Notes on the balance sheet

Assets

1. Gold and gold receivables
The Bank’s holdings of gold total 1,576,487 troy ounces (1 troy ounce = 31.103 g). In the annual accounts, gold has been valued at market price. At the beginning of 1999 the Bank of Finland – and the other NCBs participating in the Eurosystem – transferred about 20% of its gold holdings to the ECB.

2. Claims on non-euro area residents denominated in foreign currency
The item consists of claims on non-euro area residents denominated in foreign currency and included in the Bank’s foreign reserves, and holdings of special drawing rights (SDRs) allocated by the International Monetary Fund (IMF).

2.1 Receivables from the International Monetary Fund (IMF)

Finland’s quota in the IMF is SDR 2,410.6 million. The reserve tranche is the part of the Bank’s quota that has been paid to the IMF in foreign currency. Another part of the quota was formerly paid to the IMF in Finnish markka. The IMF has lent this part back to the Bank of Finland. The net effect of the Finnish markka quota on the Bank’s balance sheet is zero, since the above-mentioned receivables and the liability are included in the same balance sheet item.

The Bank of Finland’s SDR allocation amounts to EUR 1,363.4 million. The SDRs are reserve assets created and allocated by the IMF to its member countries. They are used in currency transactions as normal currency units. The value of the sub-item changes on the basis of foreign exchange transactions between the member countries. It is also affected by interests earned and paid as well as remuneration on the Bank’s claims in the IMF.

The Bank of Finland’s receivables from the IMF total EUR 1,905.3 million.

2.2 Balances with banks and security investments, external loans and other external assets
This item includes foreign currency-denominated deposits and security investments as well as external loans and other external assets.

3. Claims on euro area residents denominated in foreign currency
This item consists of foreign currency-denominated deposits and securities, as well as other claims on euro area residents.

4. Claims on non-euro area residents denominated in euro
This item includes euro-denominated deposits with non-euro area counterparties, securities issued outside the euro area and other euro-denominated claims.

5. Lending to euro area credit institutions related to monetary policy operations denominated in euro
This item includes monetary policy instruments used by the Bank of Finland to implement monetary policy as part of the Eurosystem. The item consists of interest-bearing credit to Finnish credit institutions, and the amount recorded is determined by the credit institutions’ liquidity needs.

The total Eurosystem holdings of monetary policy assets amounts to EUR 734,382 million, of which the Bank of Finland holds EUR 8,648.3 million. In accordance with Article 32.4 of the ESCB Statute, losses from monetary policy operations, if they were to materialise, are shared in full by the Eurosystem NCBs, in proportion to the prevailing ECB capital key shares. Losses can only materialise if both the counterparty fails and the recovery of funds received from the resolution of the collateral provided by the counterparty is not sufficient. For specific collateral which can be accepted by NCBs at their own discretion, risk sharing has been excluded by the Governing Council of the ECB.

5.1 Main refinancing operations
Main refinancing operations (MROs) are executed through liquidity providing reverse transactions with a weekly frequency and a maturity of one week. They are conducted as fixed rate tender procedures. Main refinancing operations play a key role in achieving the aims of steering interest rates, managing market liquidity and signalling the monetary policy stance.

5.2 Longer-term refinancing operations
These operations (LTROs) aim to provide counterparties with additional longer-term refinancing. In 2018 operations were conducted with maturities equal to the reserve maintenance period and with maturities between 3 and 48 months. These operations were conducted at fixed rate with allotment of the total amount bid.

Additionally, in 2016 the Governing Council introduced a new series of four targeted longer-term refinancing operations (TLTRO II). These operations have a four-year maturity, with a possibility of repayment after two years. According to the decisions taken by the Governing Council, the final interest rate applicable to each TLTRO-II operation depended on the lending behaviour of the counterparties for the period between 1 February 2016 and 31 January 2018 and would be between the MRO rate and the deposit facility rate at the time of the allotment. Given that the actual rate could only be known in 2018 and a reliable estimate was not possible until this time, the deposit facility rate was used for calculating the TLTRO II interest up to the end of 2017, as this was deemed a prudent approach. Interest income for that period resulting from the difference between the deposit facility rate and the actual rate was recorded in the profit and loss account under ‘Interest expenses’ in 2018.

