EN 
 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 21 April 2010 
on an amendment to the rules governing Narodowy Bank Polski’s provision against foreign 
exchange rate risk 
(CON/2010/32) 
 Introduction and legal basis
 
On 18 March 2010 the European Central Bank (ECB) re ceived a request from the President of Narodowy 
Bank Polski (NBP) for an opinion on a Monetary Policy Council draft resolution amending the resolution on the principles for creating and releasing the provisi on against the foreign exchange rate risk of the 
zloty at the National Bank of Poland (hereinafter the ‘draft resolution’)
1. 
The ECB’s competence to deliver an  opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the third indent  of Article 2(1) of Council Decision 98/415/EC of 
29 June 1998 on the consultation of the European Ce ntral Bank by national authorities regarding draft 
legislative provisions2, as the draft resolution relates to NBP. In accordance with th e first sentence of 
Article 17.5 of the Rules of Procedure of the Euro pean Central Bank, the Governing Council has adopted 
this opinion. 
 1.  Purpose of the draft resolution 1.1 Under Article 65 of th e Law on Narodowy Bank Polski
3, NBP is obliged to create a provision to 
cover the risk of changes in the exchange rate of the zloty against other currencies, with the specific 
rules governing the creating and releasing of the provision being defined by the Monetary Policy 
Council. Pursuant to this mandate, the relevant ru les were defined in Resolution No 9/2006 of the 
Monetary Policy Council of 19 D ecember 2006 on the principles for creating and releasing the 
provision against the foreign exchange rate risk  of the zloty at the National Bank of Poland4. The 
ECB was not consulted on the draft provisions of Resolution No 9/2006. 
1.2 The draft resolution changes the way the provis ion against the foreign exchange rate risk is 
calculated by NBP. Under Resolution No 9/2006, the following factors are taken into account in 
estimating the amount of the provision: (i) the amount of the foreign exchange holdings exposed to the foreign exchange rate risk; (ii) the assessm ent of the foreign exchange rate risk based on 
                                                 
1  Draft resolution of 16 March 2010. 
2  OJ L 189, 3.7.1998, p. 42. 
3  Law of 29 August 1997 on Narodowy Bank Polski (consolidated text: Dziennik Ustaw  (Dz. U.) of 2005 No 1, Item 2). 
4  As published in Dziennik Urz ędowy NBP  of 20 December 2006 No 13, item 16. 
2 generally accepted and consistently applied methods of financial ri sk assessment; (iii) the existing 
and anticipated balance of the revaluation acc ount and unrealised foreign exchange gains and 
losses5. The draft resolution proposes to change the tr eatment of unrealised foreign exchange gains 
and losses by: (i) deleting the reference to unrealised foreign exchange losses6; and (ii) adding an 
explicit requirement that the amount of the pr ovision should be reduced by the amount of 
unrealised foreign exchange gains (except for those relating to gold)7. 
1.3 The draft resolution proposes to apply the ne w calculation method to NBP’s annual accounts for 
the year 20098. 
 2. General 
observations  
2.1 The purpose of national central bank (NCB) capital and reserves is to ensure that the NCB has at its 
disposal, at all times, the necessary financial r esources to conduct monetary policy. A long-term 
perspective must be taken when establishing an ap propriate level of the risk provision, therefore 
sufficient financial buffers should be created in y ears of profit to allow an NCB to absorb possible 
losses without weakening its financial means for implementing monetary policy.9 As stated in the 
ECB’s Convergence Reports10 and previous ECB opinions11, an NCB must be free to 
independently (which means without interference fro m any third party, such as a state audit office) 
create financial provisions to safeguard the real value of its capital and assets. An NCB must also, at all times, have sufficient financial means to carry out its other functions, i.e. to perform its 
national tasks, to meet its international oblig ations and properly cover its administrative and 
operational expenses
12.  
2.2 National rules on the distribution of NCBs’ profits must also comply with the monetary financing 
prohibition laid down in Article 123(1) of the Treaty and Council Regulation (EC) No 3603/93 of 
13 December 1993 specifying definitions for the a pplication of the prohibitions referred to in 
Articles 104 and 104b(1) of the Treaty.13 As mentioned in previous ECB opinions, to comply with 
the monetary financing prohibition, it is of crucia l importance that the distribution of profits, by 
instalments or in full, does not imply advances on fu ture or provisional profits but is rather the 
                                                 
