The central bank will support the financial position of the state with an exceptionally large share of its profit
The Supervisory Board of Eesti Pank decided at its meeting on Tuesday to transfer 18.9 million euros of its profit from last year to the state budget. This is three quarters of the undistributed profit of the bank of last year, which is the maximum amount that the law permits Eesti Pank to give to the state.
“The current crisis is extraordinary, and the Estonian state has not faced such a bundle of problems in the past 25 years. At such a difficult time the Supervisory Board of the central bank supports the proposal of Governor Madis Müller to give the state the maximum permitted share of the bank’s profit”, said Chair of the Supervisory Board Mart Laar.
“The coronavirus crisis will cause additional financial risks to the central bank as well, but the deterioration in the state budget has been much deeper and more immediate. For this reason we think it is right that Eesti Pank contribute to strengthening the financial position of the state, and so we are giving it a larger share of our profit than usual”, said Governor of Eesti Pank Madis Müller.
The central bank usually allocates one quarter of its profit of the previous year to the state, and three quarters to increasing its own capital reserves. Eesti Pank wants to increase its capital reserves until they reach the same relative level as the average of the central banks in the euro area. At the end of 2019, this meant the level of capital needed to be raised by around 590 million euros to 1.8 billion euros. At present capital levels the law currently allows the central bank to give a maximum of three quarters of its profit to the state.
Since 1992 Eesti Pank has allocated a total of 172.2 million euros to the state budget.
The central bank last allocated more than one quarter of its profit to the state budget in 2009, when it allocated 45 million euros of its profit of 80 million euros to the state. The extraordinarily large profit distribution at that time was made to support the financial position of the state and Estonia’s accession to the euro area. It was the largest part of the central bank’s profit that could be given under the fiscal rules given the estimates of the state budget balance. One of the five criteria that a European Union country must meet before it can join the euro area is that its budget deficit cannot be too large.
The meeting of the Supervisory Board of the central bank was held on Tuesday by video conference. The next meeting of the Eesti Pank Supervisory Board will be on 26 May.