The European Central Bank says its net profit declined in 2014 as a result of lower interest income and higher operating expenses related to its new role as banking supervisor.
The ECB said in a statement on Thursday its 2014 bottom-line net profit, after subtracting risk provisions, amounted to €989 million ($A1.44 billion), down from €1.44 billion a year earlier.
"The decrease was mainly due to low interest income on banknotes; a decrease in net interest income from the Securities Markets Programme owing to redemptions; higher operating expenses," the statement said.
The central bank earns income on the investment of its foreign reserve assets, its own funds portfolio, interest income on its share of the total euro banknotes in circulation, and interest income arising from bond holdings.
Overall, total net interest income fell to €1.536 billion in 2014 from €2.005 billion in 2013, the ECB said.
A substantial part of the interest income is made up of earnings from its SMP - a controversial scheme for buying up the bonds of countries that are finding it difficult to drum up cash via the financial markets.
But net interest income from the SMP was down at €728 million in 2014 from €962 million the previous year, as substantial amounts of those bond holdings are paid back.
Interest income on banknotes fell to €126 million last year from €406 million in 2013.
The ECB said it decided to set aside just €15 million in risk provisions, up from €0.4 million a year earlier.
These provisions cover foreign exchange rate, interest rate, credit and gold price risks, which are monitored on an ongoing basis, the ECB said.
Staff costs rose to €301 million from €241 million as staff numbers increased during the course of the year owing to the preparations for the launch of the Single Supervisory Mechanism.
The ECB took over as the eurozone's sole banking supervisor in November.
Other administrative expenses - including rent, professional fees and others goods and services - increased to €376 million from €287 million.
The ECB said it would distribute all of the net profit of 989 million euros to the national central banks of the euro area.
It has already distributed €841 billion of the total, with the remaining €148 million to be transferred on Friday.
The ECB said its total balance sheet declined slightly at the end of last year, amounting to 2.208 trillion euros as of December 31, compared with €2.273 trillion a year earlier.
In a bid to ward off deflation in the 19 countries that share the euro, the ECB has said it aims to expand its balance sheet by around €1.0 trillion in order to boost the amount of liquidity in the eurozone financial system.
In order to achieve this, the ECB unveiled a program of so-called "quantitative easing" or QE in the coming months, under which it plans to buy around €1.14 trillion of bonds.
