Fitch echoes the EU in saying that Luxembourg is not Cyprus

Earlier an EU official stated that Luxembourg's banks should not be compared to those of other nations. Not long ago, people were asking whether Luxembourg would be next Cyprus. Ratings agency Fitch has said that there are some importance differences:

Luxembourg and Malta also have smaller domestic banking systems. The domestic banking sectors in Luxembourg (1.6x GDP) and Malta (1.6x GDP) are modest relative to Cyprus (4.6x GDP) based on the latest available ECB data. The size of the domestic banks is the most relevant measure as they would be most likely considered important enough to the country to receive support from the sovereign, if required.

The total banking sectors of Luxembourg and Malta are very large (24x GDP and 8x GDP respectively) as this includes subsidiaries and branches of foreign banks, which have negligible links with the domestic economy as their business is predominantly with non-residents. Luxembourg is a hub for investment funds and private banking, while Malta's foreign banks deal mainly with business flows from Europe to North Africa and the Middle East. We believe that if these banks were to be supported, it would more likely come from the parent bank and ultimately its home government.


The domestic banks in Andorra, Luxembourg and Malta are currently stronger than those of Cyprus before the bail-out. Their Viability Ratings are almost all investment grade, whereas in Cyprus the bank systemic indicator has been speculative grade since 2011.

Good news for the European area, although elsewhere the currency bloc is in crisis. With unemployment at record highs and inflation very low, markets are expecting an ECB rate cut to be announced at 12.45. Until now the interest rate has not fallen below 0.75 per cent. The deposit rate however, is zero, so there is some possibility of negative rates.