The value of gold held by the Bank of Portugal (BdP) reached an all-time high of €21 billion in 2022, following a 6% increase, “an increase of €1,189 million compared to 2021”.
But this significant gain with the gigantic reserve that weighs 382.6 tons of precious metal and is an asset of the national central bank did not prevent a reversal in the dynamics of the profit (net income), which fell by 42% last year, the BdP revealed in the annual report of the board of directors for 2022 released yesterday (Wednesday 17 May).
Less profit means less dividends for the state and less tax to pay. And with a catch: According to Governor Mário Centeno, the era of very large and positive net results is over. For the year, the BdP should book losses that it will be able to cover with its abundant provisions. The state shareholder will, of course, pay zero dividends and taxes. And in principle it will be for many years to come.
The sudden rise in interest rates in the Eurozone means that the central bank has to pay more to commercial banks for the money they deposit on the BdP balance sheet to access the Eurozone monetary system. Here alone it lost almost 26 billion euros compared to 2021.
And then there is the effect of the devaluation of government bonds (the value falls when interest rates rise) that the BdP still has on its balance sheet. This new loss was also estimated at 26 billion euros in the course of last year, according to the Bank.
The Bank of Portugal still has an impressive amount of Portuguese government debt because it kept reinvesting these bonds, it didn’t sell them (the ones that came to maturity) on the secondary market.
At the end of 2022, the BdP held 55 billion in assets (the vast majority of government debt) under the APP program (launched in 2014 to try to definitively cure the Eurozone crisis).
Bought another €29 billion of government debt under the umbrella of PEPP, the ultra-cheap money program launched in early 2020 during the pandemic.
The two effects together are the main reason given by Mário Centeno’s attitude for the decline in results. In such a context, the strong appreciation of gold (1.2 billion euros) is like a drop of water.
The state earns much less
As mentioned, the dividends that the bank has now paid to the State for last year’s financial year have fallen to almost half and so has the associated tax. As of now, with interest rates rising in the Eurozone, the Bank of Portugal estimates that it will enter negative profit territory.
The central bank does not exist to make a profit, but when it incurs losses it must be protected with provisions to enable it to carry out its supervisory and monetary policy tasks normally.
Here’s what’s happening: Provisions rose sharply in 2022, now to almost four billion euros, the Bank says, a reserve that will more than cover any losses that may arise for years to come. Didn’t say how much.
According to the 2022 annual report, “the bank’s net income amounted to 297 million euros” (referring to the 2022 approval), a value comparable to the profit of 508 million euros announced in 2021.
This decrease in the result by more than 41% was reflected in the dividends paid to the shareholder State, which decreased from EUR 406 million in 2021 (due to the 2020 financial year) to EUR 238 million in 2022 (due to the 2021 financial year). years), or that is minus 41%.
The same happened with the tax due resulting from these results. It fell from 233 million to 133 million euros.
So, “taking into account the current income tax, 371 million euros was transferred to the state” (due to last year’s results), 42% less than a year ago, when it reached 639 million euros.
The end of an era of profit
Mário Centeno said that from now on “the results will not have the same sign as in 2022”. “The bank will enter a phase of negative results, the magnitude of which will depend on decisions still to be made,” he said.
It should not be forgotten that from 2010 to 2022, BdP paid out some EUR 4.4 billion in dividends, EUR 238 million of which related to the profit it achieved last year.
In these 13 reporting years, it also paid 2.3 billion in current taxes. He donated a total of 6.7 billion euros to the State.
This new phenomenon of profit interruption is not unique to the BdP. Other central banks in the Eurozone will start losing money (this is actually already happening with the European Central Bank itself or the Bundesbank, the German central bank, the largest in the Eurozone).
“It was not even a great credit to the Banco de Portugal that the previous results were what they were, nor is it a great credit now that the results are what they are,” said Centeno.
The increase in interest rates in the Eurozone has increased the interest paid by the Bank of Portugal to credit institutions (commercial banks) on the funds they place with the central bank in the context of monetary financing operations.
“In 2022, with the rise in interest rates, the risk of the balance sheet structure began to manifest itself, embodied in the fact that the effects of the monetary policy programs had a fixed and relatively low return and were financed by short-term liabilities with interest rates rising sharply” , explains the regulator.
A year ago it was the other way around. The BdP had “amount receivable in the same period, in the previous context of negative interest rates)”, the institution explains.
For example, the BdP says it will continue “strengthening its own resources and maintaining levels of financial autonomy consistent with the Bank’s mission to enable it to cover any losses”.
In 2022, the provision for risks and losses was “reinforced by EUR 235 million”, 6% more than in 2021. At the end of December, this buffer amounted to EUR 3,912 million, says the central bank.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
