The Swiss government will likely receive another handsome dividend from central bank coffers this year. SNB profits will have grown in the fourth quarter of 2020 on the back of a stock exchange recovery, UBS estimates show.

The Swiss National Bank (SNB) increased its profit in the fourth quarter, according to a study published by UBS on Tuesday. They expect the central bank to post a quarterly profit of about 10 billion Swiss francs ($11.4 billion). The bank will report a first estimate of last year's result on Friday, January 8. UBS economists tend to come close to the real result with their estimates (report in German).

A result of that size would boost full-year profit to a figure in the region of 25 billion francs, UBS said. The SNB had a nine-month profit of 15.1 billion francs, not least thanks to a surge in the price of gold. The book value of gold had risen by more than 9 billion francs.

Slump of Gold Price in Reporting Period

However, instead of contributing to the size of the bank's profit as was the case in the period through September, the valuation of gold will actually have weighed on the figures presented for the fourth quarter. The price of gold declined somewhat during the fourth quarter and the U.S. dollar also dropped by about 5 percent, adding to the decline of the gold price.

The SNB by contrast will have profited from the surge of stocks. With a portfolio worth about 175 billion francs, the SNB will have scored valuation gains of about 20 billion francs in the fourth quarter. In addition to those unrealized gains, the bank will have received interest and dividend payments as well as negative interest from institutions in Switzerland worth about 3 billion francs, UBS said.

SNB Distribution Reserve

With a profit of the size predicted by UBS, governments at the federal and regional levels will expect a total windfall of 4 billion francs from the distribution reserve of the SNB. That contribution will come very timely with the extra spending due to the pandemic.

Allowing for the provisions for the currency reserves, the SNB will have a distribution reserve of about 100 billion francs, UBS said. That's the pot from which the SNB takes the annual contribution for the two levels of government. In 2019, the bank generated a profit of 48.9 billion francs.