Management of financial assets in 2024

The Bank of Finland’s financial assets consist of foreign reserves, long-term investments and gold holdings. Managing foreign reserves is an integral part of the Bank of Finland’s statutory tasks. This helps in preparing for future uncertainties and crises. Management of the Bank of Finland’s financial assets is guided by the investment policy decided annually by the Bank’s Board. The investment policy covers fixed income investments, long-term investment and the principles of responsible investment.

Bank of Finland’s management of financial assets in 2024

Positive return on Bank of Finland’s financial asset investments

In the financial market, 2024 was a good year overall, despite certain tensions. 

The Bank of Finland’s financial assets yielded a return of 5.8%, or EUR 550 million. With the gold price and exchange rate impacts included, the financial assets grew by 14.5%, or nearly EUR 2 billion.

The Bank of Finland’s financial assets consist of the balance sheet items which fall under the Bank’s investment activities. At the end of 2024, these assets totalled approximately EUR 15.4 billion.

The Bank’s financial assets do not include balance sheet items related to Eurosystem monetary policy measures, such as monetary policy bond purchase programmes or monetary policy loans to banks.

The Bank of Finland decides on the volume of its financial assets within the framework of the Agreement on Net Financial Assets (ANFA).

ANFA is an agreement between the national central banks in the Eurosystem and the European Central Bank (ECB). It sets rules and limits for holdings of financial assets that are related to the national tasks of the Eurosystem central banks.

The Bank of Finland manages its financial assets in line with the central bank objectives, taking into account the returns on investment, the risks attached and the responsibility considerations.

Bank of Finland decided in 2024 to increase its foreign exchange reserves

The Bank of Finland’s statutory tasks include the holding and management of Finland’s foreign reserves. Both the size and currency composition of the Bank’s holdings of foreign exchange reserves are based on the needs of national preparedness and on the obligations inherent in central banking tasks.

Foreign exchange reserves have a key role when it comes to ensuring economic and financial preparedness for dealing with future uncertainties and preparing for crises that could weaken Finland’s external solvency.

Decisions related to the management of foreign reserves are taken by the Bank’s Board as and when necessary, and at least once every three years.

The currency-specific targets for the period 2022–2024 were set at USD 5 billion, GBP 650 million and JPY 95 billion.

Towards the end of 2024 the Board of the Bank of Finland decided to increase the holdings of foreign exchange reserves by approximately EUR 2 billion to a total of about EUR 9 billion.

The last time the Board made a broad assessment of the size and composition of the foreign reserves was in 2021. Since then, the operating environment has changed substantially, which has affected considerations regarding the preparedness basis of foreign reserves.

Foreign reserves were increased during the period up to February 2025 by purchasing mainly US dollars, but also pounds sterling and Japanese yen.

Exchange rate risk is the most significant of the Bank of Finland’s financial asset risks. Increasing the size of its foreign exchange reserves elevates the Bank’s exchange rate risk considerably, and so the Board of the Bank of Finland decided to strengthen its provisions against the rising exchange rate risk by selling around 10% of the Bank of Finland’s gold reserves. The gold sold was located in London, the centre of the international gold market.

After the sales, the Bank of Finland’s gold holdings totalled approximately 44 tonnes. The market value of these gold holdings was approximately EUR 3.5 billion at the end of 2024. Among the Bank’s financial assets, gold remains an important tool for preparedness.

Financial assets and foreign reserves in 2024

Composition of Bank of Finland’s financial assets

The Bank of Finland’s financial assets consist of foreign reserves, long-term investments and gold holdings. At the end of 2024, the Bank’s financial assets amounted to approximately EUR 15.4 billion (Table 7).

The Bank’s foreign reserves comprise direct and indirect foreign currency-denominated fixed income investments and items denominated in IMF Special Drawing Rights (SDRs).

Bank of Finland decides on its investment policy annually

The Bank of Finland’s asset investments are guided by the investment policy decided annually by the Bank’s Board. The investment policy covers fixed income investments, long-term investment and the principles of responsible investment.

