After implementing several exceptional measures in 2023 as a formula to combat inflation and the structural changes that these have entailed in its balance sheet, the European Central Bank (ECB) will announce next Wednesday that it did not make profits in 2023.
In addition to the European institution, other central banks, such as the Spanish one, found themselves in this situation. During this period of time, the ECB would have been forced to draw on provisions to cover temporary losses caused by the change of course in monetary policy that seeks to maintain price stability.
The main task of central banks, however, is not to make profits and maximize their results, but to establish a monetary policy that is capable of keeping inflation at bay, so their profit and loss account does not matter as much as that of the companies.
Negative results period
Central banks cannot be insolvent, since they issue money with which to continue covering their operating expenses and meet their present and future payment obligations, as the Bank of Spain itself recently explained in an article. There are numerous examples of central banks that have continued to fulfill their mandates even in situations of losses. In these cases, it is essential that these institutions have a robust statutory framework that protects their autonomy.
In the case of the Bank of Spain, the governor himself, Pablo Hernández de Cos, has already advanced since November 2022 that the change in monetary policy would impact the entity’s income statement, which would not be able to continue contributing income to public accounts. . in the next years. During his intervention in the Senate Budget Committee, the governor explained that the Bank of Spain would enter a period in which the results would be negative -before the application of risk provisions-.
As the governor recalled then, the Bank of Spain had a volume of provisions of 31,380 million, which would serve to cover these negative impacts, balancing the income statement and avoiding the presentation of a negative net profit.
In any case, over the next few years, the organization would not be able to continue contributing income to public accounts as it had been doing in recent years. The Bank of Spain obtained a net profit of 2,402.60 million euros in 2022, 34.6% more than a year before, although net income from commissions decreased by 4%, to 4,190.30 million.
The provisions and excess provisions for coverage of financial risks amounted to 1,606.81 million euros, compared to 3,239.30 million in 2021, which represents a drop of 50.4%. The organization deposited 793.43 million euros into the Public Treasury at the beginning of December 2022, 132.18 million less than in the previous year.
Between capital and reserves, the Bank of Spain continued to hold 1,882.45 million euros at the end of 2022, the same amount as a year before (1,000 million in capital and 882.45 in reserves).
