Notes on the balance sheet

Assets

1.  Gold and gold receivables

The Bank of Finland’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 1,387.5 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 1,961.0 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 holding of monetary policy assets amounts to EUR 624,233 million, of which the Bank of Finland holds EUR 4,648.3 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 frequency and a maturity of one week, on the basis of standard tenders. MROs are conducted as fixed rate tender procedures. These 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 2019 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.

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. Additionally, in 2019 the Governing Council introduced a new series of seven quarterly targeted longer-term refinancing operations (TLTRO III). These operations have a three-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 III operation can be as low as the average interest rate on the deposit facility prevailing over the life of the operation. Given that the rate for accruing interest will only be known starting from 2021 and that a reliable estimate is not possible until that time, the deposit facility rate is used for calculating the TLTRO III interest for 2019, as this was deemed a prudent approach.

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 2019 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, 22.10.2014, 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 establishing a public sector 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 Governing Council decided to cease further SMP purchases on 6 September 2012.

On 1 November 2019 the Eurosystem restarted its net purchases of securities under the asset purchase programme (APP)The APP programme consists of the third covered bond purchase programme (CBPP3), the asset-backed securities purchase programme (ABSPP), the PSPP and the CSPP. Further details on the APP can be found on the ECB’s website (https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html). at a monthly pace of EUR 20 billion on average. This followed a period of ten months since end-2018 during which the Eurosystem only reinvested, in full, the principal payments from maturing securities purchased under the APP. The Governing Council expects net purchases to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates. The Governing Council also intends to continue the reinvestments for an extended period of time past the date when the Governing Council 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 were derived on the basis of market quotes. When market quotes were not available, market prices were estimated using internal Eurosystem models. (which is not recorded on the balance sheet or in the profit and loss account and 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. Impairment tests are conducted on an annual basis, using data as at the year-end and are approved by the Governing Council. In these tests, impairment indicators are assessed separately for each programme.

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 their prevailing ECB capital key shares. As a result of impairment tests conducted on the CSPP portfolio, the Governing Council has deemed it appropriate to maintain a buffer against credit risks in monetary policy operations during 2019 (see ‘Provisions’ in the notes on the balance sheet).

In the context of the impairment test conducted as at the end of 2019 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 continued to encounter significant financial difficulties in 2019. 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 securities purchased 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 papers issued in the euro area as well as fund shares.

Of the increase in fund investments, EUR 72.4 million is related to the transfer of real estate funds from the balance sheet item 9. ʻOther assets’ (sub-item ʻShares and other equity’).

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 or whenever there is a change in composition of the ESCB national central banks.

For the Bank of Finland this balance sheet item includes (i) the paid-up share in the ECB’s subscribed capital, (ii) the net amount paid by the Bank of Finland due to the increase in its share in the ECB’s equity value resulting from all previous ECB’s capital key adjustments, and (iii) contributions in accordance with Article 48.2 of the Statute of the ESCB.

In connection with the quinquennial adjustment of the ECB capital key, on 1 January 2019, the share that the Bank of Finland held in the subscribed capital of the ECB increased from 1.2564% to 1.2708% and asset item 8.1 ʻParticipating interest in ECB’ increased from EUR 144.3 million to EUR 159.1 million.

8.2 Claims equivalent to the transfer of foreign reserves

These represent the Bank of Finland’s claims arising from the transfer of foreign reserve assets 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.

The adjustments to the capital key weightings of the ECB on 1 January 2019 also resulted in the adjustment of the claim of the Bank of Finland with respect to the foreign reserve assets transferred to the ECB. In order to reflect its increased capital key share, the euro-denominated claim of the Bank of Finland increased by EUR 8.3 million to EUR 736.4 million on 1 January 2019.

8.3 Net claims related to the allocation of euro banknotes within the Eurosystem

This item includes the claim arising from the adjustment of the banknotes of the Bank of Finland to correspond to the ECB’s capital key as well as the liability resulting from the share of 8% of the banknotes in circulation allocated to the ECB. For both the claim and the liability, the counter entry is recorded under the balance sheet liability item ʻBanknotes 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 a ʻNet claims/liabilities related to the allocation of euro banknotes within the Eurosystem’.

At the end of 2019, the balance sheet item totalled EUR 4,908.0 million (EUR 4,034.6 million in 2018). The increase in comparison to 2018 was due to the increase of 3.8% in banknotes put into circulation by the Bank of Finland, while banknotes in circulation in the Eurosystem as a whole increased by 7.4% from 2018. 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 56,800.3 million as at 31 December 2019 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 57,067.1 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 –292.9 million at year-end (see ‘Net result of pooling of monetary income’ in the notes on the profit and loss account).

Concerning 2019, 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 1,431 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 2019 was EUR 26.1 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.

The decrease in the sub-item ʻShares and other equity’ is mainly due to the transfer of real estate fund investments to the balance sheet item 7.2 ʻOther securities’.

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 2019, the total value of banknotes in circulation within the Eurosystem increased by 7.4%. According to the allocation key, the Bank of Finland had euro banknotes in circulation worth EUR 21,711.6 million at the end of the year, compared with EUR 20,215.2 million at the end of 2018. The value of euro banknotes actually issued by the Bank of Finland in 2019 increased by 3.8% from EUR 16,180.7 million to EUR 16,803.6 million. As this was less than the allocated amount, the difference of EUR 4,908.0 million (compared to EUR 4,034.6 million in 2018) 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 on 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, the reserve holdings exceeding the required minimum reserves are remunerated at zero per cent or the deposit facility rate, whichever is lower.

