(Bloomberg) -- The Swiss National Bank must prioritize rebuilding its capital over making payouts to the government, according to Vice President Martin Schlegel, the frontrunner to become the country’s next central bank chief.

“The current ratio of equity capital to balance sheet total remains low on account of the high loss in 2022,” Schlegel said on Tuesday in a public lecture in Geneva. “Building up the SNB’s capital must have priority over profit distributions. Our mandate is to ensure price stability, not to generate profits.”

Switzerland’s central bank faced a historic $143 billion loss in 2022 because of its large foreign-exchange portfolio and hasn’t made payouts to the state or shareholders since then. Critics including the OECD have warned that its asset hoard exposes the SNB to losses that could turn its equity negative.

The balance sheet is bloated from more than a decade of currency purchases to keep appreciation pressures on the franc at bay. Schlegel said that without those transactions, Swiss inflation — which averaged only 0.3% over the past 15 years — would have been even weaker. 

“Estimates suggest that it would have been significantly below zero without the purchases,” he said. “We only use foreign-exchange interventions when necessary. Our benchmark is our mandate – ensuring price stability.”

A quarter of the SNB’s foreign-currency portfolio are invested in equities, in order to preserve the value of the central bank’s reserves, he said, adding that “equity investments, they are riskier, but they contribute much more to returns.”

Schlegel also said that the SNB continues to stand ready to intervene in foreign-exchange markets and that there is “no limit” to the size of the balance sheet, but highlighted that interest rates are the central bank’s principal focus.

“Let me assure you, the policy rate is our main tool,” he said.

(Updates with additional comment starting in sixth paragraph)

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