July 29, 2016 / 6:41 AM / a year ago

UPDATE 1-Forex, gold drive Swiss National Bank to 21.3 bln franc H1 profit

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ZURICH, July 29 (Reuters) - Switzerland’s central bank on Friday reported a net profit of 21.3 billion Swiss francs ($21.8 billion) for the first half of 2016, boosted by strong profits from its foreign currency investments and the rising gold price.

The Swiss National Bank booked a valuation gain of 7.6 billion francs from its gold holdings and a profit from its foreign currency positions of 13 billion francs.

The institution has been buying currencies as well as foreign bonds and equities in massive amounts to check upward pressure on the highly-valued franc, which is sought by investors in times of economic uncertainty.

The SNB recently said it had been active in the foreign exchange markets to weaken the franc after it increased in value following Britain’s vote to quit the European Union.

The first-half profit compared with a 50 billion franc loss reported by the SNB a year earlier, a loss triggered by the rise in the franc’s value after the bank abandoned its policy of limiting the currency versus the euro in January 2015.

A more highly valued franc reduces the value in francs of the foreign currency investments the SNB has bought to weaken the currency. A stronger franc also makes life difficult for Switzerland’s exporters.

The SNB on Friday said its financial result depends largely on developments in the gold, foreign exchange and capital markets.

“Strong fluctuations are therefore to be expected, and only provisional conclusions are possible as regards the annual result,” the bank said in a statement.

The central bank also made a profit of 692 million francs from the negative interest rate, another measure designed to ward off interest in the franc.

It is not required to make a profit, with its main mandate to ensure price stability in Switzerland. But any profit it does make is distributed to the Swiss government and the country’s 26 cantons.

Normally 1 billion francs is shared between the cantons and the government, with the annual payments sometimes the difference between a budget surplus and a deficit for some cantons.

In 2015 the SNB racked up its biggest ever loss of 23.3 billion francs, largely due to losses on its foreign currency holdings after the franc increased in value, although it was still able to make a payout due to profits set aside from previous years.

$1 = 0.9787 Swiss francs Reporting by John Revill; editing by Brenna Hughes Neghaiwi and Adrian Croft

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