Financial statements​ (Hebrew)

·    The Bank of Israel’s
financial statements were affected in 2016 by a number of trends in the global
economy, by the Bank of Israel’s monetary policy and by the foreign exchange
reserves investment policy.  The balance
sheet grew by about NIS 25 billion (7 percent) to about NIS 394 billion at the
end of the year.

·     The vast majority of
assets in the Bank of Israel’s balance sheet are denominated in foreign
currency, while liabilities are mostly denominated in shekels: makam,
shekel deposits by the commercial banks and outstanding banknotes and coins in
circulation.  The increase on the assets
side is mostly attributed to an increase in the foreign exchange reserves,
which was mainly a result of foreign exchange purchases by the Bank of Israel,
profits and price revaluations, which were partly offset by negative exchange
rate differentials on the balances, mainly as a result of the shekel’s
appreciation against the dollar, euro and pound.

·      The weakening of the
euro and pound against the shekel was the main factor in the loss in 2016, while
the effect of the weakening of the dollar did not contribute to the loss but
was offset by the revaluation accounts in accordance with the accounting principles
customary at the Bank of Israel, as common at central banks.

·      In recent years, profits
on the foreign exchange reserves exceeded expenses in respect of monetary
tools, mainly due to the narrowing of the interest rate gap between Israel and
the economies in which the reserves are invested, and changes in the investment
policy on the foreign exchange reserves. 
In 2016, the main contributing factors to this were the increase in
profits in respect of investment in securities, as well as the decline in the
volume of makam issuances and the decline in the Bank of Israel interest
rate from an average of 0.12 percent in 2015 to an average of 0.1 percent in
2016.

·      In 2016, the upward
trend in the volume of investment in shares abroad continued.  Investment in shares and corporate bonds
increased at the expense of government bonds. 
Over time, investment in corporate bonds and shares is expected to
continue increasing the return on the reserves portfolio, but with an increase
in the volatility of profits.

 

The Bank of Israel’s balance sheet totaled about NIS 394
billion at the end of 2016, an increase of about NIS 25 billion (7 percent)
compared with 2015.  The increase on the
assets side is mostly attributed to an increase in the foreign exchange
reserves.  On the liabilities side, the
most significant increase is derived from an increase in the balance of net
monetary absorption tools totaling about NIS 17 billion, against the background
of the need to absorb some of the surplus liquidity injected into the markets
as a result of foreign exchange purchases, and an NIS 11 billion increase in
the monetary base.

 

The Bank of Israel registered a loss of NIS 5.3 billion in
2016, about NIS 2.8 billion smaller than the loss in 2015.  Similar to previous years, most of the loss
was a result of exchange rate differentials on balances denominated in foreign
currency, which totaled about NIS 7.1 billion this year, mainly due to the
weakening of the euro and the pound.  The
Profit and Loss Statement includes income from foreign exchange reserves
totaling about NIS 3 billion, which partly offset the loss resulting from the
exchange rate differentials.  The
exchange rate differentials had a large and volatile impact on the Bank’s
profit and loss due to the lack of currency balance on the Bank’s balance
sheet.

 

According to the accounting principles customary at central
banks, unrealized profits resulting from the revaluation of tradable securities
to fair value and from exchange rate differentials on the foreign exchange
reserves, as well as profits and losses from actuarial differentials, are
attributed to the revaluation accounts and are only recorded on the Profit and
Loss Statement once they are realized. In contrast, negative revaluations are
attributed to the Profit and Loss Statement. The Profit and Loss Statement does
not include losses from exchange rate differentials on the reserves denominated
in foreign currency, mainly in respect of the dollar, totaling about NIS 3.4
billion, which were offset by profits accumulated in the revaluation
account.  In addition, the Profit and Loss
Statement does not include unrealized profits totaling about NIS 2.7 billion derived
from the revaluation of tradable securities, which were reflected in an
increase in the revaluation account on the Balance Sheet.  Most of the revaluation is a result of an
increase in the value of the shares portfolio, which is not recognized as a
profit in the financial statements, and is therefore not reflected in the
Profit and Loss Statement.

 

The balance of the revaluation accounts, which reflects
unrealized profits, was about NIS 25.6 billion in 2016, such that overall,
looking at the deficit balance minus the revaluation accounts, the balance
totaled only about NIS 35.9 billion, compared with a deficit of NIS 61.5
billion recorded in the balance sheet (see Figure).

 

The Bank of Israel fulfills the functions entrusted to it
as the central bank, and acts to achieve the objectives set for it pursuant to
the Bank of Israel Law: maintaining price stability and supporting growth,
employment, reducing social gaps and the stability of the financial system.  Its activity is not necessarily intended to
generate profits.  Some of the actions
taken by the bank have significant ramifications on its financial statements,
but alongside that, the achievement of the Bank’s objectives and fulfillment of
its role have economy-wide advantages that are not reflected in the financial
statements.

The Bank of Israel publishes its financial statements for 2016