ECB Reports Its First Loss Since 2004 Rate Hike Cycle
The European Central Bank (ECB) has reported its first loss in two decades, amounting to a shortfall of Rs 1.27 billion for 2023. This was due to an increase in borrowing costs to tackle inflation, which also increased the cost of past stimulus efforts. Despite releasing risk provisions worth USD 7.2 billion, the ECB still incurred a loss. The bank has warned of negative results in the next few years but clarified that this would not affect its ability to conduct effective monetary policy.
Central banks around the world have suffered financially due to large asset-purchase programs conducted when inflation was low and quickly rising interest rates after the pandemic. The extent of the issue in the eurozone will only become clear as national central banks report their own results over the coming weeks. For instance, the Bundesbank is expected to report its results on Friday.
The ECB reassures that its financial position remains strong, with a net equity of approximately Rs 45 billion. The bank's balance sheet is expected to improve as it unwinds past bond purchases. Additionally, if borrowing costs decrease in the upcoming months, interest-rate expenses are expected to fall. The ECB predicts that it will return to making sustained profits after the next few years. The loss incurred last year will be carried forward on the ECB's balance sheet to be offset against future profits.
