The central bank made a huge profit in the first half as the prices of equities and gold appreciated strongly. The value of the franc is keeping the bank on its toes.
The Swiss National Bank (SNB) had a profit of 38.5 billion Swiss francs ($38.9 billion) in the first six months of this year, according to a statement released by the bank on Wednesday.
The profit on foreign currency positions amounted to 33.8 billion francs. The boost on the stock markets in the period led to a gain of 20.8 billion francs on equity securities and instruments. The bank also had a gain of 14.2 billion on interest-bearing papers and instruments. Interest and dividend income was 4.7 billion and 2.1 billion respectively. Exchange rate-related losses totaled 8 billion francs.
Gold Price Rush
The price of gold, which has increased by more than 10 percent this year so far, also boosted the half-year result of the bank. The valuation of its holdings, which remained unchanged in volume terms, increased by 3.8 billion francs. The price of a kilo of gold increased to 44,245 francs by the end of June, up from 40,612 at the end of 2018.
The negative interest rate regime applied by the SNB helped it to a profit of 1.1 billion of Swiss franc positions. The profit resulted largely from negative interest charged on sight deposits of banks. Swiss banks have complained for years that they had to contend with lower margins on the one hand but also were forced to pay money for the cash they held at the central bank.
Balance Sheet Increase
The SNB doesn’t provide an outlook for the full year because the balance is strongly influenced by the fluctuations on the markets. The Swiss franc, which recently appreciated in particular vis-à-vis the euro, may weigh on its profit.
The central bank is trying to keep the value of the franc stable against the major trading currencies such as the euro, sterling and the dollar. This should protect the Swiss manufacturing and tourism industries. The balance sheet of the bank hence increased massively over past years and reached a total of 835 billion francs by the end of June, up from 817 billion a year ago.
«Currency Manipulation»
The policy makers around Thomas Jordan have been adamant that they will again intervene if the franc appreciates strongly. In past days, the currency breached the important threshold of 1.10 per euro. With sight deposits rising slightly from a week earlier, analysts said that the bank might have intervened.
Economists at Raiffeisen in Switzerland said that the bank didn’t need to step in «massively» despite the appreciation of the franc. The interventions have prompted angry responses from the U.S. which sees Switzerland as a currency manipulator.
