Rising interest rates reduced Bank of Finland’s profit

The Parliamentary Supervisory Council has today, upon proposal by the Bank of Finland Board, confirmed the Bank of Finland’s financial statements.

The Bank of Finland’s audited profit for the financial year 2022 totals EUR 0.00 after adjustments to provisions. The foreign exchange rate and price difference provision was adjusted downwards by EUR 165 million to cover the valuation losses on financial assets arising mainly from the fall in the market value of dollar-denominated securities. A reduction of EUR 47 million in the general provision was also made, to cover the negative operating profit.

“The rise in interest rates has reduced the Bank of Finland’s profit. The Bank had already prepared for higher interest rates by strengthening its risk provisions when interest rates were low.In the immediate years ahead, there will be a further need to use risk provisions, as the profit outlook is weak,” says Bank of Finland Deputy Governor Marja Nykänen.  

During the COVID-19 crisis, the Eurosystem expanded asset purchases and granted longer term, favourable loans to banks. This further boosted the Bank of Finland’s balance sheet. A central bank’s financial result reflects the particular central banking tasks it has had to undertake, and making a profit is not the primary goal of its activities.

The Bank of Finland has acquired bonds through the asset purchase programmes, and a considerable proportion of these are issued by Finland’s public sector, and are long-term and fixed-rate. They have been financed using liquidity deposits of commercial banks, which are remunerated at the European Central Bank’s deposit facility rate. The different interest rate linkage for assets and liabilities poses a structural interest rate risk for the Bank of Finland’s balance sheet.

In 2022, the ECB began a series of interest rate hikes because of the excessively high level of inflation. This has increased the interest payments payable on commercial banks’ deposits and has therefore directly reduced the Bank of Finland’s net interest income. The net interest income in 2022 amounted to EUR 459 million, which was almost EUR 200 million less than in 2021.

The figure for central banking profit was EUR 35 million in 2022 (2021: EUR 186 million), and includes both interest income on the Bank’s financial assets and its share of net interest income from the Eurosystem’s monetary policy operations. This was insufficient in relation to the operating expenses and income of the Bank of Finland and the Financial Supervisory Authority (FIN-FSA). In 2022, their combined net operating expenses, excluding banknote production services and the additional pension fund contribution, amounted to EUR 66 million (2021: EUR 61 million).

“Since the introduction of the euro, the Bank of Finland has transferred more than EUR 3 billion of its profit to the State. In the immediate years ahead, the opportunities for the Bank to transfer a share of its profit to the State will not match those of previous years,” says Deputy Governor Marja Nykänen.

The Bank of Finland’s financial statements, which also include the income and expenses of the FIN-FSA, have been published today, 24 March 2023, on the Bank of Finland website. The English version will be published in April 2023.

For further information, please contact Marja Nykänen, Deputy Governor of the Bank of Finland, tel. +358 9 183 2007.

Bank of Finland, annual report 2022 (In Finnish)

In a blog post (in Finnish) on the Bank of Finland Bulletin website, under the title 'Rising interest rates weaken Bank of Finland's financial performance', Head of Risk Management Antti Nurminen writes about the impact of higher interest rates on the Bank of Finland’s profit.