5.3 Fine-tuning reverse operations
Fine-tuning reverse operations aim to regulate the market liquidity situation and steer interest rates, particularly to smooth the effects on interest rates caused by unexpected market fluctuations. Owing to their nature, they are executed on an ad-hoc basis.

5.4 Structural reverse operations
These are reverse open-market transactions through standard tenders to enable the Eurosystem to adjust its structural liquidity position vis-à-vis the financial sector.

5.5 Marginal lending facility
Marginal lending facilities may be used by counterparties to obtain overnight liquidity from NCBs at a pre-specified interest rate against eligible assets.

5.6 Credits related to margin calls
This item refers to cash paid to counterparties in those instances where the market value of the collateral exceeds an established trigger point implying an excess of collateral with respect to outstanding monetary policy operations.

6. Other claims on euro area credit institutions denominated in euro
This item consists of euro-denominated deposits and accounts with euro area credit institutions.

On 17 May 2017, the Governing Council decided to publish the text of the Emergency Liquidity Assistance (ELA) agreement with the aim of further increasing transparency regarding ELA. This publication replaces the ELA procedures document that has been available on the ECB website since October 2013. For the text of the press release, click on: http://www.ecb.europa.eu/press/pr/date/2017/html/ecb.pr170619.en.html.

7. Securities of euro area residents denominated in euro
In order to report securities held for monetary policy purpose separately, the item ‘Securities of euro area residents denominated in euro’ has been divided into two sub-positions: ‘Securities held for monetary policy purposes’ and ‘Other securities’.

7.1 Securities held for monetary policy purposes
As at 31 December 2018, this item consisted of securities acquired by the Bank of Finland within the scope of the three covered bond purchase programmesDecision ECB/2009/16 of 2 July 2009 on the implementation of the covered bond purchase programme (OJ L 175, 4.7.2009, p. 18); decision ECB/2011/17 of 3 November 2011 on the implementation of the second covered bond purchase programme (OJ L 297, 16.11.2011, p. 70) and decision ECB/2014/40 of 15 October 2014 on the implementation of the third covered bond purchase programme (OJ L 335, 22.11.2014, p. 22)., the securities markets programme (SMP)Decision ECB/2010/5 of 14 May 2010 establishing a securities markets programme (OJ L 124, 20.5.2010, p. 8)., the public sector purchase programme (PSPP)Decision ECB/2015/10 of 4 March 2015 on a secondary markets public sector asset purchase programme (OJ L 121, 14.5.2015, p. 20), as amended. and the corporate sector purchase programme (CSPP)Decision ECB/2016/16 of 1 June 2016 establishing a corporate sector purchase programme (OJ L 157, 15.6.2016, p. 28)..

Purchases under the first covered bond purchase programme (CBPP1) were completed on 30 June 2010, while the second covered bond purchase programme (CBPP2) ended on 31 October 2012. The SMP was terminated on 6 September 2012.

In 2018 the Eurosystem continued its securities purchases under the expanded asset purchase programme (APP)Further details for the APP can be found on the ECB’s website: https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html., which includes the third covered bond purchase programme (CBPP3), the asset-backed securities purchase programme (ABSPP), the public sector purchase programme (PSPP) and the corporate sector purchase programme (CSPP). The monthly pace of combined net APP purchases by the NCBs and the ECB was EUR 30 billion on average until September 2018 and EUR 15 billion from October 2018 until the end of the year when the net purchases ended. The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

The securities purchased under all of these programmes are valued on an amortised cost basis subject to impairment (see ‘Valuation and amortisation of securities’ in the notes on accounting conventions).

The amortised cost of the securities held by the Bank of Finland, as well as their market valueMarket values are indicative and are derived on the basis of market quotes. When market quotes are not available, market prices are estimated using internal Eurosystem models. (which is not recorded on the balance sheet or in the profit and loss account but is provided for comparison purposes only), are as follows:

The Governing Council assesses on a regular basis the financial risks associated with the securities held under these programmes. Annual impairment tests are conducted on the basis of the estimated recoverable amounts as at the year-end and are approved by the Governing Council.

