The financial sector in Luxembourg - Statistics & Facts

Luxembourg is an international financial center in the European Union, with over 140 international banks having an office in the country. In the most recent Global Financial Centers Index, Luxembourg was ranked as having the third most competitive financial center in Europe after London and Zürich. Indeed, the financial assets of investments funds as a ratio to GDP increased from approximately 4,568 percent in 2008 to 7,327 percent in 2015. In recent years, the Grand Duchy made efforts to diversify its financial activities in certain niches such as Chinese and Islamic finance, together with FinTech. Luxembourg's three traditional strengths, however, involve its activities in investment funds, banking and insurance. Despite the effects of the financial crisis, Luxembourg managed to consolidate its position in these three core segments.

The investment fund industry of Luxembourg is the largest in Europe and second in the world behind the United States. The total number of investment funds maintained its stability of the last years and reached a total of 3,861. These funds reached a value of net assets under management of approximately 3,700 billion euros, which was the highest point reached in the last ten years and an increase of approximately 200 billion euros when compared to 2015. The reason for Luxembourg's success comes from the country's combination of strict consumer protection along with its flexibility in fund types. At the end of 2016, the distribution of total net assets in the UCI sector (undertakings for collective investment, a term used for investment funds) shows that bonds represented approximately 30 percent. Alongside this, for example, the number of microfinance funds in the country changed between 2007 and 2016, reaching three in 2007 and increasing to 29 in 2016.

In 2016, approximately 23 percent of clients in private banking in Luxembourg came from other EU countries or neighboring ones such as Belgium, France and Germany. The country is an attractive place for both foreign investments and private clients. As of May 2017, banks in the Grand Duchy have different countries of origin with approximately 24 of these coming from Germany and 15 banks from France. In the years following the financial crisis, Luxembourgish banking as a whole witnessed a decrease in the total number of banks. Some banks left the country for economic reasons, while others disappeared through consolidation. Despite that, the assets of foreign controlled banks showed an increase in recent years. Indeed, it was announced in August 2017 that China Everbright Bank (CEB) would establish their European headquarters in Luxembourg, making it the seventh bank from China in the country. With so many foreign assets, however, Luxembourg was the country in 2016 with the highest risk index score of money laundering and terrorist financing in the Benelux.

An appealing legal and economic framework helped Luxembourg establish itself as a hub for European insurance, most notably reinsurance. In 2015, the non-life reinsurance sector reached a value of approximately 363 million U.S. dollars and was expected to grow to approximately 642.72 million U.S. dollars in 2025. Currently, Luxembourg is benefitting from the uncertainty surrounding London insurance companies that look to move their activities from the United Kingdom to the European mainland. AIG, RSA, CNA Hardy and FM Global are examples of companies that decided to move parts of their operations to the Grand Duchy. Indeed, approximately 57 percent of Luxembourg CEOs from the financial sector expected Brexit would impact their industry in a positive way in the next five years.

Other changes lie ahead for the Luxembourg financial sector, most notably in the FinTech sector. When asked about leading corporate strategies with FinTechs, approximately 34 percent of senior executives in the Luxembourg financial and FinTech sector indicated in 2016 they engaged in joint parnerships with FinTech companies. 21 percent of respondents, however, stated that they do not deal with FinTech. In fact, executives from banks showed more willingness to respond to blockchain, the main techology behind cryptocurrencies such as Bitcoin, than those from insurance companies or asset companies. Given the speed of technological change, financial institutions will have to define their strategies and see whether or not they will embrace FinTech and its possibilities.

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