The Central Bank’s 2023 Annual Report & Performance Statement

30 May 2024 Blog

We published our  Annual Report and Annual Performance Statement for 2023 today. It’s an important moment each year when we set out how we have delivered on our mandate for the people of Ireland.

For the avid reader, the Annual Report includes familiar sections describing the Central Bank’s work and financial results for last year (more on the latter below), as well as our priorities for the current year.  There are two new sections, one describing the final disposal of the Central Bank’s portfolio of Floating Rate Notes (box 1, page 18).  And the second (at page 48) is a review of specific initiatives undertaken over the course of last year and how they are consistent with the orderly and proper functioning of financial markets (as the Central Bank is required to do when performing its functions and exercising its powers).

In terms of our financial results, our annual report shows that, like a number of other central banks across the world, we made a loss in 2023 (of €132.1m).  This is as a result of the actions we have taken as part of the Eurosystem to achieve our price stability mandate. The possibility that we would – at some point – make losses is something we have been expecting and preparing for over a number of years (which is why the loss is covered by reserves set aside for precisely that purpose).  

I wrote about this in a a blog last October and I want to use the opportunity of today’s blog to explain this in more detail.  It is important – from an accountability and transparency perspective – to be clear about the factors driving our financial position (and apologies for repeating some of the content last October’s blog).

Financial results and the impact of monetary policy

Let me start by emphasising an important principle: the Central Bank’s role is not to make profits.  Our mission is to serve the public interest by maintaining monetary and financial stability, while ensuring that the financial system operates in the best interests of consumers and the wider economy.  Of course, through our operations, we make income.  The way we use that income is to cover our operating expenses and – where needed – to invest prudently in building our long-term financial and operational resilience.  Any surplus income is then transferred to the Exchequer.

The Central Bank’s income comes from a range of sources, including interest income from monetary policy operations, levy income and income from our investment assets. We pay interest on the deposits that banks or the government have with us and, of course, we incur operational expenses in running the Central Bank.  The balance between these reflects our net income position.

In practice, though, our balance sheet – and therefore our net income – is dominated by our monetary policy functions. The Central Bank’s total assets were €183.9bn at 31 December 2023.  More than €158.6bn or 86.2% of this total related to monetary policy functions, with €60bn or 32.6% of all assets being holdings of securities that we have bought over the past decade as part of our actions to achieve price stability.  So the size of our balance sheet – and, in turn, our headline profitability – is very much driven by our monetary policy function to achieve price stability.

More specifically, in the years leading up to the pandemic, euro area inflation was persistently below the 2% target.  As a result of the global financial crisis, key interest rates came close to their effective lower bound. We (as part of the Eurosystem) therefore turned to other measures to address the risk that inflation could be too low for too long and asset purchases were one of the tools we used to achieve this (something which accelerated as economic activity collapsed at the onset of the pandemic). This resulted in a significant expansion of our balance sheet and growing holdings of fixed income – mainly government – securities. These were funded through an expansion of banks’ deposits with us.

Following the shocks stemming from the pandemic and Russia’s invasion of Ukraine, the era of below-target inflation came to an abrupt halt, with inflation in the euro area reaching its highest level in decades. In response, our monetary policy stance adjusted rapidly to ensure that inflation returned to its 2% target.  In addition to rising interest rates, the Eurosystem has been reducing its holdings of monetary policy securities, by not re-investing some of the maturing securities.  But most of our holdings include longer-dated sovereign bonds, so the reduction of our balance sheet is only gradual.  And most of these bonds were purchased at low yields.  These low-yielding securities (in our case, they have an average weighted yield of 0.62 per cent) contrast with the fact that we now pay interest at the ECB’s policy rate (of 4 per cent) on deposits that banks hold with us.  In other words, we have an interest rate mismatch where the interest we pay on monetary policy liabilities is increasing more rapidly relative to the interest that we receive on our bond holdings.  

