Financial statements
Notes on risk management 2025
Structural interest rate risk on the balance sheet
The liquidity created via purchase programmes and refinancing operations is reflected on the liabilities side of the Bank of Finland’s balance sheet as central bank deposits.
The Eurosystem sets, on monetary policy grounds, the interest rate payable on the central bank deposits made by commercial banks. The interest rate decision has an immediate effect on the Bank of Finland’s interest expenses. Monetary policy assets, however, mainly carry a fixed interest rate. Thus, an increase in the deposit rate weakens the Bank’s net interest income. This difference in the interest rate dependencies of assets and liabilities on the Bank of Finland’s balance sheet poses a structural interest rate risk for the balance sheet.
For a long time, the Bank of Finland’s purchases of fixed rate bonds in connection with monetary policy implementation were made at a low yield level. In the second half of 2022, the Governing Council of the European Central Bank (ECB) began raising the Eurosystem’s policy interest rates, and the rate increases continued during 2023. This meant that the interest rate on central bank deposits also rose, which had a significant negative impact on net interest income. The policy rates have subsequently been cut, reducing the negative impact.
As a consequence of this financing cost, the Bank of Finland’s operating profit remained negative in 2025.
The interest rate expectations prevailing at the end of 2025 do not indicate any significant changes in policy rates in 2026. These expectations indicate that the operating profit for 2026 may be expected to be close to zero and thus slightly better than the operating profit for 2025.
As the bonds acquired under purchase programmes mature, the amount of central bank deposits used to finance them will decrease, which will also bring down financing costs and gradually improve the Bank of Finland’s profit.
The structural interest rate risk position will decrease as the fixed rate bonds acquired for monetary policy purposes mature.
Risk management and control of risks related to investment of financial assets
Investment activities are exposed to risks, which risk management seeks to identify, measure and limit. In managing these risks, the Bank of Finland uses widely employed risk management methods, market and credit risk models as well as sensitivity analyses.
Risk management of investment activities by the Bank of Finland has been entrusted jointly to the Administration Department’s Risk Control and Financial Accounting Division and to the Market Operations Department. Risk control of investment activities and reporting on risks and returns are the responsibility of the Administration Department’s Risk Control and Financial Accounting Division.
Risks to investment activities are reported daily to the persons involved in operational investment activities and monthly to the Board of the Bank of Finland. Investment returns are reported monthly to the persons involved in investment activities and to the Board member responsible for investment activities. The Markets Committee, chaired by the same Board member, discusses investment returns every quarter. The Board discusses risks and returns twice a year. Cases of non-compliance with the limits imposed are reported immediately. A report on total financial risks is submitted to the Board at quarterly intervals.
Decision-making framework for investment of financial assets and for risk management, and various risk committees
Decisions on investment of financial assets and related risk management are taken by the Bank of Finland Board, the Markets Committee and, in the case of operational matters, also by the Investment Group and the Risk Group.
The Board is responsible for decisions on the objectives for investment activities and the investment policy, as well as on the principles for risk management and responsible investment. Such decisions relate, among other things, to the volume of the Bank’s own financial assets and foreign reserves, the currency composition of foreign reserves, long-term investment activities, the strategic allocation of fixed-income investments in the foreign reserves portfolio by asset class, the asset class-specific variation limits permitted in fixed-income investments, and the level of interest rate and credit risk. The Board also determines the maximum credit risk limits.
Within the limits imposed by the Board, the Markets Committee decides on the details related to the investment of the Bank’s financial assets and risk management. Such decisions include the criteria for counterparties and issuers and more specific credit risk limits. The chair of the Markets Committee, who is also responsible for decision-making on the Committee, is the Board member responsible for the Bank of Finland’s own investments.
The emphasis of work in the Investment Group and the Risk Group is on the preparation of matters to be considered by decision-making bodies. In addition, the Investment Group acts as an internal decision-maker within the Market Operations Department and as coordinator of matters common to the investment and risk control functions. Decisions on new trading counterparties are taken mainly by the Investment Group or in exceptional cases by the Markets Committee. The Head of Market Operations chairs the Investment Group and makes decisions therein. The Head of the Administration Department’s Risk Control and Financial Accounting Division chairs the Risk Group and makes decisions therein.
In addition to the decision-making bodies mentioned above, the Bank of Finland has an internal working group on responsible investment. The working group decides on companies that are excluded from, or reinstated in, the scope of investment activities on the basis of the principles for responsible investment, making use of analyses produced by an external service provider.
The Bank of Finland’s Financial Risks Committee is, independently of financial assets management operations, tasked with supporting the Board by monitoring and assessing financial risks affecting the Bank’s balance sheet. The committee is not a decision-making body but instead issues recommendations and, where necessary, submits matters to the Board for information and decision. The Financial Risks Committee is chaired by the Board member responsible for risk control.
In addition to the Financial Risks Committee, the Bank of Finland also has a Committee on Operational and Cyber Security Risks. The task of the committee is to evaluate the level of the Bank’s operational and cyber security risks and the related risk management, and to provide guidance and recommendations for the development of risk management. Similarly to the Financial Risks Committee, the Committee on Operational and Cyber Security Risks is not a decision-making body but issues recommendations and, where necessary, submits matters to the Board for information and decision. The committee is chaired by the Board member responsible for risk control.
