Bundesbank posts €3.2 billion profit in 2015

The Bundesbank posted a profit of €3.2 billion for the 2015 financial year, up from €3.0 billion in 2014. This profit was transferred in full today to the Federal Government of Germany pursuant to section 27 number 2 of the Bundesbank Act (Bundesbankgesetz). Bundesbank President Jens Weidmann explained that the higher profit had been driven by an improved net result of financial operations, write-downs and risk provisioning, while net interest income had declined. "Taken together, these factors meant that profitability was slightly up on the year," he noted at the Bundesbank’s annual press conference. He added that the Bank’s risk provisioning had been tentatively reduced by €0.8 billion to €13.6 billion.

Foreign reserve management has traditionally been the chief source of risk in the Bundesbank’s balance sheet, but between 2010 and 2012, the SMP holdings, refinancing assets and euro securities portfolios (CBPP/CBPP2 and own funds portfolio) also emerged as major risk items, hence the increase in risk provisioning in three steps up until 2012 to a total of €14.4 billion. Mr Weidmann explained that the volume of refinancing loans and SMP securities, which had once been in the focus of the Bank's risk provisioning, had now diminished. "That means the risk has shrunk, too," he added.

Net interest income lower than ever before

The Bundesbank’s profit last year was mainly driven by interest income to the tune of €3.3 billion (2014: €4.0 billion), of which €2.9 billion (2014: €3.8 billion) was interest income in euro. This was offset in part by interest expenses of €1.0 billion (2014: €0.9 billion), yielding net interest income of €2.3 billion (2014: €3.1 billion). Given that ECB policy rates are down still further on an annual average, this is the lowest figure for net interest income since monetary union was launched. This decline was amplified by maturities, which reduced the volume of securities held in the monetary policy portfolios from the since-terminated SMP and CBPP/CBPP2 purchase programmes.

The Bundesbank’s total assets as at 31 December 2015 stood at €1,012.0 billion (2014: €770.8 billion). "The Bundesbank’s balance sheet in 2015 continues to be driven by monetary policy activities, mainly in connection with the financial and sovereign debt crisis," explained Executive Board member Joachim Nagel, who is responsible for accounting and controlling. "Total assets have risen sharply and now exceed €1 trillion for the first time since 2012," he added.

On the assets side, the balance sheet expansion was predominantly attributable to inflows of liquidity from other European countries, Mr Nagel explained, which were reflected in a €123.4 billion increase in the TARGET2 claim on the ECB to €584.2 billion as at year-end 2015. The second key reason is the rise in holdings of securities for monetary policy purposes, which climbed by €122.1 billion to €172.3 billion. Holdings resulting from the purchase of German government bonds under the public sector purchase programme, which only started in March 2015, alone amounted to €104.2 billion at year-end 2015.

Moreover, buying under the CBPP3 programme, which was launched in October 2014, boosted holdings of covered bonds by €23.8 billion net to a total of €40.4 billion.

On the liabilities side of the balance sheet, the liquidity created through the purchase programmes and flowing in from abroad resulted in credit institutions’ deposits at the Bundesbank showing a clear increase of €118.5 billion to €208.7 billion. The euro balances of other resident and non-resident depositors also rose noticeably in the reporting year, by €76.9 billion to €99.1 billion.

Items on the Bundesbank’s balance sheet which are subject to market price movements, such as gold and foreign currency holdings, are valued at market prices. The resulting valuation gains are not recognised in the profit and loss account but are reported instead under the balance sheet liability item "Revaluation accounts". As at year-end, this item totalled €105.7 billion (2014: €104.5 billion). Exchange rate effects resulted in €3.1 billion higher valuation gains on foreign currencies, while the revaluation reserve for gold declined by €1.7 billion to €97.8 billion. 

Economy still picking up, but beware the risks associated with accommodative monetary policy

Bundesbank President Weidmann said the German economy was in good shape overall, noting that employment had reached yet another record high last year and unemployment had dropped further. "While wage growth was marked, inflation remained subdued; this led to a distinct rise in real disposable income," he continued. It was not surprising, then, that private consumption was the main engine driving the economy last year. "This year, too, will probably see brisk domestic demand fuelling economic activity, which looks set to remain on a clear upward trajectory in 2016 despite the slight upturn in risk," the Bundesbank President stated.

As regards the euro area, Mr Weidmann said that, all in all, the economic outlook there was likewise looking rosier. "The euro area’s gradual economic recovery is likely to continue in the rest of this year and in 2017," he noted. Turning his attention to the ongoing speculation that the ECB might further ease the already highly accommodative monetary policy in response to the very subdued price pressures, Mr Weidmann warned that this could entail longer-term risks and side-effects "that it would be dangerous to simply ignore".