Bank of Estonia investments fetch worst loss in history

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

The Bank of Estonia's investments made a loss of €157 million last year for the worst ever result.

The Bank of Estonia's 2022 financial report suggests the central bank's investments resulted in a loss of €157 million after a 9 percent reduction in productivity. This is the first time the Bank of Estonia's rate of return on investment assets has been in the red and constitutes its biggest investment loss to date.

"The investment results last year were disappointing because of the sharp rise in interest rates. When interest rates rise fast, it is primarily the value of long-term bonds that suffers, and a large part of the Eesti Pank (Bank of Estonia) investment portfolio is invested in exactly that sort of bond. Last year was extraordinarily difficult for bond investors in historical terms, especially as it has been rare in the past half-century for the prices of bonds from advanced economies to fall so  much," the Bank of Estonia said in a press release.

The Bank of Estonia has been building up its general risk provision buffers since 2012. Risk provisions are the first line of defense against losses on top of the reserves held at the central bank.

Bank of Estonia Governor Madis Müller said that it has built up strong capital buffers and that in February 2023 the various buffers totaled over 500 million euros.

The bank's bond portfolio came to €1.58 billion and share portfolio to €180 million in 2022. The lion's share of the former is made up of U.S. government bonds.

The Bank of Estonia also has €14.1 million worth of gold. The bank's gold reserve is tiny at just 256.6 kilograms or 8,250 ounces, which it has kept for historical more than financial reasons. After Estonia regained its independence, most of the country's gold reserve was sold to buy bonds.


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Editor: Marcus Turovski

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