The fixed income investment policy for foreign reserves sets a strategic allocation for the Bank’s fixed income investments by asset class and determines an appropriate level of interest rate risk for the various currencies.

Long-term investment has a higher expected return and lower liquidity requirement than with other portfolios. The risk-return ratio improves for the balance sheet as a whole when the portfolio of investments is diversified.

The Bank of Finland updates the principles of responsible investment every year in connection with its investment policy. The Bank also published its Annual Report on Responsible Investment on its website during spring 2024.

The policy on investment in financial assets establishes a strategic market-based index for direct fixed income investments that serves as a benchmark for the Bank’s investment activities.

The Bank’s Asset Management Division may deviate from the strategic index within a pre-set range and in accordance with the investment policy’s risk limits.

A long-term investment policy that takes account of balance sheet risks as a whole ensures that the balance sheet is healthy and promotes the Bank of Finland’s goal of a steady distribution of profit to the state budget without endangering capital adequacy.

Bank of Finland’s fixed income investments in the foreign reserves portfolio

The Bank of Finland’s fixed income investments in the foreign reserves portfolio (excluding items denominated in SDRs) were divided between sovereign bonds and central bank deposits (55.5%), supranational or government-related bonds (27.6%), covered bank bonds (4.5%), corporate bonds (8.0%) and cash instruments (4.4%).

Fund-based fixed income investments worth EUR 279 million were invested in a green bond fund managed by the Bank for International Settlements (BIS).

As a measure of interest rate risk, the average duration, i.e. the average time to maturity, of the fixed income portfolios (excluding the BIS bond fund) at the end of 2024 was 2.2 years. Fixed income investments are made in debt securities with high credit ratings.

Bank of Finland’s long-term investment

The Bank of Finland makes long-term investments in order to maintain the real value of on-balance sheet capital items deemed to be very long-term.

In 2024, the Bank’s long-term investments consisted of equity, real estate, fixed income and cash investments. The value of the long-term portfolio at the end of the year totalled EUR 3,488 million.

Equity investments were made in index funds that mirror the global index for developed markets and which take account of sustainability and climate issues by means of passive exchange traded funds (ETFs).

Real estate investments are diversified across a number of large European real estate funds. Each of the funds owns real estate in desirable locations, which makes the properties easy to let.

Financial asset returns and risks

In the financial markets, 2024 was a good year, despite the tensions. The Bank of Finland’s financial assets yielded an overall return of 14.5%, or EUR 1,949 million, in 2024. This was substantially higher than the previous year, as the overall return in 2023 was 4.5%, or EUR 586 million (Table 8).

The actual return on investment, excluding the impact of exchange rate movements, gold holdings and items denominated in SDRs, was 5.8%, or EUR 549.7 million.

Government bond yields lacked a clear direction during 2024. Short-term government bond yields declined as central banks eased monetary policy, but longer term yields began to rise towards the end of the year, steepening the term structure of yields.

The return on the fixed income investments in the Bank of Finland’s foreign reserves portfolio was EUR 202.3 million, of which the majority, or EUR 177.7 million, was from investments denominated in US dollars. The return on sterling-denominated fixed income investments was EUR 25.1 million and the return on those denominated in Japanese yen was slightly negative, at EUR -0.5 million.

The equity markets rose substantially during the year especially in the United States, where the equity market was buoyed by technology sector growth, in particular.

The return on the equity investments in the Bank of Finland’s long-term portfolio in 2024 with currency hedging taken into account was 22.0%, or EUR 287.3 million.

Real estate investments continued to struggle. Real estate valuations have declined in recent years, which is reflected in the profits of real estate funds. Although the valuation decline stabilised slightly during 2024, the return on fund investments was negative at -3.0%, or EUR ‑5.2 million.

The US dollar price of gold rose substantially during the year, by around 27%. Factors behind the rising gold price include inflationary pressures, low interest rates, geopolitical uncertainty, and the gold purchases of certain emerging economy central banks.

