• ·         The Bank of Israel fulfills the functions imposed on it as a central bank, and acts to achieve the objectives established for it under the Bank of Israel Law, 5770-2010: maintaining price stability and supporting growth, employment, the reducing of social gaps, and supporting the stability of the financial system. The bank’s activity to attain its objectives and to carry out its functions is not intended to generate profits, but rather to achieve economy-wide economic goals. The year 2020, which was characterized by one of the most severe economic crises, illustrates the importance of the Bank’s activities, its steps, and their significance to financial stability in the economy and to supporting the credit market and economic activity.


    ·         In 2020, the Bank of Israel’s balance sheet totaled approximately NIS 645.8 billion, a marked increase of 46.7 percent over 2019. The increase in the balance sheet was impacted mainly by growth totaling approximately NIS 136 billion in foreign currency assets abroad, which derived mostly from the Bank’s foreign exchange purchases totaling $21.2 billion, equal to approximately NIS 72.1 billion, as well as from profits and revaluations totaling approximately NIS 20.7 billion, and from government transfers totaling NIS 52.2 billion. In contrast, the foreign exchange balances were reduced by about NIS 25.1 billion, mainly as a result of negative unrealized exchange rate differentials that accumulated due to the appreciation of the shekel vis-a-vis the main currencies in which the reserves are held, and primarily against the US dollar.


    ·         In addition, the balance sheet was impacted by growth in additional investments in local currency, totaling approximately NIS 70 billion—the lion’s share of which is the growth in government bond balances totaling NIS 45.3 billion, within the framework of the policy steps that the Bank took in order to assist the economy in dealing with the coronavirus crisis, as well as from the providing of loans to the banking system within the framework of the special programs to increase the supply of credit to small businesses.


    ·         The Bank’s steps impacted markedly on the liabilities side as well, which increased by NIS 210.3 billion, mainly as a result of net growth totaling NIS 138.1 billion in the balance of the monetary absorption instruments—makam and term deposits—to a balance of NIS 452 billion, and growth totaling NIS 26.9 billion in the monetary base to a balance of approximately NIS 159.3 billion.


    ·         In 2020, there was an accounting loss of NIS 14.2 billion, in contrast to profit of NIS 857 million in 2019. The loss includes the unrealized losses from exchange rate differentials vis-à-vis the shekel, but in contrast, it does not include unrealized gains totaling about NIS 9.5 billion that accumulated in the revaluation accounts in light of the accounting rules for central banks[1], of which approximately NIS 7.3 billion is mainly from the revaluation of tradable foreign currency securities, the result of an increase in prices of the equities in which the Bank’s foreign exchange balances are invested, and dollar bonds. The loss also does not include approximately NIS 2.3 billion in unrealized profits from exchange rate differentials, mainly due to the weakening of the shekel vis-à-vis the euro. Thus, all together, these reflect an “economic loss” of about NIS 4.7 billion.


    ·         In 2020, the Bank recorded revenue of approximately NIS 13.4 billion from its foreign exchange reserves. Most of it was from capital gains and interest from tradable securities. These revenues were offset mainly by exchange rate differential expenses of NIS 26.2 billion[2], mainly due to the appreciation of the shekel vis-à-vis foreign currencies, and particularly against the dollar. In this regard, the results were impacted by the fact that on December 31, the day the balance sheet closed, the exchange rate vis-à-vis the dollar was at its lowest point in 2020, at NIS 3.215/$.


    [1] Unrealized revaluation gains were charged to growth in the revaluation accounts, in accordance with the generally accepted accounting at central banks. The balance of the revaluation accounts at the end of 2020 was about NIS 27.2 billion. In accordance with the generally accepted accounting practices at central banks, unrealized gains—as a result of revaluation to fair value of tradable foreign-currency securities and net settled derivative financial instruments, from CPI indexation differentials of tradable securities, from exchange rate differentials on foreign exchange reserves, as well as profits or losses from actuarial differentials—are charged to the revaluation accounts and are not recorded in the Profit and Loss Statement, until they are realized. In contrast, negative revaluations (excluding negative revaluations from actuarial differentials) are charged to the Profit and Loss Statement.

    [2] Due to the currency imbalance that characterizes the Bank’s balance sheet, and due to the fact that the financial statements are presented in local currency, changes in the exchange rate of the shekel vis-à-vis the currencies in which the foreign exchange reserves are denominated on the balance sheet have an effect, which is reflected in fluctuations in their shekel value.​