Central Bank reports 57% drop in profit as higher interest rates hit balance sheet

Regulator links smaller surplus to greater provisioning against higher interest rates and a fall in interest income

The Central Bank has reported a sharp 57 per cent fall in profit for last year as it set aside greater financial reserves to deal with the potential fallout from higher interest rates and as a result of a decline in “net interest income”.

The regulator’s latest annual report shows profit for 2022 fell to €575 million from €1.3 billion the previous year, a year-on-year slide of €746.5 million.

The bank, led by governor Gabriel Makhlouf, said it would pay a surplus of €500 million to the exchequer. The Central Bank is obliged to transfer 80 per cent of its earnings to the exchequer.

The smaller surplus was blamed on increased provisioning, “reflecting higher risks arising from the interest rate mismatch on the balance sheet”, it said. The accounts show “transfer to provisions” rose from €500 million in 2021 to just under €1.2 billion last year.


The figures also point to a fall-off in net interest income – from €804 million in 2021 to €666 million last year. This was “due to increases in the European Central Bank interest rates that remunerate credit institutions”, the Central Bank said.

Before last year, the Central Bank had been generating income from negative deposit rates, which forced retail banks to pay to keep surplus money on deposit with the Central Bank.

The ECB has increased interest rates at an unprecedented rate since last July to rein in inflation. Frankfurt’s main deposit rate has been lifted from -0.5 per cent to 3.25 per cent.

In its report, the Central Bank said it was responsible for regulating 3,470 financial firms, excluding funds, in the Republic last year.

“We faced various economic headwinds, including Russia’s unjustified war against Ukraine and its people, the energy crisis, rising inflation, the state of labour markets and supply chains, and the impact of China’s approach to managing the pandemic,” Mr Makhlouf said.

“We were hit with a number of inflationary shocks over the course of the year, primarily driven by pandemic-related supply chain disruptions as well as strong demand once restrictions were lifted, along with sharp rises in energy and food prices due to Russia’s aggression,” he said.

Mr Makhlouf included among the bank’s key achievements last year the completion of a review of the mortgage measures, the launch of a review of the consumer protection code and the conclusion of “the tracker-related firm investigations”.

The Central Bank fined Bank of Ireland a record €100.5 million in September last year in connection with the tracker mortgage scandal, which saw thousands of Irish-based customers wrongly removed from their tracker mortgages and moved on to a higher interest rate.

It was largest in a series of fines imposed on big lenders here over the issue. AIB had been fined €96.7 million in June.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times