How the RBA produced a cool $3.2bn dividend for Scott Morrison
Australian Financial Review Oct 13 2016 9:23 PM
Jacob Greber
The Reserve Bank of Australia has delivered the Commonwealth government a major revenue boost after generating a $2.9 billion net profit thanks to a surge in the value of its offshore currency holdings on a lower Australian dollar.
When combined with last year's earnings, this year's payment to Treasurer Scott Morrison's budget will be $3.2 billion, the largest in seven years, and close to double the average of the past two decades.
According to the annual report published on Thursday, most of the bank's profit is generated from its $167 billion balance sheet, which it uses to support its monetary policy and help markets operate smoothly in periods of extreme crisis, such as during the 2008 global financial meltdown.
As most of that balance sheet is invested in foreign currencies and bonds, any fall in the Australia dollar - or a decline in global interest rates - will trigger gains in the value of that portfolio.
Similarly, any gains in the currency or jump in market yields will lead to valuation losses.
It produced $1.22 billion in underlying earnings, up by $391 million from the previous year because of higher net interest income it said resulted from a rise in interst-earning assets.
Total valuation gains across the portfolio amounted to $1.66 billion because the dollar fell during the year.
The total figure the Reserve Bank categorises as "earnings available for distribution in 2015/16" was $4.61 billion. Of that, some $1.39 billion has been injected into the Reserve Bank's so-called reserve fund, which it uses as a buffer.
That fund, which was severely depleted in the aftermath of the global financial crisis to less than $2 billion, now stands at $14.1 billion. Former Treasurer Joe Hockey controversially injected $8.8 billion into the fund in one of his very first actions in the job in 2013.
Mr Morrison and the Reserve Bank have agreed that the remaining sum - $3.22 billion - be paid to the Commonwealth in 2016/17.
An earlier instalment of the potential dividend from the 2014/15 profits, for $942 million, which had initially been deferred for payment in the 2016-17 budget year, will now be paid in 2015-16.