Finance Minister Michael McGrath reported to the Cabinet on Tuesday that The Central Bank endured a loss of €132.1 million last year, marking an end to the period of major profits seen after the financial crisis. The shift into loss-making was predicted and as such, The Central Bank has taken several actions in the past few years as a response – including establishing a €3 billion provision for expected losses, added Mr. McGrath in his briefing to the Cabinet.
Spanning 15 years up until 2022, the Central Bank managed to generate profits of over €23.5 billion. These profits were inspired by the actions of central bankers in Dublin and Frankfurt as they reacted to both the vulnerability of the domestic banking system and the euro, and a ten-year period of sluggish inflation across the Eurozone.
During this period, approximately €18.5 billion was allocated to the Government. This allocation acted as a buffer after taxpayers had to contribute €64 billion to salvage the banking system. Additionally, it assisted consecutive governments in reducing budget deficits.
Initially, the profits were sparked by the interest accumulated on last-resort loans to banks in the midst of the financial crisis. These profits were also boosted by multi-billion euro proceeds from the sales of Government bonds back in 2013 intended to fund the resolution of the Irish Bank Resolution Corporation (IBRC). Other contributing factors included interest on bonds purchased under European Central Bank (ECB) quantitative easing (QE) initiatives, and earnings from charging commercial banks negative rates for excess deposits preserved with the central bank.
The Central Bank completed the sale of the last IBRC-related bonds in 2023. It’s now offering banks a 4% interest rate on their additional deposits, a move resulting from a succession of ECB interest rate increases over the past two years aimed at combating inflation.