In accordance with Article 32.4 of the ESCB Statute, losses from holdings of securities purchased under the SMP, CBPP3 and CSPP as well as securities of supranational organisations (supra) purchased under the PSPP, if they were to materialise, are shared in full by the Eurosystem NCBs, in proportion to the prevailing ECB capital key shares. As a result of an impairment test conducted on the CSPP portfolio, the Governing Council has deemed it appropriate to establish a buffer against credit risks in monetary policy operations during 2018 (see ‘Provisions’ in the notes on the balance sheet).

In the context of the impairment test conducted as at the end of 2018 on securities purchased under the CBPP3 programme, the Governing Council identified one impairment indicator in particular, relating to the holdings of a security issued by a credit institution which encountered significant financial difficulties in the course of 2018. The Governing Council considered that the identified impairment indicators had not affected the estimated future cash flows. No impairment losses were therefore recorded at the year-end on the Bank of Finland’s holdings of the security under the CBPP3 programme. Furthermore, no impairment losses were recorded in respect of the other securities purchased under the CBPP3 programme.

The following table shows, for each programme, total holdings of Eurosystem NCBs and the Bank of Finland’s share held on the balance sheet.

7.2 Other securities
This item includes coupon bonds and discount paper issued in the euro area as well as fund shares.

8. Intra-Eurosystem claims 

8.1 Participating interest in ECB
Pursuant to Article 28 of the ESCB Statute, the ESCB national central banks are the sole subscribers to the capital of the ECB. Subscriptions depend on shares which are fixed in accordance with Article 29 of the ESCB Statute and are subject to adjustment every five years.

The share in the ECB’s capital of each NCB participating in the Eurosystem is determined on the basis of a so-called capital key. The capital key is calculated relative to the population and gross domestic product of each country. It is adjusted every five years and whenever new members join the EU. The Bank of Finland’s percentage share in the ECB’s capital has been 1.2564%, i.e. EUR 144.3 million, since 1 January 2015.

8.2 Claims equivalent to the transfer of foreign reserves
This item represents the Bank of Finland’s claims arising from the transfer of foreign reserve assets, EUR 728.1 million, to the ECB when the Bank of Finland joined the Eurosystem. These claims are denominated in euro at a value fixed at the time of their transfer.

The remuneration of these claims is calculated daily at the latest available marginal interest rate used by the Eurosystem in its tenders for main refinancing operations, adjusted to reflect a zero return on the gold component.

8.3 Net claims related to the allocation of euro banknotes within the Eurosystem
This item consists of a so-called CSM item (Capital Share Mechanism) relating to the subscription of the ECB’s capital, less the so-called ECB issue figure. The amount of euro banknotes in circulation under the CSM is adjusted in the balance sheet to correspond to the ECB’s capital key. The ECB issue figure represents the ECB’s share (8%) of euro banknotes in circulation. For both figures, the counter entry is recorded under the balance sheet liability item ‘Banknotes in circulation’.According to the accounting regime chosen by the Eurosystem on the issue of euro banknotes, a share of 8% of the total value of the euro banknotes in circulation is allocated to the ECB on a monthly basis. The remaining 92% of the value of the euro banknotes in circulation are allocated to the NCBs also on a monthly basis, whereby each NCB shows in its balance sheet a share of the euro banknotes issued corresponding to its paid-up share in the ECB’s capital. The difference between the value of the euro banknotes allocated to the NCB according to the aforementioned accounting regime, and the value of euro banknotes put into circulation, is recorded as ‘Net claims/liabilities related to the allocation of euro banknotes within the Eurosystem’.

At the end of 2018, the balance sheet item totalled EUR 4,034.6 million (EUR 3,750.9 million in 2017). The increase in comparison to 2017 was due to the increase of 4.6% in banknotes put into circulation by the Bank of Finland, while banknotes in circulation in the Eurosystem as a whole increased by 5.2% from 2017. The remuneration of these claims is calculated daily at the latest available marginal interest rate used by the Eurosystem in its tenders for main refinancing operations.

8.4 Other claims within the Eurosystem (net) or liability item Other liabilities within the Eurosystem (net)

The balance of EUR 39,605.9 million as at 31 December 2018 represents the sum of three components: 1) the position of the Bank of Finland vis-à-vis the ECB in respect of the transfers issued and received through TARGET2 by the ESCB national central banks, including the ECB, plus the balances held with Eurosystem central banks through correspondent accounts; 2) the position vis-à-vis the ECB in respect of the pooling and allocation of monetary income within the Eurosystem pending settlement; and 3) the Bank of Finland’s position vis-à-vis the ECB in respect of the ECB’s interim profit distribution and any amounts receivable or refundable.

