Banking sector reports 25% pre-provision profit increase

(ADW) Pre-Provision Operating Profit (PPOP) for the Luxembourg banking sector grew by 25.3% representing 2.921 billion euros in the first half compared to the same period of 2010. The Supervisory Board of the Financial Sector (CSSF) who delivered the provisional figure, however, indicates that this increase is mainly due to non-recurring revenues.

The banking sector generated 2.921 billion in pre-provision operating profit at the end of the first half of the year as appose to 2.33 billion in late June 2010.

This figure is still very far from the result after the same period in 2009 when the sector reached 3.5 billion (3.05 billion at end June 2008).

The relative strength of the result for the sector in 2011 was mainly due to two phenomena. Firstly, banks have been very successful in controlling overhead costs remaining at a level identical to that of 2010 (2.2 billion).

Better still - personnel costs; expenditures fell 2.2% to 1.245 billion, "in a context of declining employment," according to CSSF commentary. Other expenses rose 2.6% to 1.04 billion.

The second explanation for the increase in PPOP was to the search for exceptional income and therefore non-recurring at 414 million (as appose to negative income in 2010), which is no longer limited to a small number of banks, according to the CSSF.

Less idyllic figures

On the side of traditional revenues for bank institutions, the picture is more mixed: the first and main figure, interest margins, declined from 0.8% to 2.878 billion (2.9 billion during the first half of 2010) while commission income rose by only 6.8% to 1.92 billion euros.

The CSSF notes that "the changes recorded for these two figures are less pronounced than in previous periods," during which the annual variations could reach 19%.

This all means that when you ignore the non-recurring income of 414 million, increasing PPOP was limited to 4.1%. Therefore picture is less rosy than it may seem at first sight.