Dutch central bank suffers €3.5 billion loss due to higher interest rates

De Nederlandsche Bank (DNB) suffered a loss of almost 3.5 billion euros last year. Like other central banks in Europe, the DNB suffered under the increased interest rates. It had to spend considerably more on interest to banks that deposit money with it, while its interest income from bonds it bought in recent years hardly increased.

The lion’s share of last year’s loss, over 2.3 billion euros, is absorbed by the provision DNB previously made for financial risks. The remaining 1.1 billion euros will be charged to capital and reserves, the DNB said. The bank’s reserves are eroding pretty quickly, dropping from 11 billion euros in 2021 to over 7 billion euros now. The bank sees no cause for alarm. “We expect our buffers to be large enough for future losses.

The European Central Bank implemented multiple interest rate hikes last year to reduce inflation. The DNB had expected the loss - president Klaas Knot had already warned the Ministry of Finance that the interest rate hikes would cause significant losses for the central bank in the coming years. The Dutch Central Bank only expects to record black figures again from 2029 onward. “These figures are in line with previous expectations,” the DNB said on Friday.

Once the bank returns to profitability, it will spend a few years rebuilding its buffers before distributing dividends to its shareholder - the Dutch State. Exactly when this will happen is very unclear. “This is because our cumulative losses are highly dependent on interest rate developments, and they could still exceed our capital and reserves,” though the bank does not expect this to happen.

The DNB acknowledged that its results were “relatively poor.” That is partly due to “quantitive easing” during the COVID-19 period. To mitigate the impact of the coronavirus pandemic, the DNB and other central banks bought sovereign bonds from their own countries on a large scale to provide liquidity and depress interest rates.

“It should be noted that our losses are counterbalanced by low financing costs for the Dutch State,” DNB said. Thanks to this quantitive easing, the Dutch State has saved 28 billion euros on interest charges on public debt. “This benefit exceeds the losses we expect to incur in 2023 and the coming years.”