The Bank of France Friday joined the ranks of euro-zone central banks that have raised their provisions to guard against possible losses on loans made by the Eurosystem.
The Bank nearly halved the dividend it pays to the French state to EUR811 million ($1.06 billion), after diverting EUR2.06 billion of its operating profit to a fund for general reserves, following the example set by the European Central Bank in February.
"It is completely legitimate for the Bank of France and other central banks in the euro system are vigilant on the change in their risk profile which has significantly increased in 2011," Bank of France governor Christian Noyer said at a press conference in Paris to present the 2011 accounts.
The Bank's balance sheet has expanded more than five-fold since 2001 to over EUR709 billion, due largely to the huge increase in Eurosystem lending to the banking system since the crisis. Under the ECB's capital key, the Bank of France is liable for 20.4% of any losses if a bank that borrows from the Eurosystem defaults on it.
Last month, Germany's Bundesbank had controversially transferred EUR4.1 billion of its operating profit to reserves in a move widely interpreted as an implicit criticism of the way the ECB is allowing the risks on its balance sheet to increase.
As elsewhere in the euro zone, lower profit distributions by central banks lead to shortfalls in national budgets, although in France's case, that shortfall was mitigated by the fact that the Bank also paid EUR2.04 billion in corporation tax. The Bundesbank, which isn't subject to the equivalent tax, ended up transferring only EUR643 million to the German government.
One of the few other central banks to report its profit for the year so far has been the Bank of Greece, the member of the Eurosystem that has been at the center of the debt crisis for the last two years. It raised its provisions to EUR3.95 billion from EUR2.8 billion. However, its provisions are still dwarfed by the EUR38 billion it has lent to banks at its own risk against collateral guaranteed by the Greek government.
The Greek central bank is an exception among Eurosystem members in that it has private shareholders, including the same Greek commercial banks that are dependent on it for liquidity. Despite the country's travails, the Bank of Greece's shareholders are still to get dividends totalling EUR13 million after tax in respect of last year's profit. The government, meanwhile, will receive a total of EUR83 million from it, down from EUR139 million last year.
-By Geoffrey T. Smith and William Horobin, Dow Jones Newswires; +33 1 4017 1740; firstname.lastname@example.org
--Noemie Bisserbe contributed to this report.