ZURICH (Reuters) - Switzerland’s central bank expects to post a profit of more than 24 billion Swiss francs (19.34 billion pounds) for 2016, it said on Monday, as it logged big gains from its foreign currency holdings and its negative interest rate policy.
The Swiss National Bank (SNBN.S) made a profit of 19 billion francs on foreign currency investments which rose to roughly 645 billion francs last year, a size similar to the entire Swiss economy.
The bank made a profit of 3.9 billion francs on the valuation of its gold holdings. The SNB’s profits are not part of its monetary policy mandate.
The profit figure compared with a 23.3 billion franc loss recorded by the bank for 2015 when the value of its foreign currency investments fell sharply.
The bank has built up foreign currency reserves by selling francs and buying foreign currency to weaken the franc, which it has consistently described as “significantly overvalued”.
A strong franc makes life more difficult for Switzerland’s exporters by making their products more expensive outside the country.
To quell demand for Swiss franc investments, the SNB has also been charging a negative interest rate on cash it holds for commercial banks.
The SNB on Monday did not give a figure for how much it has pocketed from the charge, but analysts estimate the figure to be around 1.5 billion francs.
Banks have complained about the negative rates, which they see as an extra charge on their activities, while pension funds have also struggled with the rates, which together with the low interest rate environment has weighed on their investments.
The Swiss federation of trade unions (SGB) has asked the SNB to give the money collected from negative interest rates to pension funds, a proposal supported by the association of Swiss Pension Funds.
“The pension funds need every franc, and any kind of support would be welcome,” said Daniel Lampart, chief economist at the SGB, saying the SNB had rejected any payment to the pension funds which it said would require a change of law.
The SNB is not required to make a profit, with its main mandate to ensure price stability in Switzerland. But a portion of any profit it does make is distributed to the Swiss government and the country’s 26 cantons.
For 2016 the SNB said it expects to raise its normal payment of 1 billion francs to 1.5 billion francs, in addition to its dividend payment of 15 Swiss francs per share to investors.
Reporting by John Revill; editing by John Miller and Jason Neely