07/05/2024 – 21:30
The Swiss National Bank’s (SNB) return to profitability in the first quarter of 2024 does not signal that the risks arising from its balance sheet have disappeared, says Fitch. In a report, the agency says it expects the SNB to maintain a positive equity position, while its large buffers will allow a resumption of profit distributions from 2025, supporting government revenues.
After two years of losses, the SNB posted a profit of CHF58.8 billion (7.4% of 2023 GDP) in the first quarter as net returns on foreign currency investments rebounded sharply, Fitch said. The central bank has built a very large FX investment portfolio on its balance sheet, driven by its 2009-2021 monetary policy approach, which included FX interventions to counter deflationary risks in a very low policy rate environment, the agency said.
Making a profit is not an objective for the SNB. Its very large FX portfolio means it will record losses when the franc appreciates, as profits are measured at market value in Swiss francs and its FX investments are not hedged. The SNB did not introduce a trend towards foreign exchange sales at its June 2024 meeting, and “we do not expect it to engage in large-scale foreign exchange sales in the near term, given that inflationary pressures have subsided,” Fitch said. However, its retained equity buffers are also larger than those of other national central banks in Europe, which should allow the SNB to resume profit distributions once it returns to positive net income, the agency said.
“The SNB’s revenues must, by law, be allocated to foreign exchange reserve provisions and then to a distribution reserve. Any excess can then be transferred as profit to the cantonal and federal governments. The return of the SNB to profitability should therefore strengthen Switzerland’s overall fiscal balance,” he concludes.
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