Dutch central bank sees years of losses, negative equity -President Knot

(.) By Toby Sterling and Bart H. Meijer AMSTERDAM, March 23 (Reuters) - The Dutch central bank (DNB) expects to post losses through 2028, wiping out its equity reserves, President Klaas Knot said on Thursday, an effect of the rapid rise in interest rates after it expanded its balance sheet by buying government bonds. Unlike normal banks, central banks can absorb losses as they pursue monetary policy and can operate with negative equity. However, Knot said that is "undesirable" and could ultimately lead the DNB to seek a politically sensitive request for a recapitalisation funded by Dutch taxpayers. "What we're going to do about the situation, we still have to discuss with the ministry of Finance, but in principle we could operate for a while with negative equity," Knot told reporters. "We don't have depositors that could start a run on us." Knot is also a member of the European Central Bank's governing council and in a separate interview with Reuters published on Thursday he said it is not certain how long current market jitters will last and he expects the ECB will continue increasing interest rates to tame inflation. At the end of 2022 the DNB had 11.3 billion euros in equity and provisions, but it forecasts those will be wiped out in the coming years, with combined losses of more than 6 billion euros in 2023 and 2024.

Losses will then gradually ease as the more than 200 billion euros of European government bonds the DNB purchased at low or negative rates as part of ECB policy mature. Knot said an essential difference between the DNB and Silicon Valley Bank, which failed this month after being forced to realise losses on government bonds, was that the DNB had expected and prepared for interest rates to rise. "I have to say (the bank's failure) caused some amazement on our side," he said. "Interest rate risk is a pretty elementary banking risk."
(Reporting by Toby Sterling; Editing by Kirsten Donovan)