ECB reports €171 million profit

The European Central Bank (ECB) on Thursday reported a profit of €171 million ($238 million) for 2010, a sharp decline compared with the €2.3 billion profit in 2009, after its governing council transferred €1.16 billion into a risk provision fund.

The ECB's Annual Accounts showed net interest income for the year ending December 31, 2010 amounted to €1.42 billion. However, the transfer of €1.16 billion worth of funds by the governing council reduced the ECB's profits to €171 million, after administrative costs, and increased the size of its risk provision fund to €5.2 billion.

The purpose of the risk provision is to cover foreign exchange rate, interest rate, credit and gold price risks and to offset future realised and unrealised losses, in particular valuation losses, not covered by the revaluation accounts. Following the establishment of the covered bond purchase programme in 2009, the governing council decided to extend the scope of the risk provision to also cover credit risk. The size of the risk provision is open to review annually.

With the exception of the funds deposited in the provision fund, the ECB reported a modest decline in net interest income of 8% in 2010, from €1.54 billion in 2009. Net interest income on foreign reserve assets declined 48% to €366 million in 2010. This was partially offset by a decline in the ECB's payment to national central banks for claims on foreign reserve assets held in Frankfurt from a fee of €443 million in 2009 to €346 million in 2010.

Interest income earned on the ECB's share of euro banknotes in circulation also declined 17% from €787 million in 2009 to €654 million last year. However, net interest income arising from securities purchased under the covered bond purchase programme rose to €140 million, from €18 million in 2009. Meanwhile, net income arising from securities purchased under the ECB's securities markets programme, launched last May, amounted to €438 million.

Realised gains arising from financial operations also decreased from €1.1 billion from 2009 to €474 million, as no gold sales took place in 2010. Writedowns worth €195 million were incurred in 2010 compared with just €38 million in 2009, mainly as a result of unrealised losses on marketable securities other than those held for monetary policy purposes. The ECB's administrative expenses for staff, rental of premises, professional fees and other goods and services amounted to €415 million in 2010, including depreciation charges on fixed assets amounting to €14 million, compared with €401 million in 2009.