion (+1.6%), which was largely due to the capital increase of KBL European Private Bankers S.A. by EUR 84.7 million (+6.6%), retained earnings at Banque et Caisse d Epargne de l Etat, Luxembourg (EUR million; +1.8%) and the market entrance of RiverBank S.A. (EUR million). Ranking of annual net profit or loss Bank Balance sheet total (EUR million) Shift Change in rank Banque et Caisse d'epargne de l'etat, Luxembourg % = BGL BNP Paribas S.A % = Banque Internationale à Luxembourg S.A % = KBL European Private Bankers S.A % +1 Société Nationale de Crédit et d'investissement % -1 Banque Raiffeisen S.C % +1 Compagnie de Banque Privée Quilvest S.A. 6.7 >100% +1 Fortuna Banque S.C % +1 Banque Havilland S.A % -3 Bemo Europe Banque Privée S.A % +1 RiverBank S.A NEW NEW Overview of change in aggregated income statements from to Net interest result 1, % 1,515.8 Net commission result Net profit/(loss) on financial operations % +4.1% Other operating income and expenditures Income taxes Risk provisioning Current operating expenses Annual net profit and loss -1, , PwC Luxembourg

61 Net interest result (in EUR million) , ,515.8 Net interest result Of which income from transferable securities Net interest result slightly decreased by EUR 94.9 million (-5.9%), which was largely driven by decreasing income from transferable securities (EUR million). The development across banks was mixed, with six banks increasing their net interest result, while four banks decreased it. The most significant influence on the overall decreasing net interest result was determined by BGL BNP Paribas S.A. s decline of EUR million, driven by the fall of the interest income (EUR million) and the lower income from transferable securities (EUR million). Dividends received from BNP Paribas Leasing Solutions S.A. were EUR 50.0 million in, compared to million in. Negative interest rates affected the bank s treasury business, resulting in lower margins, which were slightly compensated due to increasing credit volumes to customers and increasing customer deposits. KBL European Private Bankers S.A. recorded the highest total and percentage increase with EUR 24.9 million (+27.4%), followed by Société Nationale de Crédit et d Investissement with an increase of EUR 5.0 million (+10.5%). Four banks recorded increases below 10% or EUR 2.5 million. Bank EUR million Shift Change in rank BGL BNP Paribas S.A % = Banque et Caisse d'epargne de l'etat, Luxembourg % = Banque Internationale à Luxembourg S.A % = KBL European Private Bankers S.A % = Société Nationale de Crédit et d'investissement % = Net commission result (in EUR million) The net commission result increased by EUR 40.9 million (+8.5%), supported by nine out of the eleven banks with increases between 5.1% and 36.9%. Compagnie de Banque Privée Quilvest S.A. recorded the strongest percental increase with +36.9% (EUR +8.9 million). This was due to increased performance and brokerage fees originating from the strong financial markets in. In monetary terms, Banque Internationale à Luxembourg S.A. showed the highest increase with EUR 16.0 million (+10.5%), largely driven by increasing fund management fees and commissions from clearing and settlement. KBL European Private Bankers S.A. s net commission result fell by EUR 5.4 million (-8.9%), mainly due to decreasing commissions on the custody business Bank EUR million Shift Change in rank Banque Internationale à Luxembourg S.A % = BGL BNP Paribas S.A % = Banque et Caisse d'epargne de l'etat, Luxembourg % = KBL European Private Bankers S.A % = Compagnie de Banque Privée Quilvest S.A % = Banking in Luxembourg - Trends & Figures

62 Luxembourg Other operating income and expenditures (in EUR million) Overall, the other operating result remained stable. However, there were significant movements for some banks. Banque et Caisse d Epargne de l Etat, Luxembourg decreased the other operating result by EUR 23.4 million, as last year s result was positively influenced by the release of AGDL provisions having generated income of EUR 33.0 million in the previous year. Banque Internationale à Luxembourg S.A. further decreased its other operating result by EUR 17.0 million, due to restructuring costs and the recognition of provisions for risks related to a litigation. These decreases in other operating result were countered by BGL BNP Paribas S.A., which improved from EUR million in to million in. Lower contributions to the fund for general banking risks of EUR million compared to million in were the key driver as well for this development. Breakdown of current operating expenses - Banque Internationale à Luxembourg S.A. contributed for EUR 15.6 million to the overall increase of EUR 47.1 million in staff costs. Salary increased by EUR 13.2 million due to the indexation; restructuring expenses rose by EUR 2.7 million, while social security and insurance costs remained stable. The slight decrease in administrative costs resulted from the large decrease at KBL European Private Bankers S.A. (EUR million; -42.6%), which was due to increased costs from transformation projects in the prior year. This was countered by increases at most of the other banks. The relative share of staff costs is higher than the market average (61.1% vs 51.0%). Luxembourg 40.6% 59.4% 61.1% 51.5% 50.6% 38.9% 48.5% 49.4% Staff costs Overheads 62 PwC Luxembourg

