ECB had to use provision of 1627 million to avoid loss in 2022 | Monetary policy

After 14 consecutive years of profits and distribution of dividends to the national central banks, the European Central Bank (ECB) registered, in 2022, net zero results, having even so guaranteed this performance only thanks to the use of provisions accumulated over the last years.

According to the annual accounts released this Thursday by the entity led by Christine Lagarde, the net result in 2022 was zero, a decrease compared to the profits of 192 million euros recorded in 2021 and much less than the more than 1000 million of euros of profit registered in all the previous five years.

The result, however, could have been much worse, with the ECB falling into losses, had it not been for the decision to use 1627 million euros in provisions, accumulated by the central bank over the last few years, to face risks.

During the last few years, in a scenario of historically low interest rates and with the central bank accumulating public debt securities in its balance sheet, the ECB, as with the national central banks that form part of the Eurosystem (such as the Bank of Portugal ) recorded high profits.

At that time, it was decided to reduce profits (and distributed dividends) a little precisely in order to accumulate reserves to face the risk that, in the future, the debt securities purchased could generate losses. That moment has arrived now that interest rates have started to rise in the eurozone.

With higher interest rates, the remuneration paid by the ECB to the banks that deposit capital there increases, while the income obtained by the assets held by the central bank on its balance sheet remains low.

The expectation is that over the next few years, both the ECB and the national central banks of the Eurosystem will record negative net results that can be offset by using provisions, while these are still available.

The ECB will not, this year, distribute dividends to its shareholders, which are precisely the national central banks. This is yet another negative impact that will be felt on the Bank of Portugal’s 2023 accounts, already heavily affected by the effect of the rise in interest rates on its accounts.

Several national central banks in the euro zone, such as Belgium and the Netherlands, have already shown signs that, in 2022, they should post losses.

In the Portuguese case, the governor of the Bank of Portugal, recognized that there will be a “very substantial reduction” in the dividends to be paid to the State, as a result of the “pressure” to which the central bank accounts will be subject “for a few more years ”. But offsetting some of the losses will also be the fact that the institution has accumulated over the years reserves and provisions that “are more than enough to cover these costs”, said, last November, Mário Centeno.

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