Regarding the first component, the year-end net transfers via TARGET2 had a credit balance of EUR 39,826.7 million. The remuneration of this position is calculated daily at the latest available marginal interest rate used by the Eurosystem in its tenders for main refinancing operations.

The second component, i.e. the position vis-à-vis the ECB in respect of the annual pooling and allocation of monetary income within the Eurosystem NCBs, had a debit balance of EUR –242.1 million at year-end (see ‘Net result of pooling of monetary income’ in the notes on the profit and loss account).

Concerning 2018, following a decision by the Governing Council, the amount due to euro area NCBs with respect to the ECB’s interim profit distribution was EUR 1,191 million (see ‘Interim profit distribution by the ECB’ in the notes on accounting conventions). The related amount due to the Bank of Finland as at 31 December 2018 was EUR 21.3 million (see ‘Income from equity shares and participating interest’ in the profit and loss account).

9. Other assets
This item consists of the Bank of Finland’s holdings of euro coins, fixed assets and investment assets (shares and other equity). The item also includes valuation results of off-balance sheet items, accruals and other receivables as well as the pension fund’s assets which consist entirely of real estates. Investment assets earmarked by the Bank for the pension fund were transferred to the Bank’s financial assets in March 2017 and are henceforth managed as part of these assets. The investment instruments are recorded on the assets side of the balance sheet, under items ‘Other securities’ and ‘Other assets’ (sub-item ‘Shares and other equity’).

The increase in "Shares and other equity" is due to growth in investment in real estate funds.

Liabilities

1. Banknotes in circulation
This item consists of the Bank of Finland’s share, in accordance with the ECB’s capital key and adjusted for the share allocated to the ECB, of the total amount of euro banknotes in circulation.

During 2018, the total value of euro banknotes in circulation increased by 5.2%. According to the allocation key, the Bank of Finland had euro banknotes in circulation worth EUR 20,215.2 million at the end of the year, compared with EUR 19,223.2 million at the end of 2017. The value of the euro banknotes actually issued by the Bank of Finland in 2018 increased by 4.6% from EUR 15,472.3 million to EUR 16,180.7 million. As this was less than the allocated amount, the difference of EUR 4,034.6 million (EUR 3,750.9 million in 2017) is shown under asset sub-item ‘Net claims related to the allocation of euro banknotes within the Eurosystem’.

2. Liabilities to euro area credit institutions related to monetary policy operations denominated in euro

2.1 Current accounts (covering the minimum reserve system)
Current accounts contain the credit balances of the transaction accounts of credit institutions that are required to hold minimum reserves. Banks’ minimum reserve balances have been remunerated since 1 January 1999 at the latest available marginal interest rate used by the Eurosystem in its tenders for main refinancing operations. Since June 2014, banks’ reserve holdings exceeding the required minimum reserves are remunerated at zero per cent or the deposit facility rate, whichever is lower.

2.2 Deposit facility
The deposit facility refers to overnight deposits placed by banks that access the Eurosystem’s liquidity-absorbing standing facility at the pre-specified rate.

2.3 Fixed-term deposits
Fixed-term deposits are fine-tuning liquidity absorbing operations that take the form of deposits.

2.4 Fine-tuning reverse operations
Fine-tuning reverse operations are used to offset high liquidity imbalances.

2.5 Deposits related to margin calls
This item refers to deposits made by counterparties in those instances where the market value of the collateral pledged falls short of an established trigger point.

3. Other liabilities to euro area credit institutions denominated in euro
As at 31 December 2018, the Bank of Finland had no other liabilities to euro area credit institutions denominated in euro.

4. Liabilities to other euro area residents denominated in euro
This item consists of euro-denominated liabilities to the public sector (EUR 600 million) and credit institutions other than those subject to the reserve requirement (EUR 0.1 million).

5. Liabilities to non-euro area residents denominated in euro
This item consists of balances of international organisations and non-euro area banks with the Bank of Finland and repo agreements with non-euro area counterparties.

6. Liabilities to euro area residents denominated in foreign currency
As at 31 December 2018, the Bank of Finland had no liabilities to euro area residents denominated in foreign currency.