63 Risk provisioning (in EUR million) Risk provisioning increased significantly year-on-year by 39.1%. The following significant allocations to risk provisioning were made in : -- KBL European Private Bankers S.A. recorded an impairment of EUR 23.6 million on its French subsidiary KBL Richelieu Banque Privée. -- Société Nationale de Crédit et d Investissement recorded value adjustments on its participating interests of EUR 25.7 million. Net profit/(loss) on financial operations (in EUR million) Net result on financial operations remained stable (+4.1%). Five out of ten banks increased their net result on financial operations (EUR million), while the other five decreased it (EUR million). Forerunners are Banque et Caisse d Epargne de l Etat, Luxembourg (EUR 59.2 million), Banque International à Luxembourg S.A. (EUR 58.1 million), and BGL BNP Paribas S.A. (EUR 20.3 million), together representing approximately 80% of the whole net result of financial operations. In monetary terms, Banque et Caisse d Epargne de l Etat, Luxembourg contributed significantly to the increase with EUR 14.4 million, driven by the realised gains on available for sale financial instruments; followed by BGL BNP Paribas S.A. recording an increase of EUR 9.9 million linked to the realised gains on the sale of government bonds Banking in Luxembourg - Trends & Figures

64 Swiss Key takeaways Swiss The key business areas for the Swiss are depositary banking, private banking and investment fund servicing. The Swiss banks in Luxembourg make intensive use of the possibility given by the EU passport to distribute their services through branches in Europe. The banks currently have 26 branches in 13 different countries. 25 of these branches are in Europe and one in Asia. This means that Swiss banks have an average of 3.25 branches, with the actual numbers per bank ranging from none (Bank Julius Baer Luxembourg S.A.) to 6 (Lombard Odier (Europe) S.A. and Pictet & Cie (Europe) S.A.). The revenue situation in the Swiss is considerably more dependent on net commission result (71.5% relative share) than the market average (49.2% relative share), mainly because private banking, depositary banking and investment fund servicing are key components of the Swiss s business model. Net interest result represents only a minor share of the revenues. In, the following events occurred in the Swiss : -- EFG Bank (Luxembourg) S.A. s operations in were heavily impacted by the legal merger following two acquisitions: BSI Europe S.A. (from the accounting perspective, merger effective as from 1 January ) and UBI Banca International S.A. (from the accounting perspective, merger effective as from 1 November ). Each of the absorbed entities was included in our and analysis in order to ensure better comparability within the Swiss. -- In January, Bank Julius Baer Luxembourg S.A. merged with Julius Baer Investment Services S.à r.l. In addition, was strongly influenced by a project aiming to build up Bank Julius Baer Luxembourg S.A. as the new European booking platform of Julius Baer- Group. Customers of Julius Baer Investment Services S.à r.l. and of the advisory offices in Amsterdam, Dublin and Madrid, formerly booked in Julius Baer Europe AG (Frankfurt/Germany), were transferred to Bank Julius Baer Luxembourg S.A. To underpin the bank s new positioning within the group, it is planned to rename the bank Bank Julius Baer Europe S.A. in Number of banks Business areas Investment fund servicing 29.2% Service centre 12.5% Subsidiaries 10* 8 Branches 3 3 Total *including BSI (Europe) S.A. and UBI Banca International S.A. Private banking 33.3% Corporate banking 4.2% Custody 20.8% -- On 1 November, Lombard Odier (Europe) S.A. entered into a business sale and purchase agreement with InsingerGilissen Bankiers N.V. (a subsidiary of KBL European Bankers S.A.) for the sale of the private banking and wealth management services of its Dutch clients. The business sale took place on 1 June Branches outside Luxembourg 1 2 Austria Portugal Other 7 2 Belgium 3 Italy England France Spain 64 PwC Luxembourg

