This is according to the central bank’s annual report published today. President-director Klaas Knot estimates that the losses will amount to a total of around 10 billion euros in the coming years.
Consequence of own policy
Ironically, the expected losses are a direct result of its own policy of raising interest rates. With this, the European Central Bank started aggressively in the middle of last year to curb inflation. From the start, DNB has been one of the proponents of taking major interest rate steps.
But there is a price to be paid for that. Until the central banks started raising interest rates, interest rates had been negative for years. To boost the economy, central banks bought up thousands of billions of government and corporate bonds, causing interest rates on them to become extremely low and often even negative.
Official interest rates also turned negative. As a result, borrowing money was free for banks, but they had to pay to deposit money at the central bank. That generated money for DNB.
Draw on reserves
The so-called deposit rate has now been raised from -0.5 percent to +3 percent. That costs tons of money, and there is no rising income in return. All those billions in government bonds that DNB has on its balance sheet will yield virtually nothing for years to come.
For the time being, we as taxpayers will not notice any of this. DNB has built up 11 billion in reserves that it can draw on for a while. But if interest rates rise further in the coming years than DNB currently expects, the losses could also increase further.
Top up
The state may have to make additional contributions at some point, Knot admits in an explanation of the figures. In principle, DNB would also be able to continue with negative equity, with a normal company you would say that it is technically bankrupt, but central banks do not have that problem.
However, according to Knot, that would be undesirable, because it is bad for confidence in the central bank. That could even make it more difficult for the Netherlands to borrow money on the capital market, and that is obviously not the intention.
Knot: no banking crisis
The publication of the annual report also comes at a time when the financial world is in turmoil. After the collapse of the Silicon Valley Bank in the US and a number of regional banks, the Swiss bank Credit Suisse ran into trouble. In fact, the two events had little to do with each other, but confidence in the banking sector had taken a hit, and news of mismanagement at Credit Suisse led to a bank run in no time.
Knot does not expect Dutch banks to be the next victims of the unrest. “I think that the banking problems in the US and in Switzerland were isolated,” he says in an interview with RTL Z. “I understand the natural tendency for unrest because everyone still remembers what happened in 2008 and 2009 happened. But frankly: the analogy is wrong,” says Knot.
At that time, Dutch banks actually had the same problems as the American banks that collapsed: they had invested in financial products that turned out to be worth much less. “That is not the case at the moment.”
For example, Silicon Valley Bank collapsed because it had not hedged the risk of an interest rate rise, resulting in a huge loss. In Europe, banks have to cover that risk, emphasizes Knot. Are all Dutch banks safe? “There is no reason to doubt that at the moment,” said the DNB CEO.
