Central Bank recorded a €132m loss in 2023

The Central Bank made a loss of €132.1m last year, as a result of monetary policy decisions taken across the euro area to bring inflation down.

Its Governor said the bank had been expecting and preparing over a number of years for the possibility of making a loss at some point and has reserves of €8.7bn set aside as a result.

Gabriel Makhlouf said the role of the bank is not to make profits but to serve the public interest by maintaining monetary and financial stability.

“Of course, through our operations, we make income,” he wrote in a blog, published to coincide with the publication of the bank’s annual report for 2023.

“The way we use that income is to cover our operating expenses and – where needed – to invest prudently in building our long-term financial and operational resilience. Any surplus income is then transferred to the Exchequer.”

But he added that in practice, the bank’s balance sheet and therefore its income is dominated by its monetary policy functions.

He said the size of the balance sheet and, in turn, the bank’s headline profitability, is very much driven by its monetary policy function to achieve price stability.

The Governor added that there is now an interest rate mismatch where the interest the bank pays on monetary policy liabilities is increasing more rapidly relative to the interest that it receives on its bond holdings.

“So as we increased policy rates to tackle high inflation (450 basis points since July 2022), the amount of interest paid on our liabilities has increased compared to the interest we receive on the bonds that we had previously purchased for monetary policy purposes,” he said.

“Therefore, and like other central banks in the Eurosystem, we incurred a loss in 2023 and have used our reserves to help address this.”

Mr Makhlouf also pointed to an impairment charge of €157m on the bank’s buildings arising from the ongoing adjustment in the commercial property market.

He said the bank’s main North Wall Quay building continues to be valued at €156.2m, well above the purchase price of €78.6m.

“The accounting policy dictates that we do not record the positive increase above cost in that valuation on our accounts,” he said.

“By contrast, where there are downward valuation pressures, these need to be recorded in our accounts as an impairment. This is the case with our Mayor Street building.”

As a result, the estimated market value of that building has resulted in an impairment charge of nearly €157m.

The Governor also claimed that the work of the bank and its European partners towards strengthening the financial system was evident last year, as the economy here and across the euro area showed resilience in the face of geopolitical shocks, rate increases and global banking market turmoil.

“The benefits of the resilience built over the past decade were also seen in the real economy, which saw households and businesses weathering shocks, benefitting from lower levels of indebtedness and improved lending standards,” he said.

He described the monetary policy actions used to tame inflation as an “ongoing success”.

Mr Makhlouf also pointed to progress made last year on the development of a new cash centre, preparations for the Digital Euro and the bank’s management of the financial services sector.

“2023 also saw the enactment of the Central Bank Individual Accountability Framework Act,” he said.

“We see it as important that the implementation of the Framework is not approached as a compliance exercise, but rather that it is internalised throughout firms’ culture, approach and practices.”

“We continued our work to update and modernise the Consumer Protection Code, reflecting developments in recent years and the services and delivery channels people use today.”