In what should be the last year before entering what is expected to be a long streak of years with losses, Banco de Portugal returned to record profits in 2022, but already with a sharp decline compared to the previous year.
According to the Central Bank’s report on activity and accounts for the year 2022 presented on Wednesday, the net result of the institution last year, confirming expectations, amounted to 297 million euros. It is an amount that allows the entity led by Mario Centeno to hand over another 238 million euros to the state, in the form of profits, in line with what the government expected in the state budget.
However, it is also a result that represents a significant decrease in profits (and dividends) compared to last year, in calculations that already reveal some trends that the Portuguese central bank should lead in the coming years, similar to what is happening in the rest of Europe, it is starting to incur losses .
In fact, compared to 2021, the profit of 297 million euros recorded in 2022 was 211 million euros less. The report shows that the reasons lie mainly in the reduction of the interest margin by 95 million euros and in the constitution of general risk provisions by 235 million euros, something that has not happened for several years.
The decline in interest margins, from 677 million euros in 2021 to 582 million in 2022, although still relatively moderate this year, will be more pronounced in the coming years, pushing the central bank to losses, which will have to be compensated by accumulated Resource allocations in the meantime so that the accounts report a net result of zero.
This drop in margins is the result of the shift, which began in July last year, in the monetary policy of the European Central Bank (ECB). The sharp rise in interest rates immediately means that the Bank of Portugal (as with other countries’ central banks) now has to pay more interest on deposits and other forms of financing when, at the same time, the yield on government bonds it has bought over the past few years To comply with the European Central Bank’s expansionary policy did not rise. Thus, it moves from very high profits such as those recorded between 2015 and 2022, to expected losses that will occur in 2023 and in the following years.
Enter negative results.
Mario Centeno, at the press conference to present the results, confirmed this scenario, making sure that the provisions accumulated for the time being by the Bank would be sufficient to offset any losses that might be incurred. “This change of circumstances was expected, and that is why the provisions were made. We expect that these provisions will be sufficient for the expected size of this operation,” said the Governor of the Bank of Portugal.
Without making any predictions for the 2023 results, Mario Centeno acknowledged, however, that “the number will not bear the same mark”. [que o de 2022]“That is, the central bank will record losses.” He said, “The bank will naturally enter into negative results, but that depends on decisions that are still being taken,” in justification for not providing an estimate at the present time of what the results will be.
As has happened with the European Central Bank and other national central banks in the Eurozone already this year, what Banco de Portugal will do in 2023 and the following years will be, in the face of losses, use provisions so that the final net results are void. After strengthening provisions for general risks this year by an additional €235 million, the cumulative amount for this purpose amounted to €3,912 million, an amount the Bank considered sufficient to offset the years of negative results that followed.
The ruler also stressed that this new reality does not constitute “any disturbance to the Bank of Portugal or to the Portuguese economy, nor does it affect the ability of the euro system to put monetary policy into practice.”
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