Helgi S Guðmundsson: Brief summary of the Central Bank of Iceland's
accounts
Address by Mr Helgi S Guðmundsson, Chairman of the Supervisory Board of the Central Bank of
Iceland, at the Bank's Annual Meeting, Reykjavik, 30 March 2007.
* * *
Honourable Prime Minister, Ministers of the Government, Speaker of the Althingi, Ladies and
Gentlemen:
On behalf of the Supervisory Board of the Central Bank of Iceland I welcome you all to the Bank's 46th
annual meeting and declare this meeting open. At the end of my address the Chairman of the Board of
Governors, Davíð Oddsson, will deliver his report on behalf of the Board of Governors. The Prime
Minister of Iceland, Geir H. Haarde, will then address the meeting. When the meeting has completed
its duties, I invite those attending it to a reception.
At a meeting of the Supervisory Board today the Prime Minister ratified the Bank's financial accounts
for 2006 with his signature. The Central Bank's Annual Report for 2006 is published today and will be
available at the end of this meeting.
The Central Bank's annual accounts are compiled on the basis of rules set by the Prime Minister, most
recently in December 2005. According to its profit and loss account, the Central Bank of Iceland made
a net profit of 11.8 b.kr. in 2006. The profit is explained almost entirely by exchange rate gain.
Excluding this, the Central Bank produced a profit of 48 m.kr. before the transfer to the Treasury.
Interest income grew by 162% over the year and interest expense by 178%. In total, interest income
increased by 15.6 b.kr. and interest expense by 13.7 b.kr. to leave net interest income of 1.9 b.kr.
Operating expenses, i.e. salary and payroll expenses and other operating expenses, were 1.5 b.kr.,
depreciation 90 m.kr. and a supplementary contribution to the Bank Employees' Pension Fund 386
m.kr., in accordance with an agreement between the Fund and its member organisations. By law, the
transfer to the Treasury is calculated as one-third of net profit, i.e. 16 m.kr. Profit after transfer to the
Treasury but excluding exchange rate gain therefore amounted to 32 m.kr.
In 2006, the Central Bank's balance sheet total increased by 159 b.kr. to almost 322 b.kr. at the end of
the year. The main explanation is that total Treasury deposits in the Central Bank rose by 135 b.kr.
over 2006 to 211 b.kr. at the end of the year. The balance on Government current accounts increased
by 47 b.kr. and the deposit in the foreign currency account amounted to 94 b.kr. at the end of the year.
Most of the foreign currency deposit is accounted for by the €1 billion loan taken by the Treasury
towards the end of the year to boost the Central Bank's foreign reserves. Notes and coin in circulation
grew by 10% to 14.5 b.kr. and the Central Bank's liabilities towards deposit money banks by just over
10 b.kr. On the asset side, the Central Bank's claims on deposit money banks and other financial
institutions increased by 59 m.kr., and its foreign assets by 101 b.kr. The growth in foreign assets was
largely the result of the Treasury's euro loan, but partly due to the impact of the depreciation of the
króna on the nominal amount of the reserves denominated in domestic currency. At the end of the
year, the Central Bank's equity amounted to 48.2 b.kr., an increase of almost 12 b.kr. from the end of
the year before. In the budget for 2007, the Treasury was authorised to strengthen the Central Bank's
capital position.
The Treasury borrowed €1 billion in international capital markets in 2006 for the sole purpose of
boosting the Central Bank's foreign reserves. All the proceeds from the loan were deposited in a
foreign currency account in the Central Bank. The Treasury earns interest on the deposit at a rate
matching that of the foreign loan.
Here I have briefly summarised the highlights of the Central Bank's accounts. The financial statements
for the year are published in their entirety in the annual report with notes, and the Bank's results and
changes in its balance sheet during the year are also described in more detail there than I have
entered into here.
In June 2006, Jón Sigurðsson stepped down as Governor of the Central Bank of Iceland when he was
appointed Minister of Industry and Commerce in the government of Iceland. In formal terms he was on
leave from the Central Bank from the middle of June until the end of August. Jón Sigurðsson was
appointed Governor from October 1, 2003. He therefore served on the Board of Governors for almost
three years. Before that he was a member of the Supervisory Board for just over two years. On behalf
of the Supervisory Board I would like to thank Jón Sigurðsson for our pleasant work together during
his terms as both a member of the Board of Governors and a member of the Supervisory Board.
Ingimundur Friðriksson was temporarily appointed Governor from June 15 to August 31, 2006, then
appointed Governor for a seven-year term from September 1, 2006. Ingimundur Friðriksson had been
Assistant Governor since 1994 and held a temporary appointment as Governor for one year from 2002
to 2003.
A number of changes took place in Central Bank staffing during 2006. Fifteen employees left or retired
from the Bank and ten were hired, so their number decreased by five during the year. At the end of
2006 there were 111 employees at the Central Bank of Iceland, while the number of full-time
equivalent positions was just over 102. Among the retirees was Sveinn Erling Sigurðsson, Director of
the Statistics Department. Lilja Steinþórsdóttir left the post of Chief Auditor during the year. The Chief
Auditor is directly accountable to and appointed by the Supervisory Board. On behalf of the
Supervisory Board I would like to thank Lilja Steinþórsdóttir for our pleasant work together. In her
place, the Supervisory Board appointed Stefán Svavarsson Chief Auditor.
Financial institutions compete fiercely for talented employees, which is not surprising given the pace at
which the Icelandic banks' activities have expanded. It is vital for the Central Bank to have as capable
employees as possible in its service. It must take prevailing conditions into account to ensure that this
is the case.
On the Supervisory Board in 2006, Ólafur G. Einarsson resigned from the post of Chairman which he
held since 1998. Helgi S. Guðmundsson was elected Chairman in his place. On behalf of the
Supervisory Board I would like to thank Ólafur G. Einarsson for his particularly successful leadership
during his years as chairman. The Supervisory Board held 22 meetings during the year. I would like to
thank the members of the Supervisory Board for their pleasant cooperation and fine work. I also thank
the Board of Governors and employees of the Bank for their very good work during the year and
fruitful collaboration with the Supervisory Board.