Risk measures and breakdowns
Bonds and deposits in the Bank of Finland’s financial assets by credit rating1
| Credit rating | 31 Dec 2025EUR million | 31 Dec 2024EUR million |
|---|---|---|
| AAA | 3,129 | 1,349 |
| AA+ | 3,393 | 2,991 |
| AA | 118 | 47 |
| AA– | 702 | 470 |
| A+ | 1,470 | 1,199 |
| A | 310 | 244 |
| A– | 84 | 80 |
| BBB+ | 107 | 9 |
| BBB | - | 6 |
| BBB– | - | - |
| Below BBB– | - | - |
| No credit rating | 68 | 379 |
| Total | 9,381 | 6,774 |
| 1) Covered bonds are classified on the basis of the instrument's credit rating, not that of the issuer. The Bank of Japan is classified according to Japan's sovereign credit rating. | ||
| Totals may not add up due to rounding. | ||
Bonds and deposits in the Bank of Finland’s financial assets by home country of issuer/counterparty (at market value)
| Country or region (EUR million) | 31 Dec 2025 | 31 Dec 2024 |
|---|---|---|
| Euro area | 1,176 | 55 |
| Germany | 445 | 30 |
| France | 339 | - |
| Netherlands | 225 | 25 |
| Finland | 85 | - |
| Belgium | 27 | - |
| Ireland | 19 | - |
| Spain | 16 | - |
| Austria | 13 | - |
| Portugal | 7 | - |
| Rest of Europe | 968 | 704 |
| United Kingdom | 518 | 376 |
| Norway | 207 | 109 |
| Sweden | 143 | 167 |
| Switzerland | 54 | - |
| Denmark | 47 | 52 |
| America | 4,631 | 3,901 |
| United States | 3,727 | 3,303 |
| Canada | 903 | 598 |
| Asia and Oceania | 1,514 | 1,209 |
| Japan | 1,097 | 1,135 |
| Australia | 183 | 59 |
| Singapore | 178 | 10 |
| South Korea | 56 | 5 |
| International institutions | 1,092 | 907 |
| Total | 9,381 | 6,774 |
| Totals and subtotals may not add up due to rounding. | ||
Sensitivity of the Bank of Finland’s financial assets to market changes
| EUR million | 2025 | 2024 |
|---|---|---|
| Change in the value of Bank of Finland's financial assets if the euro exchange rate were to appreciate by 15% against other currencies and gold from the position as at 31 December | -1,978 | -1,729 |
| Change in the value of the Bank of Finland's financial assets if interest rates were to increase by 1 percentage point from the position as at 31 December | -258 | -200 |
| Change in the value of the Bank of Finland's equity funds if equity fund values were to decrease by 25% from the position as at 31 December | -357 | -332 |
Allocation of the Bank of Finland’s fixed-income investments in the foreign reserves portfolio at end-2025
| Fixed-income investments in the foreign reserves portfolio | Allocation at year-end (%) |
|---|---|
| Government bonds and central bank deposits | 57.7 |
| Government-related bonds | 30.4 |
| Covered bonds | 4.0 |
| Corporate bonds | 7.1 |
| Cash holdings | 0.9 |
| Total | 100.0 |
Definitions and concepts
- Market risk means the risk that the net value of assets will decline due to changes in market prices. Market price changes refer to variation in, for example, interest rates, exchange rates, the price of gold or stock prices, which are referred to as interest rate risk, exchange rate risk, gold price risk and equity risk, respectively.
- Credit risk means the risk of financial losses arising from changes in the creditworthiness of a counterparty to a financial transaction or a securities issuer, or from default by a counterparty or issuer.
- Liquidity risk means the risk that assets cannot be made available when the need arises or their conversion into cash causes additional costs.
- Operational risk refers to the risk of extra costs or losses resulting from inadequate or failed internal processes, personnel, systems or external events.
- Foreign reserves comprise unhedged direct and indirect fixed-income investments denominated in foreign currencies and net receivables from the International Monetary Fund (IMF).
- Modified duration is a measure of interest rate risk, indicating how much the value of a fixed-income investment or investments changes in response to a small change in the level of interest rates. For example, if the modified duration is 2 and interest rates rise by 1%, the value of fixed-income investments falls by 2%.
- Value-at-risk (VaR) at a certain confidence level means a loss in excess of which a loss occurs with a probability corresponding to that confidence level, over a given time horizon. For example, if VaR on a one-day horizon and a confidence level of 99% is EUR 3 million, there is a 1% probability that the current day’s outcome will be a loss of more than EUR 3 million (and a 99% probability that the loss is less than EUR 3 million).
- Expected shortfall (ES) at a certain confidence level indicates the amount of expected loss in case that the loss exceeds the VaR calculated at the corresponding confidence level. For example, an ES at a confidence level of 99% gives the average loss in the worst 1% of cases.