65 Balance sheet total (in EUR million) 27, ,359.8 *The EUR/CHF exchange rate has increased from in to in, i.e. the CHF is 8.4% weaker. Three banks are denominated in CHF; Crédit Suisse (Luxembourg) S.A., Pictet & Cie (Europe) S.A. and Union Bancaire Privée (Europe) S.A. The balance sheet total slightly decreased by 1.8% (overall market -2.3%), which was partly due to the conversion of the original currency balance sheet total using the exchange rate* at year end. The three banks with CHF as functional currency increased their total assets from CHF 17.7 billion to CHF 18.8 billion (CHF +1.1 billion; +6.1%). Converted to EUR, we obtain a decrease of EUR 0.5 billion (-2.8%). Banks with EUR as functional currency remained stable, as EFG Bank (Luxembourg) S.A. s merger had a net effect of a EUR 0.8 billion decrease, which countered the growth across the other banks. Bank Julius Baer Luxembourg S.A. contributed with a rise of EUR 0.7 billion, which reflects the takeover of clients from different locations of the Julius Baer-Group on the new European booking platform. The balance sheet structure in the Swiss is characterised by deposits held by investment funds, institutional and private clients (81.4% of the balance sheet total). These are then distributed as loans to credit institutions (53.4% of the balance sheet total, mainly within the group) or to customers (32.8% of the balance sheet total). The three largest institutions account for 74.9% of the aggregated balance sheet total (Pictet & Cie (Europe) S.A. with EUR 8.7 billion, Crédit Suisse (Luxembourg) S.A. with EUR 6.7 billion, and Edmond de Rothschild (Europe) S.A. with EUR 5.1 billion). Annual net profit and loss (in EUR million) Annual net profit decreased by EUR 16.5 million (-13.3%; overall market -5.3%, without one-off effect). The decrease of Bank Julius Baer Luxembourg S.A. s annual result from EUR million to EUR million is mainly explained by the fact that previous year s figures contained many one-time components (e.g. sale of the participating interests in Argor Heraeus S.A. for EUR 49.1 million), and also by the fact that was strongly influenced by the bank s client onboarding activities and regulatory projects, which is reflected in doubled staff costs and an increase of operating expenses by EUR 17.7 million. Edmond de Rothschild (Europe) S.A. (increase of EUR 29.4 million to EUR 43.1 million) and Crédit Suisse (Luxembourg) S.A. (increase of EUR 22.0 million to EUR 13.7 million) positively contributed to the annual result of the Swiss. Net interest and commission result (in EUR million) Net interest result Net commission result Of which income from transferable securities Net Interest result increased by EUR 48.7 million (+35.5%). Six out of eight banks have increased their net interest result, of which Edmond de Rothschild (Europe) S.A. by EUR 34.9 million, Crédit Suisse (Luxembourg) S.A. by EUR 10.9 million and Bank Julius Baer Luxembourg S.A. by EUR 10.2 million. The fall in net commission result of EUR million (-3.7%) is mainly attributable to the decrease at Union Bancaire Privée (Europe) S.A. (EUR million) following the transfer of the depositary bank function to a local bank in October, and the sale of the Brussels branch to UBP Asset Management (Europe) S.A., as well as to the decrease at Edmond de Rothschild (Europe) S.A. (EUR -9.2 million), which is explained by the decrease of commission of securities trading (EUR -8.1 million). Banking in Luxembourg - Trends & Figures

66 Swiss Return on assets Return on equity 0.45% 0.39% 9.33% 9.12 % The Swiss s return on assets (0.39%) noted a slight decrease, due to the overall decrease of the net result (-13.3%), partially compensated by the balance sheet volume decrease (-1.8%). In the Swiss, five out of eight banks contributed with positive ratios. Pictet & Cie (Europe) S.A. showed the best return on assets (1.06%), due to a net profit of EUR 92.2 million (+11.6%), while the balance sheet volume remained stable (+0.4%). Edmond de Rothschild (Europe) S.A. also showed a ratio above the overall market average (0.84%), explained by a reduced balance sheet volume (-5.2%) and a higher net profit of EUR 43.1 million (EUR million; %). The return on equity of the Swiss market remained well above the market average with 9.12%. The Swiss ratio was positively influenced by Pictet & Cie (Europe) S.A. and Edmond de Rothschild (Europe) S.A., which showed ROE ratios of 31.52% and 26.97% respectively. Cost-income ratio (in %) * Swiss banks have a more expensive cost structure (80.3% cost-income ratio compared to a market average of 57.4%), due to their business model (e.g. Private banking) and client s (e.g. HNWI). Furthermore, salaries are significantly higher than the market average *without the one-off effect of EUR 741 million at Deutsche Bank Luxembourg S.A. Annual net profit and loss per member of staff (in KEUR) Headcount , * 2, Staff costs per member of staff (in KEUR) Administrative costs per member of staff (in KEUR) The annual net profit per staff member decreased due to the drop of the annual net profit (-13.3%), while staff count level in the Swiss remained steady. The Swiss s salary structure is considerably higher than the market average. Four out of eight banks recorded a decrease in administrative costs per staff member, which is now below the average level of the market. * without the one-off effect 66 PwC Luxembourg

67 Ranking of balance sheet totals Bank Balance sheet total (EUR million) Shift Change in rank Pictet & Cie (Europe) S.A. 8, % = Crédit Suisse (Luxembourg) S.A. 6, % = Edmond de Rothschild (Europe) S.A. 5, % = EFG Bank (Luxembourg) S.A. 2, % = Bank Julius Baer Luxembourg S.A. 1, % +1 Lombard Odier (Europe) S.A. 1, % -1 Union Bancaire Privée (Europe) S.A % = Mirabaud & Cie (Europe) S.A % = Banking in Luxembourg - Trends & Figures

