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Saturday, February 25, 2017

German Economy - The Bundesbank posted a profit of €1.0 billion for the 2016 financial year, compared with €3.2 billion in 2015 . -

NEWS Release - Bundesbank posts distributable profit of €0.4 billion in 2016

The Bundesbank posted a profit of €1 billion for the 2016 financial year, representing a year-on-year fall of €2.2 billion. Speaking at the press conference on the annual accounts, Bundesbank President Jens Weidmann attributed this to higher risk provisioning.

However, the Bundesbank is unable to distribute its entire annual profit this year due to preparing its balance sheets in accordance with an amendment to the German Commercial Code (Handelsgesetzbuch). Pursuant to the amended provision, post-employment benefit obligations must now be discounted at the average market rate from the preceding ten financial years – previously it was the average of the preceding seven financial years. 

This amendment resulted in a higher discount rate for the Bundesbank, which led to a book profit of €0.6 billion for 2016. However, as this profit cannot be distributed, it was necessary to transfer it to a reserve. Distributable profit in 2016 therefore amounted to €0.4 billion and was transferred to the Federal Ministry of Finance in full on Thursday.

Significant increase in risk provisioning

“What is reflected, above all, in our balance sheet this year are the decisions to purchase bonds on a large scale and to charge a negative rate of interest on banks’ deposits with the Eurosystem,” Dr Weidmann said of the annual accounts. He noted that the interest rate risk to which the Bundesbank is exposed has soared owing to its growing stocks of assets.

These risks have arisen because the Bundesbank stands to earn only a very low rate of interest on the securities acquired under the Eurosystem’s purchase programmes, he explained, while the rate that it pays on banks’ deposits could rapidly rebound in the future if key interest rates are raised. In view of this, the Bundesbank has increased its risk provisioning and raised its provisions for general risks from €13.6 billion in 2015 to €15.4 billion last year. Dr Weidmann indicated that the Bundesbank is likely to further increase its risk provisioning for interest rate risk in 2017, too.

Copyright: Deutsche Bundesbank, Frankfurt am Main, Germany"

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