ECB bond purchases eat into Bundesbank profits

The Bundesbank said Thursday that its profits were cut drastically last year because it is having to set more aside in risk provisions to cover the European Central Bank's massive bond purchase programme. And that could potentially have an effect on Germany's public finances, because the central bank traditionally pays its annual profits into the state coffers.
The Bundesbank said that its annual net profit amounted to 1.0 billion euros ($1.1 billion) in 2016, compared with 3.2 billion euros the year before. Of that total, 399 million euros would be handed over to the government, the lowest such transfer since 2004. That is bad news for the German finance ministry which had been pencilling in a profit transfer of 2.5 billion euros from the Bundesbank for its 2017 budget.
"The profit for the year is lower than in 2015 because the Bundesbank increased its risk provisioning," said its president, Jens Weidmann. The provisions for general risks were upped by 1.8 billion euros to 15.4 billion euros. As one of the eurozone's central banks, the Bundesbank is involved in buying up vast amounts of bonds under a huge scheme known as quantitative easing aimed at pumping liquidity into the financial system to boost growth and inflation in the single currency area. The shortfall did not mean that the public finances would fall back into the red, since Bundesbank profit transfer was equivalent to just 0.6 percent of the anticipated revenues for 2017, the spokesman explained.