68 Assets Swiss Breakdown of assets % 32.8% Swiss 0.5% 0.4% 1.2% 16.9% 51.9% 29.6% Loans and advances to credit institutions 1.0% 53.4% Loans and advances to customers Fixed assets Other assets 16.9% 29.7% 0.9% 1.5% 19.1% 2.0% 1.2% 28.0% 49.7% Bonds and other transferable securities 51.0% *The EUR/CHF exchange rate has increased from in to in, i.e. the CHF is 8.4% weaker. The three banks with CHF as functional currency increased their total assets from CHF 17.7 billion to CHF 18.8 billion (CHF +1.1 billion; +6.1%). Converted to EUR, we obtain a decrease of EUR 0.5 billion (-2.8%), due to the negative FX effect of a weaker CHF.* Banks with EUR as functional currency had stable total assets. Within this group, EFG Bank (Luxembourg) S.A. was heavily impacted by the merger with BSI Europe S.A. and UBI Banca International S.A., with the merger resulting in an increase of its total assets by EUR 1.6 billion. However, the net effect of the merger was a decrease of EUR 0.8 billion. Finally, Bank Julius Baer Luxembourg S.A. and Mirabaud & Cie (Europe) S.A. notably grew their total assets by EUR 0.7 billion (+78.5%) and EUR 0.2 billion respectively (+95.1%). All captions remain stable compared to last year, and Loans and advances to credit institutions still remain the largest balance sheet item (53.4%) being in line with the overall market (51.0%). Bonds and other transferable securities dropped by 29.2% mainly due to reduction at Pictet & Cie (Europe) S.A. (EUR 1.4 billion), as a significant portion of its bond portfolio matured and disposed resulting from non-compliance with the eligibility criteria as defined by the Bank in its investment portfolio. Loans and advances to credit institutions (in EUR million) 14, ,609.5 Banks with CHF as functional currency increased by CHF 1.4 billion (+21.7%), mainly driven by the increase at Pictet & Cie (Europe) S.A. (CHF +1.7 billion; +83.7%) and countered by only slight decreases at Crédit Suisse (Luxembourg) S.A. (CHF -0.2 billion; -5.7%) and Union Bancaire Privée (Europe) S.A. (CHF million; -4.9%). Converted to EUR, the banks increase is significantly lower with EUR 0.7 billion (+11.5%). The banks denominated in EUR grew by EUR 1.3 billion, driven by EFG Bank (Luxembourg) S.A. s increase of EUR 1.4 billion, however the net effect of the merger was EUR -0.5 billion. Furthermore, Edmond de Rothschild (Europe) S.A. also decreased its interbank loans (-8.2%, EUR -0.4 billion). Loans and advances to customers (in EUR million) Loans and advances to customers increased by EUR 0.7 billion (+8.7%), more strongly than the overall market (+3.5%), the increase was driven by all banks in the Swiss. Banks denominated in CHF increased by CHF 0.8 billion (+13.4%). In EUR, this translates to an increase of EUR 0.2 billion (+3.9%). Banks denominated in EUR increased by EUR 0.5 billion (+21.4%), despite the net effect of BSI Europe S.A. and UBI Banca International S.A. merging with EFG Bank (Luxembourg) S.A. being a EUR 0.3 billion decrease. Key drivers were Bank Julius Baer Luxembourg S.A. (EUR million), Pictet & Cie (Europe) S.A. (CHF million; EUR million), and Edmond de Rothschild (Europe) S.A. (EUR million). 8, ,973.4 Bonds and other transferable securities (in EUR million) 4, ,331.1 Bonds and other transferable securities decreased by EUR 1.4 billion (-29.2%). This is primarily attributable to decreased volumes at Pictet & Cie (Europe) S.A. (-33.5%; EUR -1.4 billion), due to the maturity of bonds for approximately CHF 1.3 billion in. Pictet & Cie (Europe) S.A. has still by far the largest bond and other transferable securities portfolio with EUR 2.7 billion (82% of the caption in Swiss ). 68 PwC Luxembourg

