Bundesbank posts €3.2 billion profit in 2015

The Bundesbank posted a profit of €3.2 billion for the 2015 financial year, compared to €3.0 billion in 2014. Speaking at the press conference on the annual accounts in Frankfurt am Main, Bundesbank President Jens Weidmann attributed the year-on-year increase in profitability primarily to the higher net result of financial operations, write-downs and risk provisioning. By contrast, the figure for net interest income declined. "Taken together, these factors meant that profitability was slightly up on the year," said Mr Weidmann in front of a large audience of journalists. The net profit for the year was transferred in full to the Federal Government of Germany.

While interest income, at €2.3 billion net, remained the most important source of earnings in 2015, it was the lowest net interest income recorded since the beginning of monetary union. In 2014, this item had come to as much as €3.1 billion.

Risk provisioning down slightly

In 2015, the Bundesbank tentatively scaled back its risk provisioning by €0.8 billion to €13.6 billion. Foreign currency holdings have traditionally been the main source of risk in the Bundesbank's balance sheet, but additional risks emerged between 2010 and 2012, amongst other things from the Eurosystem's Securities Market Programme (SMP) for purchasing government and private sector bonds. Against this backdrop, the Bundesbank increased its risk provisioning in three steps to an overall €14.4 billion between 2010 and 2012. According to Mr Weidmann, the volume of refinancing loans and SMP securities, which had been in the focus of risk provisioning, have decreased since then. As Mr Weidmann highlighted, "risks were lowered as a result". 

The Bundesbank's profit is not affected by items which are subject to market price movements, such as gold and foreign currency holdings. The resulting valuation gains are reported under the balance sheet item "Revaluation accounts", which at the end of 2015 stood at €105.7 billion. In 2014, this item had come to €104.5 billion.

The Bundesbank's total assets rose from €770.8 billion in 2014 to €1,012 billion in 2015. "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. On the assets side, the balance sheet expansion was predominantly attributable to inflows of liquidity from other European countries, Mr Nagel continued, which were reflected in a €123.4 billion increase in the TARGET2 claim on the European Central Bank, taking it to €584.2 billion as at year-end 2015. Moreover, the stock of securities held for monetary policy purposes climbed by €122.1 billion to €172.3 billion, he explained.

German economy in good shape

The German economy has continued to make good progress according to Mr Weidmann, who added that employment had reached yet another record high last year and unemployment had dropped further, also attesting to the healthy macroeconomic situation. While wage growth was marked, inflation had remained subdued, he continued; this had led to a distinct rise of 2.2 % in real disposable income. "It was not surprising, then, that private consumption was the main engine driving the economy last year," Weidmann remarked. In 2016, too, brisk domestic demand will probably fuel economic activity, which is set to follow a clear upward trajectory despite the slight upturn in risk. 

As regards the euro area, the Bundesbank President 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, going on to say, however, that the biggest challenge would undoubtedly be giving the single currency a robust and consistent overarching framework. "Thus far, the framework of the euro area has not been stable enough," Weidmann stated, which is why he believes it is crucial to realign liability and control.

No wholesale abolition of cash

With respect to the current debate surrounding caps on cash transactions and the potential abolition of the €500 banknote, Weidmann voiced his doubts that these measures could effectively combat terrorist financing or money laundering, pointing out that cash is still the most popular means of payment in Germany. "I would therefore consider it disastrous if the general public were to be given the impression that the mooted abolition of the €500 note and caps on cash usage were the first steps in a move towards abolishing cash entirely," Weidmann said. The President stressed that the Bundesbank takes a neutral stance with regard to the various forms of payment. "We see our role in assisting and supporting the general public in using those payment methods which they wish to use."