Exchequer to get €1.7bn dividend from Central Bank

The exchequer will receive a dividend in excess of €1.7 billion from the Central Bank after a boost to profits from the the European Central Bank stimulus campaign and the sale of bonds held after the Anglo Irish Bank liquidation.

The size of the dividend will be set out in the Central Bank annual report for 2015, which will be given to Cabinet next week before being laid before the Oireachtas. The State usually receives about 80 per cent of the bank’s annual surplus.

The Dame Street institution reported €2.1 billion surplus on its operations in 2014, yielding a €1.7 billion gain for the exchequer. There was a bigger surplus in 2015, it is understood.

The Central Bank took the benefit last year of large capital gain as it stepped up the sale of bonds held after the 2013 deal to scrap the Anglo promissory note scheme. It also received interest income from bonds retained from that portfolio, as well separate income from the bank’s own investment portfolio.

In addition, the Central Bank also received a new stream of interest income from Irish bonds it holds on behalf of the ECB under the Frankfurt-based institution’s quantitative easing (QE) programme.

Bond purchases under the QE scheme started in March 2015. According to ECB data, holdings of Irish debt reached €9.97 billion by March 2016.

There is a circular element to much of the dividend payment as money for the exchequer from the Central Bank was previously paid out as interest by the State.

National debt

At a time when the annual cost of servicing the national debt is decreasing, the rise in Central Bank dividends will further improve the position of the public finances.

There was no comment from the bank last night on its 2015 surplus, and the Department of Finance also declined to comment.

However, Minister for Finance Michael Noonan previously indicated that the bank realised a capital gain of some €1.07 billion last year when it sold €2 billion in floating rate bonds held after the Anglo deal.

In replies to parliamentary questions in February from Fianna Fáil, Mr Noonan also said the bank received €669.5 million in interest income last year on the bonds remained in the portfolio.

The rate of bond sales in 2015 was in line with Central Bank’s policy of selling off the debt at a quicker rate than the minimum schedule agreed with the ECB.

The expectation in financial markets is that a further €2 billion will be sold this year, four times the €500 million per annum minimum set for the 2015-2018 period.

It is acknowledged that the future stream of interest payments on bonds sold by the Central Bank now goes from the National Treasury Management Agency to third parties instead of Dame Street.

Citing low borrowing costs on private markets, however, the bank has argued previously that any small short-term exchequer gain from a slower refinancing of the bonds could be more than offset by a higher refinancing cost in future.

The promissory note deal led to the liquidation of Anglo’s successor, Irish Bank Resolution Corporation.