69 Liabilities Breakdown of liabilities - Swiss 4.3% 2.4% 0.1% 0.1% 11.6% 2.1% 4.8% 7.8% 0.1% 0.5% 84.8% 2.9% 8.0% 0.5% 8.0% 3.6% 0.6% 8.3% 7.7% 81.4% 45.8% 48.1% 34.3% 32.1% Banks denominated in CHF increased customer deposits by CHF 0.3 billion. The translation to EUR, however, results in a decrease of EUR 0.9 billion, due to the FX effect of the weaker CHF*. Banks denominated in EUR decreased by EUR 0.5 billion, resulting in a total decrease of EUR 1.3 billion (-5.7%). Nevertheless, customer deposits still remain by far the largest source of refinancing in the Swiss. Deposits by investments funds, institutional and private clients in the Swiss remain significantly higher than the market average (81.4% vs 48.1%). Amounts owed to credit institutions Amounts owed to customers Debt securities Subordinated debts Own funds Other liabilities *The EUR/CHF exchange rate has increased from in to in, i.e. the CHF is 8.4% weaker. Amounts owed to credit institutions (in EUR million) 2, ,186.9 Amounts owed to credit institutions have increased significantly from EUR 1.0 billion (+46.8%) to EUR 3.2 billion. This increase is mainly attributable to Crédit Suisse (Luxembourg) S.A. (EUR +0.7 billion; %), linked to the rise of its borrowing from affiliated undertakings (: CHF 1.3 billion; : CHF 0.5 billion). Amounts owed to customers (in EUR million) Amounts owed to customers are by far the largest component of the funding (81.4% of the balance sheet total), due to the Swiss banks dominance in private banking as well as due to depositary banking services for the investment fund sector. The top three contributors are Pictet & Cie (Europe) S.A. (EUR 7.2 billion), Crédit Suisse (Luxembourg) S.A. (EUR 5.1 billion), and Edmond de Rothschild (Europe) S.A. (EUR 4.4 billion). Two banks registered strong growth in percentage, thereof Bank Julius Baer Luxembourg S.A. (EUR +0.7 billion; +81.7%) due to the migration of Julius Baer-Group clients to the European booking platform in Luxembourg, and Mirabaud & Cie (Europe) S.A. (EUR +0.2 billion; %). 23, ,277.0 Own funds (in EUR million) 1, ,179.9 Own funds decreased by EUR million (-11.3%) in, which was essentially due to the decrease at Pictet & Cie (Europe) S.A. (CHF million; EUR million), due to the distribution of a dividend of CHF million during. All other banks were able to increase their own funds; led by Bank Julius Baer Luxembourg S.A. (EUR million) and EFG Bank (Luxembourg) S.A. (EUR million), for the latter driven by a capital increase of EUR 50.0 million, whereas retained earnings decreased due to losses in both years. Banking in Luxembourg - Trends & Figures

70 Swiss Ranking of annual net profit or loss Bank EUR million Shift Change in rank Pictet & Cie (Europe) S.A % = Edmond de Rothschild (Europe) S.A > 100.0% +2 Crédit Suisse (Luxembourg) S.A > % +4 Union Bancaire Privée (Europe) S.A % -1 Mirabaud & Cie (Europe) S.A. 2.0 > % = EFG Bank (Luxembourg) S.A > 100.0% = Lombard Odier (Europe) S.A % +1 Bank Julius Baer Luxembourg S.A > % -6 Overview of change in aggregated income statements from to % Net interest result Net commission result Net profit/(loss) on financial operations Other operating income and expenditures % Current operating expenses Risk provisioning Income taxes % PwC Luxembourg

71 Net interest result (in EUR million) Net interest result Of which income from transferable securities Net interest result was up by 35.5%, supported by six out of the eight banks in Swiss. Edmond de Rothschild (Europe) S.A. recorded a rise of EUR 34.9 million (+163.8%), driven by a large increase in income from transferable securities (up from EUR 6.3 million to EUR 33.1 million; especially through dividends from its subsidiary Edmond de Rothschild Asset Management (Luxembourg) S.A. of EUR 32.5 million), and due to interest rate swaps combined with deposits at the central bank, offering better returns than reverse repurchase agreements. Crédit Suisse (Luxembourg) S.A. increased its net interest result by EUR 10.9 million (+28.1%), due to the result of higher loan volumes based on low levels of interest rates during the year, and the extension of scope for charging-back negative interests to clients. Bank EUR million Shift Change in rank Pictet & Cie (Europe) S.A % = Edmond de Rothschild (Europe) S.A >100% +1 Crédit Suisse (Luxembourg) S.A % -1 EFG Bank (Luxembourg) S.A % = Bank Julius Baer Luxembourg S.A. 8.1 >100% +3 Net commission result (in EUR million) In contrast to the net interest result, the net commission result decreased by EUR 17.7 million (-3.7%), even though six out of eight banks increased their net commission result. Bank Julius Baer Luxembourg S.A. showed the highest net commission result rise (EUR million; +85.4%), which reflects the onboarding of clients of the Julius Baer-Group on the new European booking platform, and the bank s concentration on its core business, followed by Mirabaud & Cie (Europe) S.A. (EUR +7.7 million; +35.0%). The level of net commission result at Crédit Suisse (Luxembourg) S.A. and Pictet & Cie (Europe) S.A. remained stable. Union Bancaire Privée (Europe) S.A. recorded a decrease of EUR 24.6 million (-84.0%), related to the transfer of the depositary bank function to a local bank in October, as well as the sale of the Brussels branch to UBP Asset Management (Europe) S.A. The net commission result at Edmond de Rothschild (Europe) S.A. decreased by EUR 9.2 million (-12.0%), largely due to lower commission income from securities brokerage Bank EUR million Shift Change in rank Pictet & Cie (Europe) S.A % = Crédit Suisse (Luxembourg) S.A % = Edmond de Rothschild (Europe) S.A % = Lombard Odier (Europe) S.A % = Mirabaud & Cie (Europe) S.A % +1 Banking in Luxembourg - Trends & Figures

