In 2022, the Bank of Portugal increased its provision for general risks by €235 million, saying that this was needed to "cover potential future risks."
The governor of the Bank of Portugal, Mário Centeno, said on Wednesday that the central bank is now entering a phase of financial losses, due to the increase in interest rates that is impacting the profitability of its operations.
In 2023 the result “will not be of the same kind as in 2022,” he said at a news conference to present the annual report of the bank’s board of directors. “The bank is entering a phase of negative results, the size of which depends on decisions that are being taken.”
He stressed, however, that this fact will not at all affect the institution’s ability to act.
The Bank of Portugal on Wednesday disclosed that it had a 2022 profit of €297 million, 42% less than in 2021. Since 2018, when it had record profits of €806 million, its results have been gradually reducing, with dividends to be paid to the state relating to 2022 just €238 million, down 41%.
Also in 2022, the Bank of Portugal increased its provision for general risks by €235 million, saying that this was needed to “cover potential future risks.”
In all, to deal with potential losses, the Bank of Portugal has made €3.9 billion in provisions for general risks.
At stake is the fact that, faced with rising interest rates, the bank will suffer the devaluation of the loan securities it holds on its balance sheet, while it is paying more to commercial banks for the funds that they deposit with it.
In the future, it is likely that the revenues that the Bank of Portugal generates will even be insufficient to offset these charges, leading to the cycle of negative results referred to by Centeno.
“It was not to the credit of the Bank of Portugal that the previous results were what they were, nor is it to the credit of the Bank of Portugal that the results are what they are,” he said, adding that the risk management carried out by the central bank “follows common standards of the Eurosystem [of euro-zone central banks] and that places the Bank of Portugal in a comfortable position” within it.
Germany’s central bank, the Bundesbank, last year suffered its first loss in 40 years, but these were covered by provisions.
The central bank of the Netherlands, meanwhile, broke even – thanks to its having covered losses with provisions – and its governor has said that it will only return to profits in 2028.
The National Bank of Belgium also made a loss of €580 million last year.