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Bundesbank’s distributable profit rises to €2.4 billion

Bundesbank’s distributable profit rises to €2.4 billion

27.02.2019 | Deutsche Bundesbank DE FR

The Bundesbank posted a profit of €2.5 billion for the 2018 financial year. Following an allocation to the reserves, the Bundesbank transferred the remaining distributable profit of €2.4 billion in full to the Federal Ministry of Finance. In the previous year, the profit amounted to €2.0 billion and the distributable profit to €1.9 billion. “This rise has largely been driven by the higher interest income due to the negative interest rates on the increased volume of deposits,” Bundesbank President Jens Weidmann explained at Wednesday’s press conference presenting the Bank’s annual accounts. He noted the monetary policy asset purchase programmes and inflows from abroad which, as in the previous years, led to a considerable expansion of the Bundesbank’s balance sheet.

In addition, the Bundesbank stepped up its provisions for general risk for the third consecutive year, adding €1.475 billion to bring the total to €17.9 billion. “General risk provisions are traditionally used to hedge against exchange rate risk, but, due to the non-standard monetary policy measures, also against default and interest rate risk,” Mr Weidmann observed.

Interest income the main source of distributable profit

The Bundesbank’s interest income grew by €1.0 billion to €6.2 billion in 2018 and thus continued to be the main source of the Bank’s profit. This increase was chiefly driven by the fact that income from negative interest rates on deposits was up by €0.6 billion to €3.8 billion. Given that interest expenditure edged up slightly (by €0.2 billion to €1.2 billion), net interest income rose by €0.7 billion to €4.9 billion.

Increase in total assets

The Bank’s total assets grew by €114 billion last year, bringing them to a new record of just over €1.8 trillion. “The Bundesbank’s total assets have thus risen by more than €1 trillion, or around 140%, over the last four years,” commented Johannes Beermann, the Executive Board member responsible for accounting and controlling. On the assets side, he identified the asset purchases for monetary policy purposes and the liquidity inflows from other countries in Europe as again being the main factors driving the balance sheet expansion. The stock of euro securities was up by €60 billion to €572 billion, and TARGET2 claims on the European Central Bank (ECB) climbed by €59 billion to €966 billion.

On the liabilities side, the liabilities from monetary policy operations no longer grew in 2018 but fell by €37 billion to €573 billion. By contrast, the euro balances of resident and non-resident depositors, in particular, were by up €87 billion to €409 billion.

First step in monetary policy normalisation

Commenting on the economic development last year, Bundesbank President Jens Weidmann noted the loss of momentum in Germany, in the euro area and throughout the globe. There is much to suggest that the dip in growth here in Germany has persisted into the current year, he explained, and that is probably why German economic growth will fall well short of the potential rate of 1½% in 2019. That said, Mr Weidmann sees no reason to be overly pessimistic about the outlook. He believes that economic growth is supported by a solid base of favourable financing terms, rising employment levels and increasing wages.

Mr Weidmann singled out the ECB Governing Council’s ruling to cease net asset purchases at the end of the year as the most significant monetary policy decision of last year. “This marks the first step on the long road towards monetary policy normalisation,” he explained. Monetary policy in the euro area nonetheless remains exceptionally accommodative, Mr Weidmann added. 

Further information can be found in the Bundesbank’s 2018 Annual Report.

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