Bank of Estonia's 2022 profits confirmed at €0

The Bank of Estonia (Eesti Pank) building in Tallinn.
The Bank of Estonia (Eesti Pank) building in Tallinn. Source: Siim Lõvi/ERR

The Supervisory Board of the Bank of Estonia approved the central bank's 2022 annual report this week, confirming a profit of precisely €0 for the previous financial year.

The Bank of Estonia earned €303 million in interest income last year, while interest expenses totaled €302 and operating costs €25 million, according to a press release published Friday.

Rapidly rising interest rates meant that the bank made a loss of €157 million on investments, which was largely covered by risk provisions set aside from previous years' profits for this purpose.

The central bank has been building up its general risk provision buffers since 2012, it noted, adding that risk provisions are the first line of defense against losses on top of the reserves held at the bank.

Bank of Estonia Governor Madis Müller said that the Bank of Estonia has built up strong capital buffers, noting that in February these various buffers totaled over €500 million. In distributing the central bank's profits, the supervisory board prioritizes building sufficient capital buffers for the bank to carry out its tasks ahead of distributing them to the state budget.

Investment results last year were disappointing because of the sharp rise in interest rates, the central bank said.

When interest rates rise fast, it is primarily the value of long-term bonds that suffers, and a significant part of the Bank of Estonia's investment portfolio is invested precisely in that type of bond.

Last year was extraordinarily difficult for bond investors in historical terms, especially as it has been rare over the past half a century for the prices of bonds from advanced economies to fall so much.

The main priority for the Bank of Estonia as a central bank of the euro area is to maintain price stability. Decisions by the European Central Bank (ECB) to raise interest rates have been made with the target of bringing inflation in the euro area, which still remains too high, back under control. Earning a profit from the investment portfolio or other activities are secondary issues for central banks.

This week, Müller also provided the board with a regular review of the state of the economy and the financial sector in the euro area, while economist Taavi Raudsaar presented the supervisory board with a review of the financing of the economy.

The next meeting of the supervisory board of Estonia's central bank is on April 25.


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Editor: Aili Vahtla

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