The increase in the gold price was reflected as a substantial revaluation. The value of the Bank of Finland’s gold holdings increased by 34.4%, or EUR 1,014.6 million, during the year.

The Bank of Finland’s financial assets also grew as a result of exchange rate movements, especially the strengthening of the US dollar against the euro. The impact of exchange rate movements on foreign reserves was 5.1%, or EUR 315.0 million.

The total market risk associated with the Bank’s financial assets (Value-at-Risk 99%, 1 day) varied between EUR 49 million and EUR 127 million in 2024 (Chart 22). Exchange rate risk is the Bank of Finland’s most significant risk associated with its foreign currency-denominated fixed income investment portfolios.

Share of the European Central Bank’s foreign reserves

The European Central Bank has foreign reserves of its own. Management and investment of the foreign reserves of the ECB are distributed among the national central banks in the Eurosystem according to their respective capital keys.

In 2024, the Bank of Finland managed and invested part of the ECB’s foreign reserves together with the Estonian central bank, Eesti Pank. In the investment of ECB foreign reserves, the emphasis is on security and liquidity, as the key purpose of the reserves is to ensure the availability of sufficient resources for the Eurosystem’s foreign exchange operations.

The value of Finland and Estonia’s pooled US dollar-denominated portfolio of ECB foreign reserves at the end of 2024 stood at EUR 1,291 million. For additional information on the management of the ECB’s foreign reserves, see the ECB Annual Report.

Responsible investment and climate reporting in 2024

Responsibility is one of the objectives guiding the Bank of Finland’s investment activities

The core principles and objectives of central banks’ investment operations are typically safety, liquidity and return. The Bank of Finland has added responsibility alongside these as a fourth objective guiding investment decisions and as an integral part of daily investment activity.

The Bank of Finland’s financial assets were managed in accordance with the principles of responsible investment during 2024.

The Bank of Finland has set a carbon neutrality target for its entire investment portfolio, which it aims to achieve by 2050 at the latest. In order to meet the target, qualitative and quantitative interim climate targets have been set for the individual components of the investment portfolio. In 2024, the investment portfolio components were in line with the interim targets set for 2025.

Achieving the carbon neutrality target for the entire investment portfolio depends primarily on how governments succeed in reaching the targets of the Paris Agreement, because a significant portion of the Bank of Finland’s investment assets is invested in sovereign bonds, due to the Bank’s functions as a central bank. In the case of equity and corporate bond investments, it is possible to reach the carbon neutrality target even before 2050.

The Bank of Finland’s investment operations were developed and implemented in accordance with the UN-endorsed Principles for Responsible Investment (PRI). The Bank of Finland signed the Principles for Responsible Investment in 2019.

The Bank of Finland was given high ratings for its implementation of responsible investment in the PRI Assessment Report for 2023 that was released at the end of 2024.

Climate-related key figures for the Bank of Finland’s investment activities

In June 2024, the Bank of Finland published its Annual Report on Responsible Investment, covering 2023. The report covers all of the Bank’s investment activities. It also includes a climate report on financial assets and a set of climate-related key figures by asset class in accordance with the Eurosystem’s common stance on climate-related disclosures.

The Annual Report on Responsible Investment and the climate-related key figures for 2024 will be published on the Bank of Finland website during spring 2025.

The most significant emissions in the Bank of Finland’s investment activities are associated with government bonds. The Bank holds these in its portfolio because of its central bank functions, among other reasons.

Carbon footprint of equity investments approached interim target for 2025 according to plan

In 2024 the Bank of Finland made further progress towards reaching the interim target set for 2025 of reducing by half the weighted average carbon intensity (WACI) of equity investment from the 2021 baseline figure.

Although no new investments were made in climate or ESG funds in 2024, the weighted average carbon intensity of the equity allocation was improved at the end of 2024 by reducing exposures to index funds that track the global indices of developed countries, in order to adjust the overall allocation of the long-term investment portfolio (Table 9).