The SNB expects to record the largest loss in its 116-year history in 2022.
The SNB said in preliminary results on Monday that it expected an annual loss of about 132 billion Swiss francs ($143 billion), more than five times the previous record. Final results will be announced on March 6. The biggest part of the loss (131 billion Swiss francs) stemmed from a collapse in the valuation of its large holdings of foreign currencies. For as long as 10 years, the Swiss central bank has purchased and accumulated foreign currencies in large quantities in order to weaken its currency.
The value of the SNB’s foreign exchange reserves fell by about 17 percent last year, holding 784 billion francs as of December, down from 945 billion francs a year earlier. Still, the figure exceeds Saudi Arabia’s gross domestic product. The valuation loss on the Swiss franc position was around CHF 1 billion, while gold held by the SNB gained around CHF 400 million.
It is the second time since the SNB was founded in 1906 that it has had to skip annual payments to the federal government and the Swiss cantons, forcing many of the 26 cantons to adjust spending plans. In 2021, the SNB paid them 6 billion francs.
State treasurers told the conference that while the losses were “regrettable”, the medium-term gains had suggested such an outcome. “The SNB’s profits fluctuate greatly, and dividends cannot be taken for granted. This is an established fact.”
The SNB’s losses in 2022 are one of the most startling examples of how the global environment of rising interest rates has changed the central bank‘s financial backdrop, with associated fiscal consequences.
In the neighboring euro zone, central bankers are also under increasing pressure to explain why central bank contributions to domestic public finances are stalling. In the U.K., the Bank of England no longer pays the public purse, but instead accepts transfers from the Treasury to cover projected losses from its bond-buying programme.
Private shareholders of the SNB will also not receive dividends in 2022. This is also the second time since 1906. Unlike other central banks, the SNB is a publicly traded joint-stock company with roughly half of its shares held by the public sector and the rest by corporations and private individuals. Proceeds from the SNB’s operations do not affect monetary policy. In December, the SNB raised its policy rate by 50 basis points to 1%, the highest in the country since 2008.