72 Swiss Other operating income and expenditures (in EUR million) In, other operating income and expenses decreased significantly by EUR 61.5 million (-60.3%), primarily due to Bank Julius Baer Luxembourg S.A., which recorded large other operating income in because of net profits on the sale of their participating interests in Argor Heraeus for EUR 49.1 million. On the other hand, this decrease is countered by the increase of other operating income at Edmond de Rothschild (Europe) S.A. (EUR million), due to the release of a risk provision. Breakdown of current operating expenses - Total current staff costs increased by EUR 8.2 million (+2.4 %), which is related to six out of eight banks. This increase is primarily attributable to Bank Julius Baer Luxembourg S.A., influenced by its client onboarding activities and regulatory projects, which is reflected in doubled staff costs. This overall increase in staff costs is countered by the decrease of staff costs at Crédit Suisse (Luxembourg) S.A. (EUR -8.6 million; -12.3%), related to a reduced staff headcount (-3.9%). The overheads in the Swiss decreased by EUR 20.4 million (-7.7%), which was mainly underpinned by the decrease in the overhead costs at Crédit Suisse (Luxembourg) S.A. (EUR million; -25.5%). 41.5% Swiss 55.8% 44.2% Staff costs 58.5% 48.5% 49.4% Overheads 51.5% 50.6% 72 PwC Luxembourg

73 Risk provisioning (in EUR million) Due to the Swiss banks business models, risk provisioning remained low in comparison with the market as a whole. The largest risk provisioning occurred at Crédit Suisse (Luxembourg) S.A. (EUR -5.3 million), mainly related to overdue interests on loans. Pictet & Cie (Europe) S.A. showed a net release of provisions of EUR 4.9 million on disposed or matured bonds and other fixed-income transferable securities. Net profit/(loss) on financial operations (in EUR million) The decrease in net profit on financial operations for the Swiss was primarily attributable to Pictet & Cie (Europe) S.A., which recorded a decrease in net profit on financial operations of EUR 11.6 million (-33.6%); as well as Bank Julius Baer Luxembourg S.A. with a decrease of EUR 9.6 million (-74.4%), due to strong net gains on disposals on available for sale financial instruments in. On the contrary, Union Bancaire Privée (Europe) S.A. recorded an increase of EUR 3.1 million Banking in Luxembourg - Trends & Figures

74 Chinese Key takeaways Chinese The Chinese is continuing to experience the strongest growth in Luxembourg in terms of balancesheet totals (+13.5%), annual net profit (+100.6%) and headcount (+38.9%). The Chinese banks operate predominantly in corporate banking (such as trade finance, project finance, bilateral and syndicated loans). The clientele are Chinese companies investing in Europe, as well as European companies with business interests in China. Furthermore, the subsidiaries act as service hubs for the European branches or for the branches of their parent companies in Luxembourg. In, China Everbright Bank (Europe) S.A. (Subsidiary of China Everbright Bank Co Ltd.) and China Everbright Bank Co. Ltd, Luxembourg branch obtained the approval of the European Central Bank and the CSSF in July and officially opened on 8 September. Consequently, there are now seven Chinese banking groups established in Luxembourg, operating through six subsidiaries and seven branches. During, Bank of Communications (Luxembourg) S.A. opened branches in Rome and Paris, and China Construction Bank (Europe) S.A. opened a branch in Poland. China Construction Bank (Europe) S.A. and Bank of China (Luxembourg) S.A. successfully issued bonds and notes for a total amount of EUR 1 billion (EUR 0.5 billion each) in. Number of banks Business areas Service centre 33.3% Retail banking 6.7% Treasury 13.3% Subsidiaries 5 6 Branches 6 7 Total Private banking 6.7% Corporate banking 40.0% Branches outside Luxembourg Italy 3 France 3 Spain 2 Portugal 1 3 Netherlands 2 Belgium 3 Poland 1 Sweden Chinese banking groups in Luxembourg typically open both a subsidiary and a branch. The subsidiaries use the EU passport to distribute financial services through their branches in other European countries. The branches are subject to reduced local regulatory requirements, since these are enforced at parent-company level (e.g. total solvency ratio), and therefore it is possible to execute capital-intensive transactions (such as lending) using the parent company s equity. With Bank of Communications (Luxembourg) S.A. opening branches in Rome and Paris, as well as China Construction Bank (Europe) S.A. having opened a branch in Poland during, four out of the seven Chinese banking groups now operate with a total of 18 branches in 8 European different countries as per 31 December. Balance sheet total (in EUR million) 12, ,096.8 Industrial and Commercial Bank of China (Europe) S.A. and Bank of China (Luxembourg) S.A. continue to lead the, currently accounting for 82.5% of the aggregated balance-sheet total (down from 87.0% in ). The balance-sheet total grew strongly, up 13.5% (compared to an overall market decrease of 2.3%). This was primarily due to loans and advances to customers (+22.0%) and to loans and advances to credit institutions (+5.3%). This was offset by a decrease in bonds and other transferable securities (-6.5%). The overall growth was mainly driven by Bank of China (Luxembourg) S.A., (EUR +1.4 billion) and China Construction Bank (Europe) S.A. (EUR +0.6 billion). Assets are mainly refinanced by inter-group bank deposits, however other sources of refinancing were growing, with amounts owed to customers up by EUR 0.8 billion (+22.4%) and debt securities up by EUR 1.0 billion (none in ). 74 PwC Luxembourg

