Consequence of the strong franc: record loss at the Swiss National Bank

In 2022, the Swiss National Bank made the biggest loss in its 115-year history. Private shareholders, the Confederation and the cantons must therefore forego a distribution.

Falling share and bond prices and the appreciation of the Swiss franc caused the Swiss National Bank (SNB) to make a record loss last year. According to preliminary figures, the central bank recorded a deficit of CHF 132 billion in 2022, as announced today. After offsetting against the existing distribution reserve and the provisions for currency reserves, a balance sheet loss of around CHF 39 billion remains, writes the SNB.

Profit last year

As a result, the National Bank will forego a distribution this year. “In accordance with the provisions of the National Bank Act and the profit distribution agreement between the Federal Department of Finance and the SNB, this balance sheet loss makes it impossible to make a distribution for the 2022 financial year,” says the SNB press release. This affects both the dividend to the shareholders of the SNB and the distribution of profits to the Confederation and the cantons. The last time the SNB paid out any money to the public sector was in 2014.

In the previous year, the SNB had made a profit of 26.3 billion. The federal government and the cantons had therefore received six billion francs and the shareholders a dividend of 15 francs per share. The second-highest SNB loss of CHF 23 billion dates back to 2015.

Huge losses on foreign currency holdings

The reason for the high loss is the enormous foreign currency holdings of the SNB. The central bank has around CHF 800 billion in foreign exchange reserves, which also includes shares and bonds from abroad. For years, the SNB had bought foreign currencies to prevent the franc, which is in demand as a safe haven in times of crisis, from appreciating too much – because this would have damaged the economy. These holdings resulted in a loss of 131 billion Swiss francs.

The loss on positions held in Swiss francs was CHF 1 billion, while the value of the gold held by the SNB increased by CHF 0.4 billion last year.

Turnaround in interest rates expensive for the central banks

Other central banks are also likely to post losses. At the end of November, the European Central Bank (ECB) warned of losses as a result of the rapid turnaround in interest rates. Since the summer, the ECB has raised the deposit rate in four steps to 2.0 percent in the fight against high inflation. Central bank chief Christine Lagarde also announced further interest rate hikes.

Due to the deposit rate, which was raised sharply in a short time, the monetary watchdogs are now paying many billions of euros in interest to the commercial banks, which are parking surplus funds with the national central banks of the euro zone. This leads to a sharp increase in interest payments.

The Bundesbank could also make losses: Bundesbank President Joachim Nagel pointed out in autumn that the German central bank had made provisions of around 20 billion euros in the event that interest rates rise again. Nagel did not rule out losses for the Bundesbank.

No impact on monetary policy

The huge deficit at the Swiss National Bank is unlikely to have any impact on monetary policy. “The SNB’s colossal losses will not change its monetary policy,” said Karsten Junius, economist at J. Safra Sarasin. Due to the inflationary pressure, the SNB initiated the interest rate turnaround in June, raised the key interest rate in three steps to 1.0 percent in 2022 and announced further increases.

Persistent massive losses could consume the central bank’s equity. However, SNB Governing Board member Martin Schlegel explained in a newspaper interview in October that the SNB could also fulfill its task with negative equity.

Listed public company

The SNB is a listed stock corporation which, like other companies, has to report quarterly on its business. According to the 2021 annual report, around 78 percent of the voting rights were held by the cantons and cantonal banks and other public bodies or institutions at that time. The rest of the voting rights are held by private individuals. According to the 2021 annual report, there were almost 2,400 private shareholders as of December 31, 2021. With a stake of just over five percent, the Düsseldorf investor Theo Siegert was the largest private shareholder.

The SNB will present the detailed report on the annual financial statements with the final figures on March 6th. The annual report will be published on March 22, 2023.