Higher interest rates drag Swiss National Bank to $3.6B loss

A general view shows the building of the Swiss National Bank (SNB) in Zurich, Switzerland March 7, 2022. Picture taken with a drone. REUTERS/Arnd Wiegmann/File photo

ZURICH  — The Swiss National Bank posted an annual loss of 3.2 billion Swiss francs ($3.62 billion) for 2023, it said on Monday, as a switch to positive interest rates cost it dearly and meant it couldn’t pay a dividend for a second straight year.

The SNB became the latest central bank to report losses as higher interest rates imposed to fight inflation force them to pay billions to commercial lenders.

The German central bank last month said it lost 21.6 billion euros last year, wiping out nearly all of its provisions, while its Dutch counterpart lost 3.5 billion euros.

For the SNB, gains made from its gold holdings and interest paid on emergency loans granted during the rescue of Credit Suisse were not enough to offset the cost of the central bank’s tighter monetary policy.

READ: Swiss National Bank exits negative rates era with 0.75% hike

The SNB exited negative interest rates in 2022 and has paid interest of 1.75 percent since June last year to commercial banks which lodge money with it overnight.

Tighter monetary policy

The tighter monetary policy paid off for inflation in Switzerland, which is much lower than in neighboring countries.

The latest reading on Monday showed Swiss prices rising 1.2 percent in February, its slowest pace in nearly two and a half years.

The SNB’s profits were also hit by the appreciation of the Swiss franc last year, a by-product of higher interest rates as well as lower Swiss inflation.

READ: Euro zone consumers slash inflation expectations – ECB survey

Profit from the SNB’s near 700 billion francs worth of foreign bonds and stocks dwindled to 4 billion francs after dividend, interest and valuation gains were hit by 58 billion francs in exchange-rate related losses.

The 2023 result, which confirmed the SNB’s provisional forecast in January, was an improvement from a record loss of 132.5 billion francs in 2022.

But it was not enough to allow a dividend payout to shareholders or the Swiss central or regional governments for a second year in a row.

Swiss inflation back to target range

Still, the loss is unlikely to affect monetary policy, with Chairman Thomas Jordan, who announced his departure on Friday, due to announce the latest interest rate decision on March 21.

“I don’t believe that not paying dividends will lead to political pressure on the SNB as the success of its monetary policy is so obvious,” said Karsten Junius, an economist at J.Safra Sarasin.

READ: Cutting interest rates too soon in Europe risks progress against inflation

“It has brought Swiss inflation back to its target range faster than all other big central banks, clearly fulfilling its mandate.”

During 2023, the SNB made a profit of 4 billion francs from its foreign currency positions, and a valuation gain of 1.7 billion francs on the 1,040 tons of gold it holds.

It also made a profit of 1.4 billion francs from the emergency loans it granted to ease the takeover of Credit Suisse.

($1 = 0.8828 Swiss francs)