On Eesti Pank's profit distribution

The principal aspects related to Eesti Pank's capital, reserves and profit distribution have been defined by the Eesti Pank Act and the Security of the Estonian Kroon Act with the main decision-making powers vested in the Supervisory Board of Eesti Pank, similarly to the practices in other countries.

Firstly, the Eesti Pank Act lays down the minimum size of the capital of Eesti Pank as well as the basic principles of profit distribution. The process has been in particular specified in Section 30 under which at least 25 per cent of annual profits shall be used to increase statutory capital up to the amount determined by the Riigikogu (100 million kroons) is reached and also at least 25 per cent of annual profits shall be used to increase reserve capital pursuant to a decision of the Supervisory Board of Eesti Pank. After the allocations, part of the profits may be channelled to establish and augment the foundation capital and funds provided for in the Statute of Eesti Pank. Any profits remaining after the allocations shall be transferred to the state budget. Any loss incurred by Eesti Pank shall be covered from reserve capital. If the reserve capital is insufficient, losses may be covered from statutory capital with the permission of the Riigikogu.

Under the current profit distribution scheme, Eesti Pank is not under the obligation to maximise its transfers to the state budget. The principal task of Eesti Pank is to see to it that the objectives listed in Section 2 of the Eesti Pank Act are met.

Secondly, the Security of the Estonian Kroon Act imposes significant restrictions on the activities and profitability of Eesti Pank, affecting the bank's financial situation in practice even more than the Eesti Pank Act. Firstly, the requirement that the liabilities of Eesti Pank have to be fully covered by foreign exchange reserves automatically means that in order to secure its operational risks Eesti Pank has to maintain a substantial liabilities-free foreign exchange reserve. A similar requirement also applies to the capital and reserves of Eesti Pank. Secondly, the currency board restriction on investments means that the return on Eesti Pank's assets will also in the near future remain below the growth rate of the Estonian economy, and even more so, below the growth rate of the financial system.

Eesti Pank's profit distribution in 1992-2007