Reserve Bank of Australia Annual Report – 1991 The Bank's Accounts


The Bank's financial statements for 1990/91, together with explanatory notes, are set out in the following pages. During the year the Board decided the Bank's cover against market risks should be held as “reserves” rather than “provisions” (see Note 1(e)). The Australian National Audit Office agreed with the change. The balances of the Provisions for the Effects of Movements in Market Yields and Exchange Rates were transferred to the Reserve for Contingencies and General Purposes.

That reserve is funded under section 78 of the Reserve Bank Act, which permits the Bank to provide for contingencies prior to determining the Bank's net profit. Conventional accounting and business practices fund reserves by appropriation from net profit. The Act, however, permits only two options for appropriation of the Bank's net profit, neither of which is within the power of the Board. The Treasurer determines, after consultation with the Board, any amount to be placed to the credit of the Reserve Bank Reserve Fund; the balance is payable to the Commonwealth.

There were no other significant changes to the Bank's accounting arrangements or policies during the year.

Note 2 shows that the Bank's net operating earnings were $1,713 million in 1990/91, compared with $1,095 million in the previous year. The most significant contribution to the increase was net gains of $528 million realised from the sale of securities (gains in the previous year were $28 million); this was only partly offset by net losses of $56 million realised from the sale of currencies (gains of $19 million in the previous year). Other revenues from the Bank's securities investments were higher in 1990/91, and interest payments on the Bank's deposit liabilities were lower, together contributing to an increase in net earnings of $318 million.

Movements in market yields, particularly in the last three weeks of the year, reduced the value of the Bank's investments at 30 June 1991 to $81 million below cost. That amount was charged against earnings.

In determining net profit, in terms of section 78 of the Reserve Bank Act, the Treasurer approved the Board's decisions to write $6.5 million off Bank premises, and to transfer $100 million to the Reserve for Contingencies and General Purposes and $25 million to the Provision for Building Repairs and Maintenance.

After these transfers, the Bank's net profit in terms of the Act for 1990/91 was $1,588 million ($575 million in 1989/90). The Treasurer determined that $85 million should be transferred to the Reserve Bank Reserve Fund. The remaining $1,503 million is payable to the Commonwealth; an interim payment ($400 million) was made in June 1991 and the remainder is paid in August.

The Bank's balance sheet increased by $4.1 billion to $29.0 billion between June 1990 and June 1991. Significant changes in the components are set out below.

On the liabilities side, capital and reserves increased $2.8 billion, of which $0.8 billion represented the effects on revaluation reserves (see Note 3) of marking up the value of gold and foreign exchange. The balance reflected the changes mentioned above, including the transfer of the balances from certain provisions to reserves. Notes on issue rose by $1.8 billion (14%). At 30 June the Commonwealth's deposits with the Bank were $1.4 billion higher than a year earlier; this was largely a function of end-year financial flows between the private and public sectors (see comment below on “clearing items”). The amount of profit payable to the Commonwealth at 30 June 1991 was $830 million higher than a year earlier. Banks' fixed deposits were well down compared with a year ago. Deposits of foreign institutions were higher. Provisions were down because of the transfers noted earlier.

Major changes in assets were in gold and foreign exchange (+$2.2 billion), Commonwealth Government securities (+$0.8 billion) and clearing items (+$1.1 billion). The increase in gold and foreign exchange reflected valuation changes ($0.8 billion) and earnings of the foreign portfolio. Clearing items at 30 June 1991 were larger than usual; they represented the sum of cheques drawn on other banks paid into the accounts of the Bank's customers on the last working day in June; the cheques were presented at the Clearing House on 28 June and the Bank received payment on 1 July; interest was earned by the Bank on those funds in the normal way for cheque clearing settlements.