75 Annual net profit and loss (in EUR million) Annual net profit in the Chinese increased by 100.6% (overall market -5.3%, without one-off effect) supported by a positive development in net interest result (EUR million; +25.6%) due to the expansion in the credit lending volume. In, three out of six banks made profits for EUR 45.5 million, of which Bank of China (Luxembourg) S.A. contributed EUR 34.5 million, Industrial and Commercial Bank of China (Europe) S.A. EUR 10.2 million and Agricultural Bank of China (Luxembourg) S.A. EUR 0.8 million. In addition, it is important to note that total net profit or loss in the Chinese is particularly distorted, as nearly each bank has both a subsidiary and a branch, and the Luxembourg branches cannot be included in our analysis due to their annual accounts not being published. Net interest and commission result (in EUR million) The Chinese s income situation is dominated by corporate banking business, which is reflected in net interest result representing 76.7% of total banking income. Net interest result grew by +25.6%. Bank of China (Luxembourg) S.A., China Construction Bank (Europe) S.A. and Bank of Communications (Luxembourg) S.A. recorded a strong growth in net interest result of EUR 26.9 million (+94.4%), EUR 3.2 million (+45.7%) and EUR 0.4 million (+10.8%), respectively, due to an increase of the loan portfolio. Chinese banks recorded an overall profit on commissions in, while noting, however, a slight decrease. Net commission result increased by EUR 4.5 million, to reach EUR 21.6 million (+26.3%). On the other hand, the Industrial and Commercial Bank of China (Europe) S.A. recorded a decrease of EUR 6.3 million (-27.6%), to reach EUR 16.5 million, mainly due to an Net interest result Net commission result increase in risk participation fees, and to an increase in the volume of risk participation agreements during the year. Return on assets Return on equity 0.13% 0.23% 1.23% 2.37% Despite the balance sheet increase by 13.5%, the ratio has slightly risen by 10 bps thanks to net profits doubling (+100.6%). The return on assets is low compared to the market average of 0.50%, as Chinese banks continue to invest heavily to expand and stimulate future growth. The Chinese sector s equity increased by 3.9% in to reach EUR 1.3 billion. This increase was mainly due to Bank of China (Luxembourg) S.A. and the market entrance of China Everbright Bank (Europe) S.A. Due to the relatively low annual net profit and a solid equity (9.6% of the total balance sheet compared to 8.0% for the overall market), return on equity is significantly under the market average of 6.26%. Banking in Luxembourg - Trends & Figures

76 Chinese Cost-income ratio (in %) * The year on year decrease of the cost-income ratio was driven by the significant growth of the gross income (+22.1%), which prevailed the increase in operational expenses (+17.3%). Cost income ratio remains far above market average due to continued investments by Chinese banks in expanding their branch network. *without the one-off effect of EUR 741 million at Deutsche Bank Luxembourg S.A. Annual net profit and loss per member of staff (in KEUR) Headcount * Staff costs per member of staff (in KEUR) Administrative costs per member of staff (in KEUR) Chinese banks continue to experience the largest increase in headcount (+ 251 staff members; +38.9% year on year). Industrial and Commercial Bank of China (Europe) S.A., Bank of China (Luxembourg) S.A. and China Construction Bank (Europe) S.A. have the highest headcounts (353 (+ 0.6%), 292 ( %), and 152 (+ 35.7%), respectively). Salary costs per member of staff decreased by 17.3% year on year due to the fact that the headcount increase is taking place mainly in branches outside Luxembourg where salary level is lower. Despite the fact that overheads grew by 22.3% administrative costs per member of staff decreased year on year (-11.9%), since regulatory/accounting projects (e.g. MiFID II, GDPR and IFRS) were done once centrally and then rolled out to the branches. * without the one-off effect 76 PwC Luxembourg

77 Ranking of balance sheet totals Bank Balance sheet total (EUR million) Shift Change in rank Industrial and Commercial Bank of China (Europe) S.A. 6, % = Bank of China (Luxembourg) S.A. 4, % = China Construction Bank (Europe) S.A. 1, % = Bank of Communications (Luxembourg) S.A % = China Everbright Bank (Europe) S.A NEW NEW Agricultural Bank of China (Luxembourg) S.A % -1 Banking in Luxembourg - Trends & Figures

