The Swiss National Bank (SNB) will post a profit of 5 billion Swiss francs ($5.4 billion) in the fourth quarter as the investment environment improved only slightly, UBS analysts write in a commentary Thursday.

Rising equity prices supported the SNB's financial result in the final quarter, but higher interest rates and a stronger franc prevented a larger profit.

Capital Market Losses

For the year, the SNB will post a loss of around 137 billion francs, according to UBS calculations. Distribution reserves currently amount to around 103 billion francs and provisions for currency fluctuation reserves of roughly 10 billion francs are deducted from this.

After nine months, the SNB put the deficit at 142.4 billion francs. In 2021, a profit of more than 26 billion francs was achieved over the full year, and 20 billion francs in the year prior. For 2022, the losses for even a minimum payout are too high by a magnitude of about 45 billion francs, UBS said.

Spillover Effects

The SNB's 2021, profit allowed it to distribute the maximum amount of 6 billion francs, of which two-thirds went to the cantons and one-third to the federal government.

Last year's results cannot be viewed in isolation, since they will have spillover effects into this year. Before the SNB can make a distribution in 2024, it must make up for the loss in distribution reserves this year and earn sufficient funds to replenish provisions for currency fluctuations. According to UBS calculations, this requires a total profit of over 50 billion francs. Without extremely positive developments in the financial markets over the next twelve months, the federal government and the cantons face another fallow year of profit distributions from the central bank. 

Moreover, income generated for the SNB from the negative interest rates it charged banks will be lost this year, while at the same time, it will have to pay interest on a large portion of sight deposits at rates of 1 percent and more. That makes the task of generating a sufficient profit to distribute to the governments an even more challenging task,  according to UBS economists.

The SNB publishes its financial results for the full year 2022 on Monday, January 9.