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The Swiss central bank records the biggest loss in its 116-year history

2023-01-10 20:00:33Biznes SHKRUAR NGA REDAKSIA VOX
The Swiss central bank records the biggest loss in its 116-year history
Swiss National Bank

The Swiss National Bank on Monday reported a loss of 132 billion Swiss francs ($143 billion) for the 2022 financial year, according to preliminary figures.

This figure represents the largest loss in the central bank's 116-year history and is roughly 18% of Switzerland's projected gross domestic product of 744.5 billion Swiss francs. The Swiss central bank's previous biggest loss was 23 billion francs in 2015.

As a result, the bank will not make its usual payments to the Swiss government and member states. Moreover, it is expected that payments to its shareholders will be affected. In 2021, the bank reported a profit of 26 billion francs.

Of the total losses, 131 billion francs came as a result of its foreign currency positions, while 1 billion came from positions in the Swiss franc itself, in conditions where the local currency has experienced large increases as investors began to buy the currency, which is perceived as the safe haven of Europe, in the conditions of market volatility during the past year.

Since June 2022, the Swiss franc has traded at more than one euro, a level previously reached for a brief period only in 2015, after it scrapped the 1.20 exchange rate with the EU's single currency .

Switzerland has historically tried to curb the strengthening of the franc, due to its economy being heavily reliant on exports, although analysts have argued that Swiss businesses have been able to remain competitive despite the franc's rise due to inflation in the eurozone.

In December, the Swiss National Bank raised interest rates for the third time in 2022, taking them to 1%. This move came to cope with inflation of 3%, a level much lower than the inflation rate in the Eurozone, which continues to be above 10%.

The Swiss National Bank was also hit last year by losses in its stock and bond portfolio. However, it earned 400 million francs through its own gold reserves.

Karsten Junius, chief economist at Swiss bank J. Safra Sarasin, told CNBC that the central bank's losses would not change its monetary policy and he expected another 100 basis point hike this year, which would take rates to 2%.

"While the central bank will need time to rebuild its valuation reserves, it will take less time to turn a profit than in the case of the European Central Bank," he said, also noting that inflation in Switzerland was closer to the 2% target than in the eurozone.

"Although both central banks are structurally profitable as they can recalculate their liabilities at a lower rate than the market, the Swiss National Bank will earn higher market interest this year, while the ECB is trapped by its low-yield bonds and won't make a profit for many years."


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