The Central Bank had a profitable year in 2002, earning €829 million from its operations and making a 5.47 per cent return on its €8.4 billion investment portfolio at a time when most investment managers sustained heavy losses.

Total bank profits for the year amounted to €829 million, an increase of 266 million to 2001. Of this increase, 240 million arose from the write-off of unredeemed Irish pound banknotes. Bank profits have been high since 2000 due to exchange rate gains, which amounted to €311 million in 2002.

While the bank normally submits a dividend to the Exchequer equal to the profit it made the previous year, the Minister for Finance, Mr McCreevy, took the €240 million revenue from the unredeemed banknotes into his 2002 budget figures. This means that the bank is due to pay some €580 million to the Exchequer this year, in line with the 2003 Budget estimate of €575 million.

The bank is also conducting a review of the appropriate level of reserves, in the light of European Central Bank guidelines. Its total balance sheet assets stand at more than €20 billion and Mr McCreevy is likely to be awaiting the outcome of the review to see whether there will be any surplus income that could be availed of by the Exchequer.

However, Central Bank governor Mr John Hurley said yesterday that the Bank reserves were below the average of our euro-zone partners, which may be an indication to Mr McCreevy that there will be little spare cash.

Meanwhile, the investment gains of 5.47 per cent - not including exchange rates gains - reflected the investment of a large percentage of the portfolio in bond markets, which have gained strongly over the past year.

The gains in the Bank's portfolio stand in contrast to losses of €740 million on the €8.1 billion National Pension Reserve Fund between its establishment in mid-2001 and the end of last year, and losses of up to 19 per cent by many managed funds last year. However, recent gains in equity markets have reduced the pension fund losses to €300 million.