Mario Centeno attributes Banco de Portugal’s results to monetary policy decisions

Bank of Portugal (BPO) Governor Mario Centeno noted this Thursday that the central bank’s performance in recent years has been “shaped by monetary policy decisions”, reflecting a balance sheet contraction in 2023.

“Last year’s results (…) are based on a reduction in the balance sheet. The balance sheet is reduced by 13 billion euros, which is mainly explained by the financing of credit institutions and the reduction of monetary policy securities,” said Mario Centeno in the presentation of the report of the Board of Directors of the central bank.

In a presentation held at the Money Museum in Lisbon, the BDP chairman noted that the cost of liabilities, which are “closely linked to monetary policy benchmark rates,” had been low for a long time, but had increased significantly compared to part of 2022.

Similarly, BdP’s results were also impacted by asset compensation, which, although increased, did not match the value of liabilities.

In 2023, the BDP presented an operating loss of 1.054 million euros, which the head of the institution described as “historically high.”

Despite this, this value was zero on a net basis as the central bank resorted to moving reserves.

“The reserves that the bank has represent a very significant safety net, built over time to withstand exactly this moment that we find ourselves in today,” explained Mario Centeno.

With a turnover of €1.054 million, the general risk reserve fell to €2.858 million at the end of 2023, which does not include “other reserves and capital held by the bank with a value close to €2.000 million.”

Thus, Mario Centeno argued that the provisions created are sufficient to respond to the forecasts that may be made in light of the evolution of the key interest rates of the European Central Bank (ECB).

“We hope that reserves will be sufficient to withstand this monetary policy cycle,” he said.

One of the points highlighted by Mario Centeno was the costs of the Banco de Portugal buildings, which require increased costs, including security. In this sense, he noted that the central bank is “working on the logic of cutting costs” and centralizing its facilities, which are scattered throughout Lisbon. However, he sent more details about 2025.

According to the board’s report for 2023, the volume of gold held by the bank remained at 382.6 tons, but increased by 9.3% to 19.940 million euros.

Administrator Helder Rosalino, who was present at the presentation, noted that gold, considered a reserve asset, acts as a “buffer” and that at the end of April “it rose in price even more.”

“The current value is 26 billion euros. Therefore, at the moment we have a potential rise in the price of gold, which means that there is a revaluation reserve, but, naturally, the bank does not intend to sell gold,” he explained.