At year-end, the total ESM balance sheet was €807.1 billion. Compared to 31 December 2017, the balance sheet increased by €10.1 billion, mainly due to new loan disbursements in 2018. The ESM disbursed €21.7 billion in loans to Greece and received early repayments from Spain of €8 billion.
To provide financial assistance to the beneficiary Member States, the ESM relies on its funding activity. In 2018, the total liability in respect of debts evidenced by certificates increased by €9.2 billion to €98.4 billion (€89.2 billion in 2017), reflecting the increase in lending activity.
As of 31 December 2018, the total €80.5 billion of paid-in capital is invested in debt securities or held in cash.
Unrealised gains or losses resulting from the valuation of the security portfolio are reflected in the Fair value reserve within the ESM’s equity position. As of 31 December 2018, this reserve was €140.2 million, compared to €99.1 million as of 31 December 2017. The increase in the Fair value reserve mainly reflects the appreciation of the investment’s values on the market compared to the previous year, largely due to changes in interest rates.
The ESM recorded a net income of €284.7 million for the financial year 2018, compared to €68.6 million in 2017.
The €216.1 million increase is mainly due to the amount received from Germany and France, compensating the ESM for a part of the negative interest charged on the cash held at their national central banks in 2017. These payments, which represent €128.9 million and €86.7 million, respectively, were recorded as part of Extraordinary income together with €26.8 million that the ESM will receive from the European Commission, following a May 2018 decision by the Council of the European Union to impose a fine on Austria.
The Profit before extraordinary items, which corresponds to the net income generated by ESM operations, decreased by €7.3 million, to €42.3 million in 2018 from €49.6 million in 2017. Higher administrative expenses and the continued effect of the negative interest environment mainly drove this decrease, which was in part offset by a higher result on financial operations.
The interest income on debt securities held in the paid-in capital portfolio increased by €17.0 million due to more investments at higher yield compared to the cash remuneration rate. The Net profit of financial operations increased by €17.1 million to €44.3 million in 2018 from €27.2 million in 2017.
Operating costs, including depreciation of fixed assets, were €67.5 million compared to €61.3 million in 2017. The increase is mainly driven by additional staff cost as well as IT and advisory services. The ESM provides administrative services to the EFSF and therefore charges it service fees of €32.6 million (€30.9 million in 2017), which are recognised as Other operating income. The ESM continues to focus on budgetary discipline and effective cost control.
Outlook for 2019
Following the end of the programme for Greece in 2018, no further loan disbursements are foreseen in 2019. The ESM has actively diversified its investments and continues to look for additional measures to mitigate the impact of the negative yield environment, in line with its guidelines and its mandate. Nevertheless, the persistence of this environment will continue to affect the net income from ESM operations in 2019.
 This fine imposed on Austria is a sanction pursuant to Article 8(1) Regulation (EU) No. 1173/2011. Such sanctions are collected by the European Commission and are assigned to the ESM.
 The net income of the ESM is mainly driven by the interest margin on its lending activity and the return on the investment of its paid-in capital. The ESM Pricing Policy defines the different elements of the total cost of a loan.