Central Bank delivers €1.7bn State windfall

The Central Bank is to swell the coffers of the State by €1.7bn after achieving an unprecedented level of profitability last year.

Profits soared to €2.1bn on the back of several factors stemming from the financial crisis as well as the manner in which the bank has conducted its business and the improved economic backdrop against which the results were achieved, according to its annual report published yesterday.

More than 80% of that profit will be paid to the exchequer in what constitutes a substantial windfall, in excess of expected levels.

The additional profits paid as a dividend to the Department of Finance give further scope for Finance Minister Michael Noonan to tinker with plans for the budget in October.

The Central Bank’s overall profits more than doubled from 2013, when it made €1.51bn and paid €1.21bn to the State.

In its report, the Central Bank also refused to bow to ECB pressure to quicken the sell-off of bonds which have caused serious financing concern in Europe.

As part of a deal struck with the ECB in 2013, the Central Bank saw the cost of bailing out the defunct Anglo Irish Bank stretched over a much longer period, by swapping €25bn of long-term bonds for promissory notes. It agreed to dripfeed new bonds worth €25bn into the market over time to allay fears about the deal.

Earlier this year, the ECB pressed in its annual report for that process to be be fast-tracked. It said that “a more ambitious sales schedule… would further mitigate the persisting serious monetary financing concerns”.

The Central Bank yesterday said it would continue to sell the bonds at the current pace. “The policy in relation to disposals from this portfolio remains unchanged, i.e, they will be sold as soon as possible, provided conditions of financial stability permit,” the bank said.

The strong profits generated by the Central Bank were largely achieved from the sale of these bonds over the course of the year as well as interest income the bank earned.

Central Bank governor Patrick Honohan — who yesterday announced he is to step down from his role before the end of the year — said the bank took key steps throughout the year to reduce the likelihood of a credit-fuelled house price bubble emerging as the economy picked up.

He pointed to new restrictions on mortgage lending which were introduced at the beginning of the year.

The bank also pointed towards the progress it says is being made in relation to the mortgage arrears crisis.

“The bank continued to engage directly with lenders and take action regarding the elevated levels of mortgage arrears, as part of its overall approach to resolving distressed debt,” Mr Honohan said.

“After a slow start, the capacity and approach of the banks for dealing with distressed borrowers has materially improved over the past few years, with a significant shift from relying on short-term forbearance, to longer-term sustainable solutions. Notwithstanding the progress, significant bank specific areas for improvement remain. However, progress is now well established.”

Steps were also taken to review and consider added protections for SMEs seeking credit, including the publication of a consultation paper and draft regulations to replace the existing SME code.


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