78 Assets Chinese Breakdown of assets % Chinese 0.3% 16.7% 0.4% 60.2% 0.5% 0.5% 22.3% 20.6% 16.9% 0.9% 1.5% 19.1% 2.0% 1.2% 49.7% 51.0% 64.7% 29.7% 28.0% Loans and advances to credit institutions Loans and advances to customers Bonds and other transferable securities Fixed assets Other assets The asset structure of the Chinese is the opposite compared to the overall market asset structure. Loans and advances to credit institutions makes up 20.6% (China) vs. 51.0% () and to customers 64.7% (China) vs. 29.7% (). Three out of six Chinese Banking Groups build up bond portfolios over the last years, which have comparable size to the overall market. Expansion of credit volume to customers (+22.0%) was mainly due to Bank of China (Luxembourg) S.A. with EUR billion (+27.4%), followed by China Construction Bank (Europe) S.A. (EUR +0.5 billion; %), Industrial and Commercial Bank of China (Europe) S.A. (+ EUR 0.4 billion; + 8.5%) and Bank of Communications (Luxembourg) S.A. (+ EUR 0.1 billion; %). Bonds and other transferable securities decreased by EUR million (-6.5%), thereof EUR million at Bank of Communications (Luxembourg) S.A. and EUR million at Industrial and Commercial Bank of China (Europe) S.A., partially compensated by an increase (EUR million) at Bank of China (Luxembourg) S.A. 78 PwC Luxembourg

79 Liabilities Breakdown of liabilities - 7.1% 9.6% 0.1% Chinese 10.4% 0.1% 1.1% 1.0% 57.9% 49.3% 2.9% 8.0% 0.5% 8.0% 3.6% 0.6% 8.3% 7.7% 30.6% 34.3% 32.1% 33.0% 45.8% 48.1% Amounts owed to credit institutions Amounts owed to customers Debt securities Subordinated debts Own funds Other liabilities The main source of refinancing for the Chinese banks are amounts owed to credit institutions, especially intergroup-lending. The liability structure of the Chinese is reversed to the overall market liability structure. Amounts owed to credit institutions makes up 49.3% (China) vs. 32.1% () and to customers 33.0% (China) vs. 48.1% (). During, Chinese Banking Groups expanded funding via customers, especially at Industrial and Commercial Bank of China (Europe) S.A. (EUR 0.8 billion; 46.1%), while also two Chinese Banks used a new funding source via debt issuance, namely China Construction Bank (Europe) S.A. and Bank of China (Luxembourg) S.A., each with an issuance amount of EUR 0.5 billion. Own funds have slightly increased by EUR 51.1 million (+3.9%), largely due to the allocation of prior year results and the entrance of China Everbright Bank (Europe) S.A., which started operations in July with subscribed capital of EUR 20.0 million. Banking in Luxembourg - Trends & Figures

80 Chinese Ranking of annual net profit or loss Bank Annual net profit/loss (EUR million) Shift Change in rank Bank of China (Luxembourg) S.A % +1 Industrial and Commercial Bank of China (Europe) S.A % -1 Agricultural Bank of China (Luxembourg) S.A % = China Everbright Bank (Europe) S.A % NEW China Construction Bank (Europe) S.A % = Bank of Communications (Luxembourg) S.A % -2 Overview of change in aggregated income statements from to Net interest result % Net commission result Net profit/(loss) on financial operations % Other operating income and expenditures Income taxes Risk provisioning Current operating expenses Annual net profit and loss -17.3% The Chinese s annual profit increased by EUR 16.0 million to reach EUR 31.9 million. The main driver was an increase of EUR 29.7 million (+618.8%) at Bank of China (Luxembourg) S.A. This was primarily due to an improved net interest and commission result (EUR million; %), being the result of a successful development of the number of medium and high end customers, thereby making personal loan business a stable source of income for the bank. Another factor was the growth of other operating income, nearly solely due to China Construction Bank (Europe) S.A., which increased by EUR 10.1 million to reach EUR 18.6 million during. The three more recently established Chinese banks (Bank of Communications (Luxembourg) S.A., China Construction Bank (Europe) S.A., China Everbright Bank (Europe) S.A.) are continuing to incur start-up losses (EUR 13.6 million). This is reflected by increasing staff costs and increasing overheads due to expansion of their branch network and initial establishment costs. 80 PwC Luxembourg

81 Banking in Luxembourg - Trends & Figures

82 Contacts Roxane Haas Banking Leader Jörg Ackermann Banking Consulting Björn Ebert Banking Audit For further information about our firm and our services, please contact PwC s ing and Communications department at info@lu.pwc.com PwC Luxembourg 2, rue Gerhard Mercator B.P L-1014 Luxembourg Tel Fax PwC Luxembourg

83 Banking in Luxembourg - Trends & Figures