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)
Date: 2010-04-21
Institutions: European Central Bank
Subjects: Poland, central bank, financial risk, foreign-exchange reserves, national law

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) received 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  provision  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  Central  Bank  by  national  authorities  regarding  draft 
legislative  provisions2,  as  the  draft  resolution  relates  to  NBP.  In  accordance  with  the  first  sentence  of 

Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted 

this opinion. 

1.  

Purpose of the draft resolution 

1.1  Under Article 65 of the Law on Narodowy Bank Polski3, 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 rules were defined in Resolution No 9/2006 of the 

Monetary  Policy  Council  of  19  December  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  provision  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  assessment  of  the  foreign  exchange  rate  risk  based  on 

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Draft resolution of 16 March 2010. 
OJ L 189, 3.7.1998, p. 42. 
Law of 29 August 1997 on Narodowy Bank Polski (consolidated text: Dziennik Ustaw (Dz. U.) of 2005 No 1, Item 2). 
As published in Dziennik Urzędowy NBP of 20 December 2006 No 13, item 16. 

 
 
 
 
 
                                                 
generally accepted and consistently applied methods of financial risk assessment; (iii) the existing 

and  anticipated  balance  of  the  revaluation  account  and  unrealised  foreign  exchange  gains  and 
losses5. The draft resolution proposes to change the treatment 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  provision  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 new 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  resources  to  conduct  monetary  policy.  A  long-term 

perspective  must  be  taken  when  establishing  an  appropriate  level  of  the  risk  provision,  therefore 

sufficient financial buffers should be created in years 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 from 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  obligations  and  properly  cover  its  administrative  and 
operational expenses12.  

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  application  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  crucial  importance  that  the  distribution  of  profits,  by 

instalments  or  in  full,  does  not  imply  advances  on  future  or  provisional  profits  but  is  rather  the 

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Paragraph 1(2) of Resolution No 9/2006.  
Paragraph  1(2)(c)  of  Resolution  No  9/2006  as  amended  by  paragraph  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. 
New paragraph 1(3) added by paragraph 1(2) of the draft resolution. 
Paragraph 2 of the draft resolution. 
See  paragraph  3.4  of  Opinion  CON/2009/83  and  paragraph  3.2  of  Opinion  CON/2009/53.  All  ECB  opinions  are 
published on the ECB’s website at www.ecb.europa.eu. 
See the ECB’s Convergence Report May 2008, pp. 20-21.  
See  Opinions  CON/2003/22  and  CON/2004/1;  paragraph  2.2.(a)  of  Opinion  CON/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. 
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.  
OJ L 332, 31.12.1993, p. 1.  

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result only of profits that are fully realised, accounted 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  Guideline  ECB/2006/16  of  10  November  2006  on  the  legal 
framework for accounting and financial reporting in the European System of Central Banks15, the 

ECB  appreciates  that  the  NBP  has  adopted  the  Eurosystem  legal  framework  in  relation  to 

accounting and financial reporting in order to achieve 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 remittance to the State budget 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 exchange rate risk provision that is significantly less 

conservative than the level set using the existing calculation 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 future, 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 level 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 the 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 foreign exchange gains would be double: they would 

be  taken  into  account  under  paragraph  1(2)(c)  and  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 were drawn up as at 31 December 2009, and thereafter 

audited by an independent auditor, based on the legal framework which was in force at that time, 

including  the  rules  governing  the  provision  against  foreign  exchange  rate  risk  contained  in 

Resolution  No  9/2006.  The  draft  resolution  proposes  to  apply  the  new  calculation  method  to  the 

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See paragraph 2.4 of Opinion CON/2009/53 and paragraph 3.3 of Opinion CON/2008/82. 
OJ L 348, 11.12.2006, p. 1. 
As introduced in Resolution No 9/2006 by paragraph 1(2) of the draft resolution.  

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NBP’s financial statements for the year 2009. This means, first, that the rules according to which 

the  NBP’s  2009  financial  statements  were  compiled  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 applicable draft resolution would coincide in time with 

the process of preparation, auditing, authorisation and taking a decision on the approval of the 2009 

financial statements by the competent bodies. For these reasons, concerns may arise about whether 
this process is sound, well-coordinated and transparent17. 

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  prepared  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 exchange profit. Hence, the portion of NBP’s 2009 

annual profit that would be remitted to the State 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  authority  to  take  its  opinion  into  consideration 

before deciding on the substance of the draft legislative provisions. It also follows from Article 3(4) 

of Decision 98/415/EC that Member States are obliged 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 appropriate stage of the legislative procedure will be 

respected. 

This opinion will be published on the ECB’s website. 

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According  to  Article  69(3)  of the  Law  on  Narodowy  Bank  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 Article 17(4)(12)), (ii) audited by an external auditor (under 
Article 69(1)), and (iii) adopted by the Monetary Policy Council (under Article 12(2)(5)). 

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Done at Frankfurt am Main, 21 April 2010. 

[signed] 

The Vice-President of the ECB 

Lucas D. PAPADEMOS 

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