The Bank of Israel fulfills the functions imposed on it as the central bank, and acts to achieve the objectives set for it pursuant to the Bank of Israel Law, 5770-2010: maintaining price stability and supporting growth, employment, the reducing of social gaps, and supporting the stability and orderly activity of the financial system. Some of the actions taken by the bank have significant ramifications on its financial statements, but alongside those, the achievement of the Bank’s objectives and fulfillment of its functions have economy-wide advantages that are not reflected in the financial statements.


  • The Bank recorded a profit of approximately NIS 5.3 billion in 2018, compared with a loss of NIS 0.8 billion in 2017. The main components of the profit were the Bank’s interest income from investment of the foreign exchange reserves, which totaled NIS 5.6 billion, and net noninterest income from securities and financial derivative instruments of NIS 0.9 billion. The main expenditure items that impacted on the reduction of the profit were expenditures on printing banknotes and coins, and general and administrative expenses, that together totaled NIS 0.9 billion.
  • Due to the currency imbalance[1] that is characteristic of the Bank’s balance sheet, and due to the fact that the financial statements are presented in shekels, changes in the shekel’s exchange rate against the currencies in which the foreign exchange reserves are denominated on the balance sheet have an effect that is reflected in fluctuations in the shekel value of the reserves. The Bank does not act to hedge the effect of these changes, and does not act to increase yields in shekel terms, but rather in terms of the numeraire[2], subject to the guidelines for the investment policy of the foreign exchange reserves delineated by the Monetary Committee.
  • According to the accounting principles customary at central banks, unrealized profits resulting from the revaluation of tradable securities to fair value and from exchange rate differentials on the foreign exchange reserves, as well as profits and losses from actuarial differentials, are attributed to the revaluation accounts and are only recorded on the Statement of Operations when they are realized. In contrast, negative revaluations, except for negative revaluations from actuarial differentials, are attributed to the Statement of Operations.
  • In 2018, the shekel depreciated against major currencies in the reserves portfolio, primarily against the US dollar, by 8.1 percent. The depreciation’s main impact on the shekel value is not realized, and therefore is not reflected in the profit and loss statement, but rather in an increase in the revaluation account. This impact totaled approximately NIS 24 billion in 2018.
  • In recent years, the Bank gradually increased the share of the foreign exchange reserves invested in equities, which markedly impacted the return on the reserves portfolio. Since the positions in equities were opened, profits from the increase in their value have not been included in the Bank’s profit and loss statement as long as they weren’t realized, and they have been attributed to the revaluation account on the balance sheet. This year, losses of approximately NIS 5 billion recorded as a result of the decline in equity prices (mainly at the end of the year) were offset by unrealized profits that accumulated in the revaluation account in previous years as a result of the increase in the value of the stock portfolio, and they were not included in the profit and loss statement.
  • The Bank of Israel’s balance sheet grew in 2018 by about NIS 38 billion (9 percent) to approximately NIS 440 billion. The increase on the assets side is mostly attributed to an increase in the foreign exchange reserves, which derived mainly from positive exchange rate differentials on the reserves, primarily as a result of the shekel’s depreciation against the dollar, and from foreign exchange purchases made by the Bank of Israel in 2018. The liabilities on the balance sheet increased by about NIS 13.6 billion, as a result of several main factors: (1) the increase in the balance of net monetary absorption tools—makam and term deposits—by a total of about NIS 9.9 billion, to NIS 296 billion. Part of the absorption was derived from the need to sterilize the said foreign exchange purchases. (2) An increase of NIS 4.9 billion in the monetary base, in view of the growth of GDP.

[1] While the vast majority of the assets on the balance sheet are denominated in foreign currency, liabilities are mostly denominated in shekels.

[2] See the report on investment of the foreign currency reserves for 2018 for details. In that report, the return on holding the reserves portfolio is measured in terms of the basket of currencies—the numeraire. The numeraire is a component that includes three currencies—the dollar, the euro, and the pound sterling—which reflects the potential uses of the reserves.