On Friday, February 23, 2024, Deutsche Bundesbank President Joachim Nagel spoke at the central bank’s “Annual Report 2023” press conference in Frankfurt, Germany.
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As interest rates rise, the Bundesbank’s losses soar to tens of billions of dollars in 2023, requiring all reserves to be used to break even.
Bundesbank on Friday report Annual distributable profit was zero after setting aside 19.2 billion euros ($20.8 billion) in general risk provisions and 2.4 billion euros in reserves. The central bank said this brought its reserves to just under 700 million euros.
Net interest income turned negative for the first time in its 57-year history, decreasing by 17.9 billion euros annually to -13.9 billion euros.
“We expect the burdens to become quite large again this year. They are likely to exceed remaining reserves,” Bundesbank President Joachim Nagel told a news conference.
He said the central bank would report loss carryforwards that would be offset by future profits.
Nagel added: “The Bundesbank’s balance sheet is in good shape. The Bundesbank can shoulder the financial burden because its assets far exceed its obligations.”
The Bundesbank and many of its peers hold a large number of securities exposed to interest rate risk, which are severely affected by the European Central Bank’s unprecedented interest rate hikes.
On Thursday, the European Central Bank posted its first annual loss since 2004, reaching 1.3 billion euros, even as it also used 6.6 billion euros in risk reserves. It follows nearly a decade of financial stimulus by euro zone central banks, printing money and buying massive amounts of government bonds to boost economic growth, measures that now require huge spending.
Dutch central bank on friday Reported loss of 3.5 billion euros 2023.
The central bank stressed that annual gains and losses would not affect its ability to formulate monetary policy and control price stability. However, they are seen as a potential threat to credibility, particularly if bailouts become a risk, and they affect central bank spending from other sources.
For its part, the Bundesbank has not paid into the federal budget for several years and said on Friday that this was unlikely to happen for “much longer”. At the same time, the European Central Bank will not distribute profits in 2023 to the central banks of the euro area.
Nagel further said on Friday that raising interest rates is the right move to curb high inflation, and that the ECB’s Governing Council will only consider cutting interest rates if data confirm that inflation is back to target levels.
Referring to the troubled German economy, he said: “Our experts expect the German economy to gradually regain its footing and embark on a growth path this year. First, foreign sales markets are expected to provide impetus. Second, private consumption should Benefiting from increased household purchasing power.”
