The RBA published its annual report yesterday, reporting an operating loss of $897 million for the 2017 financial year.
That was down from a $2.9 billion profit in FY16. The bank’s Statement of Comprehensive Income showed that the result stemmed mainly from a $1.857 billion loss on securities and foreign exchange.
The loss was non-cash in nature, instead reflecting the movement in the value of assets held by the bank in a foreign currency.
To comply with accounting standards, the RBA reports changes unrealised gains/losses from foreign exchange holdings on its income statement.
In his foreword to the annual report, RBA Governor Philip Lowe said that the loss reflected “valuation losses on holdings of foreign assets due to the exchange rate appreciation over the year”.
The Australian dollar has climbed by more than 9% so far in 2017.
Excluding unrealised foreign exchange losses, the bank made an underlying profit of $960 million, down from $1.223 billion a year earlier due to a reduction in net interest income.
“The underlying rate of return on the Bank’s assets remained low, a result of the low level of interest rates in Australia and elsewhere,” Lowe added.
The 2017 result was the bank’s first loss since the 2011 financial year, when unrealised foreign exchange shortfalls led to a $4.9 billion dollar loss.
Given that the loss was non-cash in nature and follows gains in previous years, the bank also announced that it would pay a $1.3 billion dividend to the federal government.
That’s down from $3.2 billion last year and $1.9 billion the year before.
Lowe said that the bank’s balance sheet remained strong which will allow it to perform its functions amid various market scenarios.
In addition, he said that the “Board undertook a review of the capital framework during the year to ensure the amount of capital held against the various assets is determined by the risk of those assets”.
The annual report showed that Dr Lowe was paid $1.02 million in the 2017 financial year, which makes him one of the highest paid public servants in the country. Deputy governor Guy Debelle was paid $765,000.
Despite the macroeconomic backdrop of low inflation and low wage growth, Lowe said that he remains optimistic that the Australian economy will improve over the next 12 months.
“Wage growth remains low, partly reflecting the same factors that are at work internationally. Inflation, too, remains low, but it increased over the year. The coming year is likely to see better growth in the Australian economy,” Lowe said.
The latest dividend comes after former treasurer Joe Hockey put $8.8 billion into the RBA’s Reserve Fund in 2013, saying “the determination of the previous [Labor] government to take extraordinary dividends from the Reserve Bank” was to blame for the large cash injection.
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