Bond buying makes Central Bank largest financial institution in State

The scale of the Central Bank’s pandemic-related bond-buying last year has made it – on a technical basis – the largest financial institution in the State.

The Central Bank’s annual report shows its total balance sheet assets rose by €25.1 billion, or 22 per cent, to €141.5 billion in 2020.

This was driven in the main by the increased accumulation of Irish Government debt as part of the European Central Bank's (ECB) massive €1.3 trillion pandemic emergency relief programme.

The Central Bank's holdings for 2020 eclipsed the assets held by UK bank Barclays and Bank of Ireland, traditionally the two largest financial institutions in the Republic.

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The regulator is the largest holder of government bonds, accounting for about 26 per cent of outstanding debt.

Ireland’s national debt is set to rise to about €239 billion this year as a result of spending on financial supports related to the pandemic, giving it one of the largest national debts – on a per capita basis – in the euro zone.

It is estimated that the ECB’s increased intervention in the sovereign bond market reduced the cost of borrowing for the Government by 80 basis points on benchmark 10-year bonds, implying a direct interest saving of about €192 million a year.

The Central Bank’s report showed its profit for 2020 fell by 67 per cent, which had a knock on impact on the surplus it paid to the exchequer. This fell to €665.7 million, the lowest since the onset of the financial crisis.

Enforcement

In its report, the Central Bank said it concluded 139 enforcement actions last year, resulting in monetary penalties of over €123 million and 16 disqualifications of individuals.

As part of this it imposed a fine "at the highest end of its sanctioning powers" on KBC Bank Ireland amounting to just over €18.3 million for the lender's role in the tracker mortgage scandal.

“The fine reflected the gravity of the impact of KBC’s failings on its customers, which included significant overcharging and the loss of 66 properties, which in some instances were avoidable,” it said.

The high-profile €38 million enforcement against Ulster Bank for the tracker mortgage scandal and the Central Bank's €4.1 million reprimand of Davy Stockbroker for its involvement in a 2014 bond transaction will be included in next year's report.

The regulator said it received 202 protected disclosures about financial entities operating in Ireland, marginally up on the previous year. It did not provide information on whether any of these disclosures led to formal investigations.