The Bundesbank posted a profit of €4.6 billion for the 2013 financial year, which is €3.9 billion higher than the 2012 figure. "Despite interest income being lower, the Bundesbank has recorded a higher profit for 2013 than for 2012 as it has not been necessary to transfer any more funds to the risk provisions," Bundesbank President Jens Weidmann explained at the Bundesbank’s 2013 financial statements press conference in Frankfurt am Main.

The net profit for the year had already been transferred in full to the Federal Government of Germany, he said. A maximum of €2.5 billion of this figure flows into the Federal budget, while any profit exceeding this amount is used in line with a legal ruling to repay debt under the second economic stimulus package of 2009.

Lower risk

Mr Weidmann said that the Bundesbank’s risk situation had eased somewhat for the first time in four years. This was primarily the result of a lower volume of Eurosystem refinancing loans and some maturities among the euro government bonds that had been purchased under the Securities Markets Programme (SMP). However, the Bundesbank expects the low-interest-rate environment to weigh on profitability in 2014, which might reduce its available financial resources (AFR). The Bank has therefore left its risk provisions unchanged on balance at the prior-year level of €14.38 billion. It had begun to gradually step up its risk provisions in 2010 because the financial crisis had sharply increased the risk involved in its monetary policy operations.

Low interest rates weigh on interest income

The main source of the Bundesbank’s profit for 2013 was interest income of €7.3 billion. This was offset by interest expenses of €1.7 billion, resulting in net interest income of €5.6 billion. Net interest income for the 2012 financial year stood at €8.3 billion. "The decline of €2.7 billion in net interest income is due primarily to the key interest rate cuts made by the European Central Bank in May and November 2013," Executive Board member Rudolf Böhmler explained at the press conference.

The lower market value of the Bundesbank's gold reserves, by contrast, did not affect the Bundesbank’s profit. The 31% drop in the price of gold is reflected in the balance sheet item "Revaluation accounts", which shrank by €44 billion to €88 billion. The value of the gold reserves had, however, more than quadrupled since the launch of monetary union, Mr Böhmler added.

Commenting on the annual accounts, Mr Böhmler stressed the substantial weight of the Bundesbank’s TARGET2 claims on the ECB. While it was true that this item had diminished by around one-fifth to €510 billion in the year under review, the claims nonetheless represented "the second-highest year-end balance to date in the Bundesbank’s balance sheet," Mr Böhmler emphasised. TARGET2 claims today accounted for 64% of the Bundesbank’s total assets of €801 billion, he stated. In 2007, these claims amounted to just €71 billion, or 15% of that year’s total assets of €484 billion.

Debt crisis not over

Looking back at macroeconomic developments in the past year, Bundesbank President Jens Weidmann cautioned that using the improvement in confidence in the financial markets as the sole indicator of progress would overrate its importance. "Realistically speaking, it is premature to declare that the sovereign debt crisis is already over," Mr Weidmann stated. "Substantial and persistent efforts will be needed to achieve a lasting solution to the crisis and its underlying structural causes," he added. Debt levels were still worryingly high in a host of countries. "Politicians, not monetary policymakers, are the ones who hold the key to a lasting solution to the crisis."

German economy likely to pick up further pace

Mr Weidmann pointed out that the global economy had picked up speed again over the course of 2013, a development driven in part by an exceptionally expansionary monetary policy. The German economy had furthermore recovered from the brief dip seen in the latter part of 2012 and early part of 2013, he noted. "All in all, having accelerated over the course of 2013, the pace of growth in the German economy is likely to increase again in 2014 and 2015," the Bundesbank President said.

Domestic demand had become increasingly important for German economic growth of late, Mr Weidmann explained. That being said, Germany continued to run a high current account surplus, which showed that German enterprises were very well positioned in global sales markets, he said. It would be absurd to debate measures designed to weaken Germany’s competitiveness. "After all, making the top Bundesliga football teams play all their matches wearing a backpack does nothing to improve the quality of the Bundesliga as a whole," he stressed. In light of Germany’s relatively unfavourable demographics and high standard of living, current account surpluses appeared to be entirely appropriate for the German economy for the foreseeable future, Mr Weidmann concluded.