Last year, the Bundesbank’s annual accounts were shaped by the increase in the key interest rates. For the 2023 financial year, the Bundesbank reports a balanced financial result because it was able to use its financial buffers to cushion burdens in the double-digit billions. To this end, the Bundesbank released its risk provisions in full and reduced its reserves. As in previous years, no profit was transferred to the Federal budget.

We expect the burdens to be considerable again for the current year. They are likely to exceed the remaining reserves, said Bundesbank President Joachim Nagel at the press conference presenting the Bundesbank’s annual accounts. In this case, the Bundesbank will report a loss carryforward and then offset it through future profits. We do not expect to be able to distribute any profit for a longer period of time, the Bundesbank President continued. 

The Bundesbank’s balance sheet is sound

The Bundesbank’s balance sheet is sound. The Bundesbank can bear the financial burdens, as its assets are significantly in excess of its obligations,” Bundesbank President Nagel explained. The revaluation reserves, for instance, amount to almost €200 billion. “The Bundesbank will continue to firmly advocate for price stability, Dr Nagel said.

Price stability promotes social cohesion

Last year’s key monetary policy task was to curb the high inflation. The year 2023 began with inflation rates over 8% in the euro area. By increasing interest rates, the Bundesbank had embarked on the right path and already made good progress, the Bundesbank President concluded. We have come much closer to our 2% target. But we have not yet reached it, he admonished. First, the ECB Governing Council would need to be convinced, based on the data, that the inflation target has actually been achieved. Only then could a cut in interest rates be contemplated. In that context, the Bundesbank President pointed out the importance of wage developments coupled with firms’ profit margins.

Dr Nagel stressed that by achieving price stability, we make life easier for many people. It relieves them of one major worry, especially those forced to live on little money. Price stability therefore also promotes social cohesion.

Bundesbank President Nagel noted that 2023 had been a challenging year for the German economy, but that the outlook for 2024 promised a little more light than shadow again. “Our experts expect the German economy to gradually regain its footing during the course of the year and embark onto a growth path,” he said. “First, foreign sales markets are expected to provide tailwinds. Second, private consumption should benefit from an improvement in households’ purchasing power.”

Profitability significantly less favourable

The considerable financial burdens on the Bundesbank’s balance sheet are mainly due to the extensive securities holdings for monetary policy purposes. They create interest rate risk. Between July 2022 and September 2023, the Governing Council of the ECB raised its key interest rates by a total of 450 basis points. This was necessary to curb inflation. The most rapid increase in the deposit facility rate in the history of the euro area meant that interest rate risk had a particular impact in 2023: on the income side, the remuneration of monetary policy securities increased only marginally, whilst on the expenditure side credit institutions’ deposits resulted in a significantly increased interest expense. 

Interest rate risk materialised in 2023 and impaired profitability. However, thanks to our good provisions, we are reporting a distributable profit of zero, explained Sabine Mauderer, the Bundesbank Executive Board member responsible for accounting and controlling. Net interest income, the largest component of the profit and loss account, fell by €17.9 billion on the year and, at -€13.9 billion, turned negative for the first time ever. The result for 2023 was a loss of almost €21.6 billion. The provisions for general risks of €19.2 billion previously were released in full to offset the accumulated losses. The remaining loss for the year of around €2.4 billion was offset by making withdrawals in the same amount from the reserves, which means we are reporting a distributable profit of zero, Ms Mauderer said. There are still reserves of just under €0.7 billion.

Decline in total assets

Monetary and foreign exchange policy measures lowered the Bundesbank’s total assets by around €390 billion, or 13%, to €2,516 billion. With regard to the assets side of the balance sheet, Ms Mauderer referred to falling TARGET claims, declining lending related to monetary policy operations and the unwinding of monetary policy asset purchase programmes. Accordingly, on the liabilities side, euro deposits of domestic and foreign depositors fell and liabilities related to monetary policy operations were also down.