Starting on 30 October 2019, the Governing Council introduced a two-tier system for reserve remuneration, which exempts part of credit institutions’ excess liquidity holdings (i.e. reserve holdings in excess of minimum reserve requirements) from negative remuneration at the rate applicable on the deposit facility. This part is remunerated at the annual rate of 0%. The volume of reserve holdings in excess of minimum reserve requirements that was exempt at year-end from the deposit facility rate – the exempt tier – was determined as a multiple of 6 on an institution’s minimum reserve requirements. The multiplier may be adjusted by the Governing Council over time in line with changing levels of excess liquidity holdings. The non-exempt tier of excess liquidity holdings continues to be remunerated at the lower of either zero percent or the deposit facility rate.

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

The Bank of Finland’s other liabilities to euro area credit institutions denominated in euro totalled EUR 1.5 million.

4. Liabilities to other euro area residents denominated in euro

This item consists of euro-denominated liabilities to the public sector (EUR 150 million) and credit institutions other than those subject to the reserve requirement (EUR 8.3 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 (EUR 1,376.0 million).

6. Liabilities to euro area residents denominated in foreign currency

As at 31 December 2019, 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 2019, 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 2019 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 2019 (EUR 1,467.7 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’.

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 2019, these provisions totalled EUR 4,756.7 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.

In accordance with the decision of the Governing Council taken under Article 32.4 of the ESCB Statute, the provision against credit risks in monetary policy operations is allocated between the national central banks of participating Member States (NCBs) in proportion to their subscribed capital key shares in the ECB prevailing in the year when the initial impairment occurred. As a result of the annual impairment test of the CSPP portfolio, the Governing Council has reviewed the appropriateness of the volume of the provision against credit risks established in 2018 and decided to reduce this provision from a total amount of EUR 161.1 million as at 31 December 2018 to an amount of EUR 89.4 million as at 31 December 2019. The Bank of Finland’s share in this provision amounts to EUR 1.6 million (2018: EUR 2.9 million). The respective adjustments are reflected in the NCB’s profit and loss accounts. In the case of the Bank of Finland, the resulting income amounted to EUR 1.3 million in 2019 (see ‘Net result of pooling of monetary income’ in the notes on the profit and loss account).

The pension provision is made to cover the Bank of Finland’s pension liabilities. These liabilities total EUR 554.9 million: 106.2% of this amount is covered by the pension provision, i.e. EUR 589.2 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 –6.8 million for the pension fund which was covered by reducing the pension provision. At the end of 2019, real estate in the value of EUR 12.8 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 576.3 million) of the pension provision. Instead, these assets are managed as part of the Bank’s financial assets.

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 2019 totalled EUR 319.8 million.

Post-balance-sheet events

As a result of the departure of the United Kingdom from the EU and consequent withdrawal of the Bank of England from the European System of Central Banks (ESCB), the weightings assigned to the remaining NCBs in the key for subscription to the ECB’s capital were adjusted with effect from 1 February 2020, as follows:

Impact on the Bank of Finland’s share in the ECB’s capital

The ECB kept its subscribed capital unchanged at EUR 10,825 million after Bank of England’s withdrawal from the ESCB. The share of the Bank of England in the ECB’s subscribed capital, which stood at 14.3%, was reallocated among both the euro area NCBs and the remaining non-euro area NCBs. As a result, the Bank of Finland’s share in the ECB’s subscribed capital increased from 1.2708% to 1.4939%.

The ECB’s paid-up capital will also remain unchanged at EUR 7,659 million in the year of the United Kingdom’s departure from the EU, i.e. in 2020, as the remaining NCBs have covered the withdrawn Bank of England’s paid-up capital of EUR 58 million. Of this, the Bank of Finland’s share was EUR 1.7 million and it was paid on 3 February 2020. Euro area NCBs will pay up in full their increased subscriptions to the ECB capital in two additional annual instalments. As a result, the Bank of Finland will transfer to the ECB an amount of EUR 11.2 million in both 2020 and 2021.

Impact on NCB’s claims equivalent to the foreign reserve assets transferred to the ECB

Pursuant to Article 30.2 of the Statute of the ESCB, the contributions of the NCBs to the transfer of foreign reserve assets to the ECB are fixed in proportion to their share in the ECB’s subscribed capital. Following (a) the increase in the weighting of the euro area NCBs (which have transferred foreign reserve assets to the ECB) in the ECB’s subscribed capital resulting from Bank of England’s withdrawal from the ESCB and (b) a decision of the Governing Council to reduce the proportion of the euro area NCBs’ contributions, so that the total amount of foreign reserve assets already transferred by the euro area NCBs will remain at the current level, the claim equivalent to this transfer was marginally adjusted. This resulted in a minor increase in the Bank of Finland’s claim, which was paid to the ECB on 3 February 2020.

Off-balance sheet commitments

In accordance with the Governing Council’s decision, the Bank of Finland has made available for lending its holdings of securities purchased under the CBPP3, the PSPP and the CSPP. Securities lending operations conducted against collateral other than cash collateral are recorded in off-balance-sheet accounts at the end of the year. Cash collateral received in securities lending operations is recorded in on-balance-sheet accounts (see liability item 3. ‘Other liabilities to euro area credit institutions denominated in euro’ and liability item 5. ‘Liabilities to non-euro area residents denominated in euro’ in the notes on the balance sheet). There were no such loans as at 31 December 2019. Such securities lending operations with a value of EUR 37 million (2018: EUR 786 million) were outstanding as at 31 December 2019.