Bundesbank posts €2.95 billion profit in 2014
The Bundesbank posted a profit of €2.95 billion for the 2014 financial year, which is €1.6 billion down on the figure recorded in the previous financial year. Speaking at the financial statements press conference in Frankfurt am Main, Bundesbank President attributed the year-on-year decline in profitability primarily to the sharp drop in interest income in 2014.
While interest income, at €4.0 billion, remained the Bundesbank's most important source of earnings in 2014, that figure had come in at €7.3 billion one year earlier.
"This decline was due, in particular, to the lower key policy rates, which were just over two-thirds lower on an annual average," the Bundesbank President told the large audience of journalists.
The Bundesbank transferred the entire net profit for the year on Thursday to Germany's Federal Government.
"€2.5 billion of the Bundesbank's profit are used for budgetary financing," Mr Weidmann explained, adding that any excess amounts above that figure would be used to pay down debt, as envisaged by the Federal Government's Budget Act for 2015.
Risk provisions unchanged
The Executive Board reviewed the requisite level of risk provisions for 2014 – as is the case each year – and, in doing so, took into account both the current risk situation of the Bundesbank and the available financial resources. On the one hand, Mr Weidmann said, the risks for the Bundesbank from the risk-weighted assets, on which attention has hitherto been focused, had declined somewhat, explaining that both the volume of Eurosystem refinancing loans and that of the securities from the Securities Markets Programme (SMP) had diminished. On the other hand, additional credit risks would arise over the next two years. These were due to the ECB Governing Council's decisions on the purchase programmes for asset-backed securities and for covered bonds, he said.
Mr Weidmann expected the expanded asset purchase programme adopted in early 2015 to have a negligible impact, if any, on the balance sheet. Given that the Bundesbank primarily only purchased Federal bonds, the programme would
"only have an immaterial impact on credit risks," he noted.
"In net terms, based on this overall review for 2014, no changes to the risk provisions are necessary." The Executive Board had therefore decided to leave the risk provisions unchanged at €14.4 billion.
Total assets down slightly
The Bundesbank's total assets fell to €770.8 billion as at 31 December 2014, compared with €801.0 billion one year earlier. However, the new purchase programmes would send this figure higher again during the course of 2015, explained Executive Board member Joachim Nagel, who is responsible for Accounting and Controlling. Mr Nagel emphasised that the Bundesbank's balance sheet last year had once again been marked by monetary and foreign exchange policy operations related to the financial and sovereign debt crisis.
Profit or loss is not affected by items which are subject to market price movements, such as the Bundesbank's gold and foreign currency holdings. The increase in the price of gold during the past year, for instance, is reflected by the larger "Revaluation accounts" item, which
"climbed by €16 billion year on year to just over €104 billion," Mr Nagel said.
Funding the Greek government is not a task for the Eurosystem
Commenting on the monetary policy stance in the euro area, President Weidmann said that the recently adopted government bond purchases would cause fiscal and monetary policy to become even more closely intertwined. Member states might grow less inclined to embrace budget consolidation and reform measures if they became accustomed to the very favourable funding conditions. At the same time, Mr Weidmann conceded that the ECB's Governing Council had found itself in a difficult position when it adopted the bond purchase programme. After all, he explained, inflation rates were
"far off our medium-term target".
At the press conference, Mr Weidmann also spoke about the current situation regarding Greece, saying that he did not see that it could achieve independent access to the capital market again by the middle of the year. However, in his opinion, further decisions about financial resources for Greece belonged unequivocally in the field of politics.
"Governments and parliaments must decide whether they are prepared to go on extending the Greek risks and cover the funding needs of the Greek government despite the tangible uncertainty with regard to the government’s will to reform," Mr Weidmann said.
"This is less of a task for the Eurosystem than it has ever been," he stated.
Turning to Germany, the Bundesbank President added that the essentially upbeat situation and the rosy outlook for the economy should not mean turning a blind eye to the risks facing economic growth.
"Complacency in economic policy matters has no place in Germany," he emphasised. However, he was confident that an economic growth rate of 1.5% for this year was realistic.