7. Liabilities to non-euro area residents denominated in foreign currency
As at 31 December 2018, the Bank of Finland had no liabilities to non-euro area residents denominated in foreign currency.

8. Counterpart of special drawing rights allocated by the IMF
This item is the counteritem of SDRs (cf. item on the asset side). Originally the amount of SDRs and their counteritem were equal. As a result of transactions, the Bank of Finland’s claims related to SDRs were smaller at the end of 2018 than their counteritem on the liabilities side of the balance sheet. On the liabilities side, the counteritem is a fixed amount totalling SDR 1,189.5 million. In the balance sheet, the item is presented in euro, valued at the rate prevailing on 31 December 2018 (EUR 1,445.7 million).

9. Intra-Eurosystem liabilities (net)
Intra-Eurosystem liabilities and claims have been elaborated on in more detail in the notes on the balance sheet, under assets item ‘Intra-Eurosystem claims’. At the end of financial year 2018, the Bank of Finland had no intra-Eurosystem liabilities.

10. Other liabilities
This item consists of accruals, accounts payable and other liabilities. Accruals include e.g. transferable items recorded in connection with the financial accounts and interest payable on credit under repo agreements and long-term refinancing operations. Sub-item ‘Sundry’ includes e.g. liabilities related to value-added and withholding tax payments as well as salaries and pensions to be paid.

11. Revaluation accounts
The item includes unrealised valuation gains arising from the market valuation of foreign currency-denominated items and securities. The item also includes revaluations of land and buildings and other valuation differences arising from changes in accounting practice in 1999.

12. Provisions
Under section 20 of the Act on the Bank of Finland, provisions can be made in the annual accounts, if they are necessary for safeguarding the real value of the Bank’s funds or for smoothing out variations in profit and loss arising from changes in exchange rates or market values of securities. At the end of 2018, these provisions totalled EUR 4,636.4 million. Provisions consist of a general provision, provision against real value loss, pension provision, foreign exchange rate and price difference provision and a provision against losses in monetary policy operations.

The pension provision is made to cover the Bank of Finland’s pension liabilities. These liabilities total EUR 554.8 million: 107.5% of this amount is covered by the pension provision, i.e. EUR 596.4 million. The change in the pension provision consists of a reduction of EUR –0.4 million in the revaluation account and a loss of EUR –7.5 million for the pension fund which was covered by reducing the pension provision. At the end of 2018, real estate in the value of EUR 14.0 million was earmarked for covering the pension provision (see ‘Other assets’ in the notes on the balance sheet). No specified assets have been earmarked for covering the remaining portion (EUR 582.4 million) of the pension provision. Instead, these assets are managed as part of the Bank’s financial assets.

In 2017, a provision totalling EUR 69 million against losses in monetary policy operations was established in relation to a security held by the Bank of Finland. In accordance with Article 32.4 of the ESCB Statute, this provision was funded by all the national central banks of participating Member States (NCBs) in proportion to their subscribed capital key shares in the ECB prevailing in 2017. As a result, a provision for EUR 1.2 million equivalent to 1.78487% of the total provision was created. The size of the provision in the financial statements 2017 was calculated taking into account the information regarding the sale of the security in January 2018 and therefore the loss realised in 2018 was fully covered by usage of the provision.

Furthermore, as a result of an impairment test conducted on the CSPP portfolio, the Governing Council has deemed it appropriate to establish a buffer totalling EUR 161 million against credit risks in monetary policy operations during 2018. In accordance with Article 32.4 of the ESCB Statute, this buffer is funded by all the NCBs in proportion to their subscribed capital key shares in the ECB prevailing in 2018. As a result, a provision for EUR 2.9 million equivalent to 1.78487% of the total provision was created.

13. Capital and reserves
This item consists of the Bank’s primary capital and reserve fund. Under section 21 of the Act on the Bank of Finland, the loss shall be covered from the reserve fund, if the annual accounts of the Bank show a financial loss. If the reserve fund is insufficient to cover part of the loss, the uncovered part may be left temporarily uncovered. Any profits in subsequent years shall be used first to cover such uncovered losses.

14. Profit for the financial year
The profit for the financial year 2018 totalled EUR 230.3 million.

Off-balance sheet commitments