Bank of Israel gains NIS 24b from shekel depreciation

Shekel-dollar ASAP Creative

The Bank of Israel reported a net NIS 5.3 billion profit in 2018, compared with an NIS 800 million loss in 2017.

The Bank of Israel yesterday published its financial statements for 2018, reporting a NIS 5.3 billion profit, compared with an NIS 800 million loss in 2017, as a result of a higher interest rate on the dollar and the rise in the shekel-dollar exchange rate. The gap in the interest rates on Israeli and US government bonds was near 200 basis points (2%) in 2018, even though the Bank of Israel raised its interest rate to 0.25% in November 2018.

The Bank of Israel achieved its profit despite the market downturn in December 2018, which caused it NIS 5.4 billion in losses on its investments in shares. The 2018 profit was not transferred to the Israeli government, however, because the Bank of Israel still has a NIS 56.9 billion equity deficit.

After years of shekel appreciation, the shekel depreciated 8.1% against the dollar in 2018. The Bank of Israel has $115 billion in foreign currency balances, so the shekel depreciation generated a NIS 24 billion profit. As a result of the Bank of Israel's conservative accounting policy, however, profit from the shekel deprecation against the dollar is listed in the finance statements only if the asset was sold during the year. On the other hand, in years in which the shekel appreciated against the dollar, the difference in value is reported as a loss even for assets that are not sold. This policy was instituted after the Bank of Israel transferred profits from a sharp shekel depreciation against the dollar in 1998 without the foreign currency assets being sold. Immediately afterwards, the shekel appreciated against the dollar again, and the accounting profit vanished.

The Bank of Israel's reports show that the main elements of its profit are NIS 5.6 billion in revenue from interest on investment of the foreign currency reserves and NIS 900 million in net non-interest revenue from securities and derivatives. The main expense items that reduced the profit were NIS 900 million in expenses incurred in printing money and issuing coins, and management and general expenses.

The Bank of Israel stated that its balance sheet total had grown by NIS 38 billion in 2018, 9% of the balance sheet total, to NIS 440 billion. Most of the growth in assets is attributable to the increase in foreign currency reserves, which was mainly a result of the increase in the reserves' shekel value caused by the shekel depreciation against the dollar, and by the Bank of Israel's foreign currency purchases in 2018. Liabilities in the balance sheet grew by NIS 13.6 billion. There was a number of significant reasons for the increase: a NIS 9.9 billion increase in the net balance of monetary mop-up tools: short-term loans and fixed-term deposits. Another reason was a NIS 4.9 billion rise in the money base caused by the growth in GDP.

Published by Globes, Israel business news - en.globes.co.il - on March 25, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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