5  Paragraph 1(2) of Resolution No 9/2006.  
6  Paragraph 1(2)(c) of Resolution No 9/2006 as amended by pa ragraph 1(1) of the draft resolution; according to the 
explanatory memorandum attached to the draft resolution, this  deletion results from the fact that the unrealised foreign 
exchange losses are included in the financial result as at the balance sheet date. 
7  New paragraph 1(3) added by paragraph 1(2) of the draft resolution. 
8  Paragraph 2 of the draft resolution. 
9  See paragraph 3.4 of Opinion CON/ 2009/83 and paragraph 3.2 of Opini on CON/2009/53. All ECB opinions are 
published on the ECB’s webs ite at www.ecb.europa.eu. 
10  See the ECB’s Convergence Report May 2008, pp. 20-21.  
11  See Opinions CON/2003/22 and CON/2004/1;  paragraph 2.2.(a) of Opinion C ON/2009/59; paragraph 3.2 of Opinion 
CON/2009/53; paragraph 3.3 of Opinion CON/2009/26;  paragraphs 11 and 12 of Opinion CON/2004/1. 
12  See the ECB’s Convergence Report May 2008, p. 20. See also  paragraph 2.2 of Opinion CON/2009/53; paragraph 2.2.(a) 
of Opinion CON/2009/59; paragraph 2.3 of Opinion CON/2009/26; paragraph 6 of Opinion CON/2003/22.  
13  OJ L 332, 31.12.1993, p. 1.  
3 result only of profits that are fully realised, account ed for and audited, which in turn requires due 
calculation of profits and losses14. 
 3. Specific comments 3.1 Calculation method 
3.1.1 Although the NBP is not subject to Guide line ECB/2006/16 of 10 November 2006 on the legal 
framework for accounting and financial reporting in the European System of Central Banks
15, the 
ECB appreciates that the NBP has adopted the Eurosystem legal framework in relation to 
accounting and financial reporting in order to achie ve consistency with Eurosystem standards.  
3.1.2 The draft resolution includes an amendment to  the calculation method of the size of the foreign 
exchange rate risk provision. The calculation method for the size of this provision, in turn, directly 
affects the allocation of NBP’s profit and its re mittance to the State budge t under Article 69(4) of 
the Law on Narodowy Bank Polski. 
3.1.3 The ECB understands that in the period 2004 to 2006 the unrealised foreign exchange losses led to 
a depletion of the revaluation account in foreign currencies. In 2007 NBP was not in a position to 
build up its provision as it posted a net loss. Only in 2008 was it possible to transfer funds into the 
foreign exchange rate risk provision. The ECB also understands that the proposed changes would 
lead to NBP establishing a level of the foreign excha nge rate risk provision that is significantly less 
conservative than the level set using the existing cal culation method. In this context, the ECB notes 
that the loss relating to 2007 was carried over into  2008 because of the lack of financial buffers. 
Therefore, to prevent such a situation in the fu ture, NBP should carefully consider any amendment 
to the mechanism for building up the provision which may impede the ability of the NBP to 
maintain an adequate leve l of financial buffers.  
3.1.4 The wording of the proposed paragraph 1(3)16 could be made clearer. This provision may be 
understood as a mere clarification that the unrealised foreign exchange gains mentioned in paragraph 1(2)(c) should reduce the amount of th e provision and should exclude unrealised gains 
on gold. However, it may also be implied that, under the new calculation method proposed in the draft resolution, the treatment of unrealised fore ign exchange gains would be double: they would 
be taken into account under paragraph 1(2)(c) a nd subtracted from the amount of the provision 
under the new paragraph 1(3). 
3.2 Retroactive application   
3.2.1 The financial statements for the year 2009 we re drawn up as at 31 De cember 2009, and thereafter 
audited by an independent auditor, based on the le gal framework which was in force at that time, 
including the rules governing the provision agains t foreign exchange rate risk contained in 
Resolution No 9/2006. The draft resolution proposes to apply the new calculation method to the 
                                                 