So as we increased policy rates to tackle high inflation (450 basis points since July 2022), the amount of interest paid on our liabilities has increased compared to the interest we receive on the bonds that we had previously purchased for monetary policy purposes.  Therefore, and like other central banks in the Eurosystem, we incurred a loss in 2023 and have used our reserves to help address this. 

As I explained last October, this is not a surprise.  We have been preparing for a number of years for the possibility that actions required to achieve price stability could result in losses for the central banks in the Eurosystem and for the Central Bank of Ireland in particular.  In recent years, we have used our profits to build up substantial financial buffers in order to mitigate the increased financial risks facing the balance sheet. 

We have strengthened our overall financial buffers each year since 2008, increasing our General Reserve from €1.2bn in 2008 to €5.9bn in 2022 through setting aside the maximum 20 per cent of profits allowable under legislation.  We also introduced a General Risk Provision policy in 2016 to allow us to provide for additional financial risks (in particular interest rate mismatch risk which has given rise to the losses in 2023).  These combined buffers – totalling close to €8.7bn – have put us in a good position to absorb the expected losses over the coming years.

Other factors driving changes in our net income position

The losses due to the interest rate mismatch on our balance sheet (as a result of pursuing our price stability objective) have been partly offset by other factors, including the income from our investment assets and the levy paid by firms that we supervise.  Of course, these other factors have not been sufficient to offset the monetary policy-related losses. This is to be expected, given the fact that our balance sheet is dominated by monetary policy assets.

When we consider the underlying financial performance of the Central Bank, we look at measures that exclude the effects of the holdings of monetary policy assets. For example, the return from our investment assets and the levy were sufficient to cover our operating expenses in 2023. Monetary policy-related losses reflect the use of our balance sheet as a policy tool to achieve price stability (for which we have built substantial buffers), rather than our underlying financial performance. 

In part, this is because the Central Bank has been focused on controlling its cost base in recent years.  Indeed, we have maintained a relatively stable cost base in real terms over the last five years, despite a rapid growth in certain segments of the financial sector which we supervise.  For example, the total financial assets held by financial corporations in Ireland have doubled to some €7tn in the last decade and we now regulate more than 12,000 entities, including many increasingly complex firms. In that context, we continue to take actions to ensure our strategic investments in our organisation contribute to containing our core operating costs.

Our 2023 accounts also include an impairment to the value of our premises, given the ongoing adjustment in the commercial real estate market. The Central Bank moved to its current site on North Wall Quay in 2017, which we acquired in 2012. In 2019, we purchased an adjoining site in Mayor Street, completing the consolidation of the Central Bank’s central Dublin property assets onto a single Dockland Campus and providing a more effective environment for the Central Bank’s people to collaborate and deliver on our mandate. The properties represent a long-term investment for the Central Bank for many decades ahead (we were in our last premises in Dame Street for 38 years).

Our North Wall Quay building continues to be valued at €156.2m, which is substantially in excess of the purchase price of €78.6m. The accounting policy dictates that we do not record the positive increase above cost in that valuation on our accounts.  By contrast, where there are downward valuation pressures, these need to be recorded in our accounts as an impairment. This is the case with our Mayor Street building. Although there is substantial uncertainty in reaching a judgement on valuations in the current environment, we have taken a prudent approach and reduced the estimated market value of our Mayor Street building, which has resulted in an impairment charge of nearly €157m (30.7% of total expenses). 


The Annual Report contains many highlights from 2023 and is worth reading.  It is of course a snapshot in time as we continue to manage the rapidly changing financial services ecosystem in Ireland.  Our strategy continues to be aimed at enabling our organisation to be more agile, resilient, diverse and intelligence-led, better anticipating (and responding to) the profound changes underway within the economy.  We want to strengthen public trust and understanding of the Central Bank’s role and purpose and to promote confidence in the financial system.  Our latest Annual Report sets out what we achieved last year.

Gabriel Makhlouf