Reserve Bank of Australia Annual Report – 1988 The Bank's Accounts

The Bank's accounts for the year to 30 June 1988, together with explanatory notes, are set out in the following pages. There were no significant changes in the Bank's accounting practices during the year.

The Bank's net operating earnings in 1987/88 were $1,530 million compared with $3,458 million in 1986/87. Gains on sales of foreign currency, at $145 million, were well down on the $1,953 million realised in 1986/87. Another factor was the sharp change in the composition of the Bank's assets over the year as a result of its market operations; holdings of Commonwealth Government securities fell while holdings of lower-yielding overseas securities rose.

The strong appreciation of the Australian dollar in the closing months of the year had a major impact on the Bank's reserves and provisions and on the allocation of net earnings. It meant that the market value (in Australian dollars) of the Bank's foreign currency assets at 30 June 1988 was substantially below original cost. In consequence, the Foreign Currency Revaluation Reserve ($544 million at 30 June 1987) and some $424 million out of the Provision for Effects of Movements in Exchange Rates were absorbed over the year.

The Investments Revaluation Reserve of $142 million was also absorbed during the year, together with $22 million of the Provision for Effects of Movements in Market Yields.

Against the above background, in terms of Section 78 of the Reserve Bank Act, the whole of the net earnings from Central Banking Business was transferred to the Provision for Effects of Movements in Exchange Rates. The combined total of the Provision and the Foreign Currency Revaluation Reserve at 30 June 1988 was $1,078 million compared with $1,306 million a year earlier.

After Section 78 transfers, consolidated net profits available for distribution at 30 June 1988 were $790 million compared with $2,676 million in 1986/87. Rural Credits Department profits of $4.4 million were appropriated in equal amounts to the Rural Credits Department Reserve Fund and the Rural Credits Development Fund. The remainder — $786 million — comprising net profits of the Note Issue Department was paid or payable to the Commonwealth.

An interim payment of $300 million to the Commonwealth out of 1987/88 profits was made on 30 June 1988. The corresponding figure last year was $1,055 million. Profits awaiting payment to the Commonwealth at 30 June 1988 were $486 million, compared with $1,599 million a year earlier.

The Bank's consolidated balance sheet fell from $26.1 billion to $25.1 billion over the year to 30 June 1988. Two of the major items — lower reserves and a smaller net profit payable to the Commonwealth — have been mentioned above. A third, random, factor was a fall in balances held in the Commonwealth Government's accounts with the Bank.

On the other hand, Australian notes on issue rose strongly over the year.

Operations of the Rural Credits Department ceased during 1987/88 and the Department is now being wound up. Since balance date, the Department's remaining capital and reserve funds have been distributed equally to the Reserve Bank Reserve Fund and the Commonwealth in accordance with a direction by the Treasurer in terms of the relevant legislation.