More than PLN 7.4 billion of NBP’s profit was transferred today to the state budget
Narodowy Bank Polski made a payment today of over PLN 7.4 billion to the state budget. This is 95 per cent of the profit generated by NBP in 2019.
In 2019 Narodowy Bank Polski generated a profit of PLN 7,828.5 million. Pursuant to the Act on NBP, the previous year’s profit of the central bank is divided into a payment in the amount of PLN 7,437.1 million to the state budget and an allocation to the NBP reserve fund (5 per cent of the profit) in the amount of PLN 391.4 million.
“The payment of such a significant amount to the state budget is possible thanks to the effective actions of NBP, including the sound decisions regarding the investment of the foreign exchange reserves,” explained Prof. Adam Glapiński, President of Narodowy Bank Polski. At the same time, he pointed out that last year one of NBP’s most important decisions was the purchase of 100 tons of gold. “The payment to the state budget of such a significant amount and the measures taken by NBP this year will support the Polish economy and Poles in general. In recent months NBP has taken many steps aimed at mitigating the negative effects of the COVID-19 pandemic,” he added. Prof. Adam Glapiński underlined that NBP was one of the first central banks in Europe to respond preemptively to the expected deterioration in the economic situation and that as early as in the middle of March it had launched measures aimed at supporting the Polish economy. “We were aware that the pandemic could drastically limit global economic activity, including in Poland, as well as reduce inflation, so we decided to react immediately in order to mitigate its impact on the financial situation of Poles. We have cut interest rates three times, including the main NBP interest rate to a record low of 0.1 per cent. The effects of this in the form of lower loan were immediately felt by hundreds of thousands of borrowers, including households and enterprises. In order to strengthen this effect, we also launched the purchase of Treasury bonds and government-guaranteed debt securities on the secondary market. So far, NBP has carried out seven asset purchase operations, purchasing securities to a value of PLN 90.77 billion. These operations are aimed at changing the long-term liquidity structure in the banking sector, ensuring the liquidity in secondary markets for the purchased securities and enhancing the impact of the NBP interest rate cuts on the economy, i.e. strengthening the monetary policy transmission mechanism. Ensuring the liquidity of the market allows issuers to make further bond issues, thanks to which it will be possible to finance the anti-crisis measures. At the same time, NBP’s operations are preventing the rise in yields (fall in prices) of the bonds despite the significant increase in their supply. Thanks to this, mild financial conditions can be maintained in this segment of the market, enabling the funding of the anti-crisis measures without an excessive increase in costs for the taxpayer. Moreover, aware that access to bank loans plays an important role for the functioning of enterprises, NBP has also launched a bill discount credit programme, ensuring banks a favourable and very cheap source of refinancing loans to enterprises. In order to additionally support the Polish economy, we have also cut the required reserve ratio from 3.5 to 0.5 per cent. Along with the asset purchases that we have carried out, this has provided the banking sector with almost PLN 132 billion, which in practice has enabled a rapid payment of funds from the “Anti-Crisis Shield” for Polish employees and Polish firms,” said the President of NBP.
The amount of NBP’s financial result for 2019 was mainly due to the following: the result from foreign exchange reserves management in the amount of PLN 7.6 billion and the positive result from exchange rate fluctuations in the amount of PLN 5.6 billion. NBP’s financial result was also affected by the following: the provision against the foreign exchange rate risk of the zloty (PLN 2.8 billion), the costs of conducting monetary policy (PLN 1.4 billion), and also operational costs and depreciation (PLN 1.2 billion).
The main elements determining NBP’s financial result are the following: the positive result from the management of the foreign exchange reserves (at the end of 2019 they accounted for almost 100 per cent of NBP’s assets) and the negative result from conducting monetary policy (mainly due to the excessive liquidity of the banking sector). The result from foreign exchange reserves management mainly consisted of interest from term deposits and debt securities in foreign currencies, as well as the result from the sale of such securities and costs arising from a decline in market value of securities below their purchase price (so-called unrealized foreign exchange losses). In turn, the costs of conducting monetary policy mainly consist of discount on monetary bills, which are used to absorb excess liquidity and interest expenses on the required minimum reserve of banks.
The asymmetry of NBP’s foreign currency balance (at the end of 2019 almost all the assets were foreign currency, while liabilities in złoty dominated the liability side of the balance sheet) generates foreign exchange rate risk. The impact of foreign exchange rate risk on NBP’s financial result (the result of exchange rate differences) depends on the development of the złoty exchange rate against foreign currencies during and at the end of the year. To put it simply, a rise in the value of the złoty (appreciation) has a negative impact on NBP’s financial result, because it reduces the value in złoty of the foreign exchange reserves. In order to counteract the negative impact of złoty exchange rate fluctuations on NBP’s financial result, the Act on NBP obliges NBP to create a provision against the foreign exchange rate risk of the złoty. The rules for creating and dissolving this provision are established by the Monetary Policy Council. As of 31 December 2019 the provision amounted to PLN 6.7 billion.
The financial statements of NBP for 2019 were inspected by an independent auditor, who issued an unqualified opinion on the financial statements. On 19 May 2020 the financial statements were approved by the Council of Ministers.