OREANDA-NEWS. The Supervisory Board of Eesti Pank decided on Tuesday to transfer one quarter, or 4.3 million, of the 17 million euros it made in profit last year to the state budget. The remaining three quarters of last year’s profit will go to strengthen the capital of the bank.

Chairman of the Supervisory Board Mart Laar said that the amount of capital that can be transferred is limited because Eesti Pank has relatively little capital compared to that held by the other central banks of the euro area.

“It is the policy of the Supervisory Board that the central bank should have sufficient reserves so that if there is any problem Eesti Pank can cope without any help from the state. Central banks normally face losses when economies in general are in difficulties. Increasing the reserves reduces the chances of an additional burden needing to be placed on the state budget in an economic crisis”, he explained.

The ratio of Eesti Pank’s increased capital to the assets used for monetary policy is one of the lowest of any of the central banks of the euro area. The comparison with the other central banks of the euro area is important, as the balance of risks to capital of the central banks of the euro area and the European Central Bank all taken together is considered when joint monetary policy decisions are made.

For this reason the Supervisory Board set a long-term goal in 2012 of increasing Eesti Pank’s capital ratio to the average level of the central banks of the euro area. This means it is necessary to raise the level of capital by about a billion euros to 1.3 billion.

Last year, Eesti Pank received 16.7 million euros in income from the joint monetary policy and currency issuance activities of the Eurosystem, which contains the national central banks of the euro area and the European Central Bank. In 2013 income from this source was 42.2 million euros. Earnings from investment activities were 12 million euros last year, and 3.7 million in the previous year. Eesti Pank’s operating expenses fell last year to 17 million euros from the 17.4 million of a year before.

The net income for 2014 was reduced by general risk provisions of 7.7 million euros to cover risks. In the past three years Eesti Pank has built up risk provisions of 26 million euros in total. Risk provisions are the first line of defence against losses on top of the reserves already held at the central bank.

Since 1992 Eesti Pank has allocated a total of 133 million euros to the state budget.