* BuBa posts lowest profit since 2004
* Ups provisions, warns of losses from QE bonds
(Adds detail, quotes)
By Francesco Canepa
FRANKFURT, Feb 23 Germany's central bank posted
its smallest profit in more than a decade in 2016 after setting
aside money against potential losses on the bonds it is buying
as part of the European Central Bank's stimulus programme, its
annual report showed on Thursday.
The drop in profit translates into a smaller contribution to
Berlin's federal budget and, coupled with the threat of losses
in the future, is likely to strengthen already sharp German
criticism of the ECB's quantitative easing.
"It is fair to ask ... when we can take our foot off the
monetary policy pedal," Bundesbank President Jens Weidmann said
while presenting the report.
"Especially since the ultra-accommodative monetary policy is
being implemented in key measure through the large-scale
purchases of government bonds, which, as you know, I am very
The Bundesbank recorded a net profit of 399 million euros
($421 million), the lowest since 2004 and a far cry from the 3.2
billion euros in 2015.
The fall was largely due to higher provisions against paper
bought as part of the ECB's asset buying - which since June
includes corporate bonds - and against cheap loans extended to
"The purchases of long-term securities (at very low interest
rates) for monetary policy purposes and the new targeted
longer-term refinancing operations (four-year maturity at a
negative interest rate) have given rise to ... mounting interest
rate risk," the Bundesbank said in the report.
This led the Frankfurt-based central bank to increase its
provisions to 21.9 billion euros from 19.6 billion euros a year
So far, however, the bank is making profits on its bond
Ironically, this is mainly thanks to bonds from troubled
countries such as Greece, bought at very high yields and against
the opinion of Germany's own representative on the ECB's board,
during the 2010-12 debt crisis.
By contrast, the predominantly German public sector paper
bought as part of the asset-buying programme since 2015, some of
which yields less than zero, resulted in a small loss for the
($1 = 0.9477 euros)