Interim results of the Swiss National Bank as at 31 March 2022

The increasing volatility of SNB Earnings

Annual results are not really definite. Given that the SNB accumulates foreign currencies with interventions, they have huge swings.

But the SNB may lose 50 billion in one year and win 60 billion in the next year or vice verse.

Low Inflation, Crashes and Central Bank Money Printing

The crisis caused by the Covid19 virus,is a typical crisis with low inflation (at least for now). During such a crisis, central bank money printing helps asset price to rise again.

This applies to all assets on the SNB balance sheet:

• Government and corporate bonds
• Stocks
• Gold

The Corona crisis is just one of these low inflation crisis.

Therefore SNB profits have recovered; this time far more quickly than during the Financial Crisis. As opposed to 2009 until early 2011, the Swiss Franc is currently not overvalued.

Therefore the SNB did not let the Swiss franc appreciate. Without an a franc appreciation, however, the SNB must make profits during a period of central bank money printing.

But a prolonged crisis, will again put pressure on SNB to let the franc appreciate.

Franc will rise again with inflation

With a big rise of inflation, the run into the Swiss franc will start again.

And this at an exchange rate that is not digestible for the SNB.
We considered that after an inflationary period the

• EUR/CHF will fall to 0.90
• and USD/CHF to 0.75.

And this will lead to a massive SNB loss around 150 billion CHF.

However, we are not there yet: Inflation is low and interest rates even lower.

The Swiss National Bank reports a loss of CHF 32.8 billion for the first quarter of 2022.

The loss on foreign currency positions amounted to CHF 36.8 billion. A valuation gain of CHF 4.2 billion was recorded on gold holdings. The profit on Swiss franc positions was CHF 10.6 million.

The SNB’s 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.

Income statement, 1 January–30 March 2022

Source: snb.ch - Click to enlarge

Loss on foreign currency positions

The loss on foreign currency positions was CHF 36.8 billion. Interest and dividend income amounted to CHF 1.6 billion and CHF 0.8 billion respectively.

A price loss of CHF 25.1 billion was recorded on interest-bearing paper and instruments. In the case of equity securities and instruments, this loss came to CHF 10.7 billion. Exchangerate-related losses totalled CHF 3.4 billion.

The following numbers are in billion Swiss Francs.

SNB Profit on Foreign Currencies

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Valuation gain on gold holdings

A valuation gain of CHF 4.2 billion was recorded on gold holdings, which remained unchanged in volume terms. Gold was trading at CHF 57,550 per kilogram at the end of March 2022 (end-2021: CHF 53,548).

Percentage of gold to balance sheet

The percentage of gold has risen to 5.77%.

Balance Sheet

The balance sheet has expanded by 138.1 bn. francs, this is 16.04%.

SNB Balance Sheet for Gold Holdings for Q1 2022

Source: snb.ch - Click to enlarge

Profit on Swiss franc positions

The SNB maintains its profitability, last but not least, thanks to the reduction of the profitability of banks. When too many funds arrive on their accounts, they must deposit them on their sight deposit account at the SNB.

The profit on Swiss franc positions totalled CHF 10.6 million. The negative interest charged on sight deposit account balances was countered in particular by price losses on interest-bearing paper and instruments.

Profit on Negative Interest rates

Furthermore, the SNB harms the Swiss economy, when it reduces the profits of Swiss banks by negative interest rates, currently -0.75%. But with this measure she maintains her own profitability.

The SNB obtained far less money for negative rates, while sight deposits were slightly up (see below). The reason is this time the Corona crisis and that banks lend more money and did not put on the accounts of the central bank.

Still, as compared to the FX profits or gains on equities and bonds above, this number is relatively low.

SNB Result for Swiss Franc Positions for Q1 2022

Source: snb.ch - Click to enlarge

SNB Liabilities

Electronic Money Printing: Sight Deposits

Sight deposits is the biggest part of SNB interventions.

Sight deposits increased more strongly (19%) than the total balance sheet. The increase was on domestic banks.

Paper Printing

Banknotes in circulation: -0.25 bn francs to 90.4 bn. CHF.

This old form of a printing press, today a less important form of central bank interventions. It showed that safe-haven Swiss francs, e.g. 1000 franc bank notes are currently less in demand than previously.

Provisions for currency reserves

As at end-March 2022, the SNB recorded a loss of CHF 32.8 billion before the allocation to the provisions for currency reserves.

In accordance with art. 30 para. 1 of the National Bank Act (NBA), the SNB is required to set aside provisions permitting it to maintain the currency reserves at the level necessary for monetary policy. The allocation for the current financial year is determined at the end of the year.

SNB Liabilities and Sight Deposits for Q1 2022

Source: snb.ch - Click to enlarge