14  See paragraph 2.4 of Opinion CON/2009/53 and paragraph 3.3 of Opinion CON/2008/82. 
15  OJ L 348, 11.12.2006, p. 1. 
16 As introduced in Resolution No 9/2006 by paragraph 1(2) of the draft resolution.  
4 NBP’s financial statements for the year 2009. This means, first, that the rules according to which 
the NBP’s 2009 financial statements were compil ed would be retroactively changed, thereby 
affecting the size of the foreign exchange rate risk provision; and, second, in terms of procedure, that the entry into force of the retroactively app licable draft resolution would coincide in time with 
the process of preparation, auditing, authorisati on and taking a decision on the approval of the 2009 
financial statements by the competent bodies. Fo r these reasons, concerns may arise about whether 
this process is sound, well-coordinated and transparent
17. 
3.2.2 Furthermore, the practical implication of applying the new calculation method before the NBP 
2009 financial statements are adopted affects the amount of the risk provision and, consequently, 
the amount to be transferred by NBP to the State budget under Article 69(4) of the Law on Narodowy Bank Polski. Under the draft resolution, the amount of the risk provision would be reduced after the financial statements were prep ared by the NBP’s Management Board and after 
they were audited by an independent auditor; as a consequence, the amount of the profit would be 
increased by the amount of provisional foreign exch ange profit. Hence, the portion of NBP’s 2009 
annual profit that would be remitted to the Stat e budget would need to be accounted for again and 
audited. Otherwise, payments to be made to the State budget would effectively include advances on 
provisional profits in violation of the monetary  financing prohibition under Article 123 of the 
Treaty. Against this background, the ECB stresses the importance of complying with the monetary 
financing prohibition. 
3.3 Timing of the consultation  
As already mentioned, the ECB received the consultation request on 18 March 2010. The draft 
resolution was adopted by the Monetary Policy Council on 30 March 2010, i.e. before the ECB’s 
opinion was adopted. In this context the ECB would like to draw attention to certain provisions of 
Council Decision 98/415/EC regulating the timing of consultation requests. According to Article 4 
of Decision 98/415/EC, Member States are required to ensure that the ECB is consulted at an appropriate point in time to allow the consulting au thority to take its opini on into consideration 
before deciding on the substance of the draft legisl ative provisions. It also follows from Article 3(4) 
of Decision 98/415/EC that Member States are oblig ed to suspend the process for the adoption of 
draft legislative provisions pending submission of the ECB’s opinion. The ECB expects that in the 
future the obligation to consult the ECB at an appr opriate stage of the legislative procedure will be 
respected. 
 This opinion will be published on the ECB’s website.  
                                                 
17  According to Article 69(3) of the Law on Narodowy Ba nk Polski, NBP’s annual accounts should be submitted by the 
NBP President to the Council of Ministers for its approval by 30 April of the year following the financial year to which 
the accounts relate. Therefore, between the end of the financial year and 30 April of the following year, the accounts 
should be: (i) drawn up by NBP’s Management Board (under Articl e 17(4)(12)), (ii) audited by an external auditor (under 
Article 69(1)), and (iii) adopted by the Mone tary Policy Council (under Article 12(2)(5)). 
5  
Done at Frankfurt am Main, 21 April 2010. 
 
[signed] 
 
The Vice-President of the ECB 
Lucas D. PAPADEMOS