Czech National Bank posts losses for 2010

After reporting profits on 2008's and 2009's year-end balance sheets, the Czech National Bank (ČNB) posted losses of nearly 10 billion Kč ($547.3 million) for 2010 as the crown regained its strength against the euro and U.S. dollar.

In 2008 and 2009, the ČNB reported profits of 29.1 billion Kč and 18.5 billion Kč, respectively, but lost 9.7 billion Kč last year as the crown began to appreciate once again.

"The euro is declining, and since [domestic] inflation has been kept in check, there cannot be inflation adjustment. This translates into nominal appreciation of the crown toward the euro," said ČNB spokesman Marek Petruš.

Petruš added that the ČNB's "huge" foreign currency reserves of nearly 32 billion euros makes it impossible for profits to go anywhere but down should the crown appreciate even by the smallest of amounts.

"If you have 32 billion euros and the crown appreciates by one [crown], by definition you have a 32 billion Kč exchange rate loss," he said. "And you can't do anything about it."

The bank's final results for 2010 will be released after an audit is completed by outside consulting firm Ernst & Young. Petruš said the results could still change "by a small degree."

Petr Sklenář, chief economist at Atlantik FT, said analysts are not surprised by the figures, which were released by the ČNB Jan. 11, as large swings between profit and loss are expected as long as the country continues to resist joining the eurozone.

"This is right in line with what I thought we would see," Sklenář said. "I would say this was expected. Every time the crown gains, the ČNB reports a loss. The question is how the central bank can solve this problem."

Petruš said the bank expects to be able to cover the losses "within about 20 years" as economists are predicting a slowdown in the rate of the crown's appreciation.

"General ČNB business is profitable," Petruš said. "But we are not a business. We are not hedging against currency fluctuation. Our goal is not to produce profit; it is to ensure price stability in the Czech Republic, and we think we have done a tremendous job of that."

Sklenář agreed that the crown's rate of gain against the euro will slow over the next several years but added that one quick solution to the problem would be to join the eurozone - something the central bank and the Finance Ministry have consistently advised against.

"That would take care of this problem, but I don't think it's the right move for the whole economy," he said.

Petruš said the 2010 balance sheet has not convinced the ČNB to change its stance on adopting the euro. Rather, it intends to stay the course with the crown while continuing its policy of not intervening on the foreign exchange markets.

"In general, we have expressed that we do not like to see sharp fluctuation in the currency, but our policy is to let the crown float freely," he said. "The government, the ČNB and the finance minister have concluded that it is not advisable to set a timetable to enter the eurozone."

Jack Buehrer can be reached at
jbuehrer@praguepost.com