FRANKFURT, Feb 22 (Reuters) – The European Central Bank (ECB) on Thursday announced a record annual loss for 2023 and warned that further losses were likely as its drastic interest rate hikes force it to pay out billions of euros to the bloc’s banking establishments.
The Frankfurt institute reported a loss before release of provisions of 7.9 billion euros, after a deficit of 1.6 billion euros in 2022.
After reversing a provision for financial risks of 6.6 billion euros, a loss of 1.3 billion euros will be reported on the balance sheet.
After two decades of substantial profits in a context of low rates and low inflation, this loss can be explained by the increase in key rates which led to an increase in interest charges on the ECB’s variable rate commitments.
Read also…
It “has no impact” on the ECB’s ability to conduct an effective monetary policy, the central bank said in a statement.
“While the ECB is certainly likely to suffer losses in the coming years, it should subsequently return to sustained profits,” added the issuing body.
Unlike commercial banks, a central bank can operate with depleted provisions and even negative capital. However, these losses may raise credibility concerns, deprive governments of dividends and could influence an expected debate on the ECB’s new operational framework. (Written by Balazs Koranyi, Blandine Hénault for the French version)
©2024 Thomson Reuters, all rights reserved. Reuters content is the intellectual property of Thomson Reuters or its third party content providers. Any copying, republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. “Reuters” and the Reuters Logo are trademarks of Thomson Reuters and its affiliated companies.