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·     The Bank of Israel’s 2015 financial statements were impacted on by several trends in the global economy, in the Bank of Israel’s monetary policy, and in the investment policy of the foreign exchange reserves. The balance sheet expanded by about NIS 18 billion (5 percent) to approximately NIS 369 billion at the end of 2015.
·     A significant majority of the assets on the Bank’s balance sheet are foreign securities while most of its liabilities are in shekels—makam, commercial banks’ shekel deposits, and cash balances. The euro’s marked weakness during the year led to a decline in the shekel value of the balance of the reserves denominated in that currency, and was the main factor in the loss in 2015, while the effect of the strengthening of the dollar in the past year did not make a similar contribution to profit, but rather to the revaluation accounts. This was due to the Bank’s accepted accounting rules, which are customary at central banks.
·     In the past two years, profits from the foreign exchange reserves were greater than the expenses in respect of the monetary instruments, primarily due to the contraction of the interest rate spreads between Israel and the economies in which the reserves are invested, and changes in the investment policy of the foreign exchange reserves. In 2015, it was due mainly to the decline in the Bank of Israel interest rate, profits in respect of investment in equities, and an increase in profits from foreign-currency financial instruments.
·     In 2015, the Bank of Israel expanded the scope of its investment in equities abroad, and began to invest as well in corporate bonds abroad. Over time, the investment in equities and corporate bonds is expected to continue to increase the return on the reserves portfolio, with an increase in volatility in profits.
 
 
The Bank of Israel’s balance sheet expanded by about NIS 18 billion during the year, to NIS 369 billion at the end of 2015. This is an increase of 5 percent from 2014. The increase on the assets side was attributed primarily to the growth in the foreign exchange reserves by about NIS 18.6 billion. That growth derived mainly from foreign currency purchases by the Bank of Israel, which were partly offset by the negative revaluation of the reserves, due mainly to the appreciation of the shekel vis-à-vis the euro. On the liabilities side, the most significant increase derived from the increase in the balance of net monetary instruments, totaling NIS 13 billion, against the background of the need to sterilize part of the surplus liquidity resulting from purchases of foreign currency, and an increase of about NIS 10 billion in the balances of cash in circulation.
 
In 2015, the Bank of Israel recorded a loss of NIS 8.1 billion on its Statement of Operations, compared with a loss of NIS 1.1 billion in 2014. The loss derived mainly from exchange rate differentials on the reserves denominated in foreign currency—mainly the euro, against which the shekel strengthened—of about NIS 10 billion. The loss recorded in the Bank’s books was partly offset by about NIS 2.9 billion in realized gains on the foreign exchange reserves. In addition, in 2015, there was a decline in interest rate expenses to banks and the public in respect of makam and term deposits, totaling about NIS 1.3 billion, mainly a result of the decline in the shekel interest rate.
 
The Bank of Israel’s financial statements are adapted for activities particular to central banks. As such, unrealized gains resulting from the revaluation of tradable securities to fair value, as well as exchange rate differentials on foreign currency balances, and profits and losses from actuarial differentials, are attributed to revaluation accounts, and are not recorded on the Statement of Operations until they are realized. In contrast, negative revaluations are charged as a debit on the Statement of Operations. The revaluation accounts balance, which reflects unrealized gains, was approximately NIS 27 billion at the end of 2015. Accordingly, the deficit balance net of revaluation accounts was only NIS 29 billion, compared with the deficit of NIS 56 billion recorded in the Balance Sheet.
 
In 2015, the Bank changed the capitalization basis in the actuarial calculation of pension liabilities, from a discount rate of 4 percent to a discount rate based on the government yield curve. The Bank implemented the change in the discount rate retroactively and as a result its pension liability for 2014 increased by NIS 1.7 billion, in parallel with a revision in the revaluation account on the balance sheet in respect of actuarial differentials of about NIS 2 billion.
 
The Bank of Israel fulfills its functions as it aims to achieve its objectives stipulated by the Bank of Israel Law—maintaining price stability, supporting growth, and supporting financial stability—and not with the aim of maximizing profits. The Bank’s activities have significant ramifications on its financial statements, but at the same time the achievement of its objectives and the fulfillment of the bank’s functions have economy-wide advantages, which of their nature, are not reflected in the financial statements.