According to its most recent annual report published on Thursday, the Central Bank made a loss of €132.1 million last year as a consequence of the end of a period of high profits and the write down of a building’s value in Dublin’s north doacklands which it had bought in 2019 to extend its campus. The value of the building, which the bank had bought from Sean Mulryan’s Ballymore Group and Singapore partner Oxley for €225 million, was cut by €157 million.
The Central Bank started using the building in the summer of 2022 and had spent €232 million including on fit-outs by year end 2022. The Central Bank added that the building is 60% larger than its headquarters, on Mayor Street in Dublin 1 with a floor area of 18,850 sq m, which it had bought for €104 million in 2015.
The bank stated in the report that since the start of the pandemic, working models have noticeably shifted to hybrid, causing companies to reduce their office space. This in turn has led to an oversupply of offices in Dublin and has resulted in a decreased market value of the Mayor Street building. Currently, the bank is using three floors and looking to rent out the remaining four.
In a separate matter, an unrealised loss of €18.2 million has been booked by the Central Bank against a completely leased property on Spencer Dock that the bank is seeking to sell, reducing its worth to €31 million. Pimco, a US investment behemoth, appointed receivers to the scheme earlier this year. The owners of the scheme, the National Asset Management Agency (Nama) and Oaktree Capital based in Los Angeles, put the offices up for sale in August of last year for €155 million, however, they didn’t receive an offer.
The valuation of office properties in Ireland deteriorated by 17% last year, culminating in a total drop of 26% since March 2020, as reported by AIB. This depreciation was primarily due to the adoption of flexible work practices following the outbreak of the Covid-19 pandemic, coupled with a sudden rise in interest rates. Over the 15 months leading up to last September, the primary lending rate of the European Central Bank (ECB) underwent a drastic increase from 0% to 4.5%.
The prediction for this year points towards further depreciation of office properties, even as the ECB looks to decrease rates. This persistent downward trend experienced by the Central Bank had been predicted for a while. In anticipation, several proactive measures were undertaken in recent years, as stated by Mr. McGrath to fellow ministers. A sum of €3 billion was allocated to mitigate the anticipated losses.
Over the 15 years leading up to 2022, the Central Bank accumulated profits exceeding €23.5 billion. This success can be credited to the decisive actions of central bankers in Dublin and Frankfurt during the verge of the domestic banking system and euro’s near-collapse and the decade’s stagnant inflation throughout the eurozone area.
During this timeframe, more than €18.5 billion was transferred to the government, alleviating the economic burden consequent to a forced investment of €64 billion from taxpayers to salvage the banking system and subsequent budget shortfalls.
Initial profits were derived from the interests on emergency bank loans during the economic crisis. These profits were supplemented by multibillion-euro benefits from government bonds’ sales in 2013 to restructure the bailout of the Irish Bank Resolution Corporation (IBRC). Additionally, profits were also made from interest on bonds obtained under the European Central Bank (ECB)’s quantitative easing (QE) initiatives, and revenues generated from charging commercial banks negative rates for storing surplus deposits with the central bank.
In 2023, the final bonds linked to IBRC were sold. Presently, the Central Bank is offering banks a 4% interest rate on their excess deposits, subsequent to a series of ECB rate increments over the previous two years in an effort to combat inflation.