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NBP profit or loss – from where? What does the central bank invest in? What does he earn?

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Narodowy Bank Polski (NBP) announced that in 2022 it incurred a loss of PLN 16.94 billion, while in 2021 it had a profit of PLN 10.97 billion. Where does the central bank’s profit or loss come from? What does he invest in and what does he earn? We explain.

“Growth interest rates and profitability on global markets resulted, on the one hand, in an increase in the cost of interest on liabilities and on accounts maintained by banks. On the other hand, the situation resulted in a decrease in the prices of securities purchased in previous years,” NBP explained. He added that “an increase in the profitability of foreign and domestic assets held by central banks very often did not offset the costs of reduced valuation of assets and losses incurred on transactions with these assets.” .

Read also: Glapiński earned more. We know the remuneration of the head of the NBP

NBP profit or loss – what does the bank invest in?

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Two weeks ago, NBP published data on the state of official reserve assets and at the end of March 2023 their state expressed in euro amounted to EUR 156.4 billion and was lower by EUR 1.9 billion than at the end of February this year. Reserves expressed in dollars increased by 2.5 billion to 170.3 billion.

The National Bank of Poland manages foreign exchange reserves, taking care to maximize their profitability, but the priority is their safety and maintaining the necessary level of liquidity. NBP invests reserves in typical instruments used by central banks. The vast majority of them (almost 73.3%) are invested in government securities, in securities issued by international institutions and government agencies” – explained the central bank in a communiqué.

He added that the remaining amount is kept in the form of bank deposits with a high credibility rating and in monetary gold.

How did the National Bank of Poland make money?

How the NBP earned was explained by the economist of the Santander bank, Marcin Luziński, who discussed three years ago central bank profit for 2020. – Revenue is generated mainly through the management of reserve assets and operations with banks – he stated.

NBP also invests reserve assets in various financial instruments, for example buys treasury bonds other countries or gold. Luziński explained that the prices of these instruments change and the exchange rate appropriate for a given instrument also changes, so the NBP may note a profit or loss for a given instrument.

The analyst mentioned that at that time the NBP invested “principally in securities denominated in dollars, euros, pounds sterling, Australian dollars and Norwegian kroner” and received “interest payments on bonds or deposits held”, paid “commercial banks interest on securities issued by it” and collected “interest on loans granted to banks and commissions for maintaining bank accounts”, and also carried out payment orders. He added that NBP also obtained “dividends from shares in other institutionsfor example, at the Bank for International Settlements, and from the title selling collector coins“.

In 2021, NBP had a profit of PLN 10.97 billion. Pursuant to the Act on the National Bank of Poland, if the central bank generates a profit, 95% of the of this amount is transferred to the state budget. In turn, in 2020 the central bank had a profit of PLN 9.34 billion and made a payment of over PLN 8.87 billion to the state budget.

Central bank losses

As for the results for 2022, the NBP explained that in 2022 the financial results of the most important central banks decreased significantly, and many of them recorded losses. The reason for the lower financial results of central banks in 2022 lies in the specific shape of the market situation in recent years.

“After a period of maintaining low or negative interest rates around the world and active participation of central banks in securities markets, aimed at stimulating economic activity (including as a result of counteracting the COVID-19 pandemic), counteracting the accelerating inflation. On the one hand, the increase in interest rates and yields on the world markets caused increase in the cost of interest on liabilities and from bank accounts. On the other hand, the situation worked decline in prices of securities purchased in previous yearsthe central bank said.

“Increase in profitability of foreign and domestic assets held by central banks very often did not balance the costs of reduced valuation of assets and losses incurred on transactions in these assets– indicated the NBP.

As Rafał Hirsch pointed out on Twitter, it is worth looking at one of the articles from the NBP Act. “In connection with the PLN 17 billion loss in the NBP for tomorrow, please learn by heart Article 58 of the Act on the NBP. It is short but specific :)” – wrote the journalist. According to it, the bankruptcy of the National Bank of Poland cannot be declared.

Read also: NBP on the rules of contacts between MPC members and investors and analysts

Main photo source: Albert Zawada/PAP

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