can the oecd bank profitability database satisfy data needs for fsis?

Can Can the OECD Bank Profitability database the OECD Bank Profitability database

satisfy data needs for FSIs?satisfy data needs for FSIs?

Working Party on Financial StatisticsWorking Party on Financial Statistics10-11 October 200510-11 October 2005

by Michèle Chavoix-Mannato, OECD/NAFS and Paolo Poloni, IMF

Presentation Chapter 1: The OECD database on Bank Profitability

Chapter 2: The IMF Compilation Guide on Financial

Soundness Indicators

Chapter 3: Gaps between the current OECD database and

data requirements for compiling FSIs

Issues for consideration of the WPFS

Chapter 1:

The Bank Profitability database

First issued in 1987 Based on a standard framework Three tables

Income statement and balance sheetStructure of the financial systemClassification of banks’ assets

Methodological information

Need for changes

Last review of the database in mid-1990s

Discussions at the 2002 WPFS meeting In favour of more comparabilityNeed for more information

Opportunity to seize: the FSIs

Statistical coverage of the data Timeliness: 5 to 12 months after the end of the year Period coverage: 1979 at the soonest Table 1 coverage

Income statement: 23 items Balance sheet: 18 items Capital adequacy: 5 items

Table 2 coverage Data on the structure of national financial systems

Table 3 coverage Assets: residents/non-residents; domestic/foreign

currencies

Table 1: Income statement and Balance sheet

Institutional coverage

All Banks 16 countries Commercial Banks 18 countries Large Commercial Banks 7 countries Foreign Commercial Banks 7 countries Savings Banks 8 countries Co-operative Banks 6 countries

Table 2: Structure of the financial system Central Bank 27 countries

Other monetary institutions Commercial banks Foreign banks Savings banks Co-operative banks

23 countries

22

18

14

17

Other financial institutions Mortgage credit institutions Development credit institutions Finance companies

19 countries

12

8

11

Insurance institutions Insurance companies Pension funds

22 countries

23

1

All financial institutions 19

Residents / Non-residents 24 countries

Domestic / Foreign currencies 25 countries

No breakdown available 4 countries

Table 3:Classification of assets of banks

Institutional coverage (continued)

Instructions to fill the OECD questionnaire

Definitions given for a number of items of the income statements and balance sheets

No definition provided for the banks to cover

World-wide consolidation recommended foreign branches of reporting banks included Domestic/foreign subsidiaries included

Presentation Chapter 1: The OECD database on Bank Profitability






One of the IMF responses to 1997 financial crises Was finalized in July 2004 following extensive consultation Aims to promote compilation of cross-country comparable FSIs by

providing guidance on the concepts and definitions, data sources, and compilation techniques

Provides a new statistical framework that draws on 1993 SNA, MFSM, IASs, and BCBS standards

Flexibility is allowed to accommodate differences between various measurement systems, to deal with data shortage, and to meet analytical needs

Encourages the dissemination of data and metadata Covers 12 core indicators for the DT sector and 27 encouraged

indicators for DT and other sectors.

The Compilation Guide on FSIs (Guide)

What are FSIs? FSIs are indicators of the current financial health and

soundness of the financial institutions in a country, and of their corporate and household counterparts

FSIs include both aggregated individual institution data and indicators about the markets in which the financial institutions operate

Why are FSI data needed? FSIs identify the strengths and weaknesses of the

financial sector and their counterparts for the purpose of supporting macroprudential analysis that could form a basis for taking actions

What are FSIs and why are needed?

Conceptual framework: definitions of institutions and markets, accounting principles, sectoral financial statements, aggregation and consolidation)

Specification of FSIs: guidance on how to calculate FSIs for deposit-takers, other sectors, financial markets, and real estate markets

Practical aspects on compilation and dissemination Analytical aspects: FSIs are part of a larger body of

information used to monitor financial stability

Appendices

Structure of the Guide

Aggregation and consolidation (see next slides) Time of recognition of flows and positions

Use of accrual basis of accounting Recording transactions in accordance with change in ownership

Provisioning and nonperforming loans Valuation Foreign-currency-denominated instruments and

currency for conversion Maturity

Short-term is one year or less; long-term is more than one year Remaining and original maturity

Recording of gains and losses on financial instruments

Key methodological issues (1)

Aggregation and consolidation are methods used to derive sector-level data Aggregation is the summation of data on gross

positions or flows Consolidation is the elimination of positions and flows

between units within a group or between groups within a sector

Consolidation approaches Cross-border consolidation of domestically

controlled institutions (recommended approach) Domestic consolidated data (supplementary

approach) Cross-sector consolidation of domestically controlled

institutions (third possible approach)


The compilation of FSIs for DT necessitates information to make three main types of adjustments: Deconsolidation – to eliminate business of non-DT

entities (subsidiaries and/or parent holding companies) within the group

Intra-sector adjustments – to eliminate double counting of capital and income among the reporting population (see slide 4)

IFRS-related adjustments – when accounting standards are different from the accounting benchmarks in the Guide (see slide 5)


Intra-sector adjustments 1. Adjustments to the sector-level income statement

Provisions for accrued interest on NPA to other DTs Fees/commissions receivable and payable from other DTs Dividends receivable and payable from other DTs The investing DT’s pro-rated share of the earnings of associate

DTs Other income receivable and payable from other DTs Gain and losses on DT’ ownership of equities of other DTs Provisions on loans to other DTs

2. Adjustments to the sector-level balance sheet Investments in associates resident in the economy The market value of shares and other equity investments in

other DTs Specific provisions on claims on other DTs


IFRS-related adjustments Adjustments pertain to

recording all fees/commission under noninterest income deconsolidating non-DT subsidiaries and applying pro-

rated approach for recording holdings of shares of unconsolidated subsidiaries

recording loans gross of general provisions recording tradable held-to-maturity instruments at market

value not recording nontradable instruments at fair value if

these fair values are not reliable, but at nominal value (with appropriate provisioning)

recording all gains/losses on all tradable assets/liabilities, including derivatives, under relevant item in income and expense statement


Aim: to develop countries’ capacity to compile FSIs and promote cross-country comparability of FSIs

Voluntary participation by IMF member countries 62 participating countries (including 29 OECD countries)

Participating countries agree to Compile the 12 core FSIs Provide the IMF (by end-July 2006) the data and metadata for core FSIs

as of a reference date (end-2005) using standard report forms Nominate a single agency to act as the point of contact

Participating countries are encouraged to Compile some or all of the encouraged indicators Provide the IMF the data and metadata for encouraged FSIs Other information: sectoral financial statements, measures of dispersion

and concentration, historical data series

CCE

Presentation

Chapter 1:

The OECD database on Bank Profitability

Chapter 2:

The IMF Compilation Guide on Financial Soundness Indicators

Chapter 3:

Gaps between the current OECD database and data requirements for compiling FSIs


Main gaps

Data frequency and timeliness


Number and definition of variables

Consolidation approach

Accounting rules

Data frequency and timeliness

OECD current practice: annual data, within 12 months

FSI Guide: quarterly frequency, within 3 months

Proposal to close the gap: frequency remains annual; timeliness is reduced to 3 - 6 months


OECD current practice: only the banking sector

FSI Guide: FSIs cover the DT sector and other sectors

Proposals to close the gap: use the IMF definition of DT sector; common standard framework for table 2 “Structure

of the financial system”

Number and definition of variables

OECD current practice: 49 variables collected, definitions largely follow national practice

FSI Guide: larger number of variables, differences in definitions and presentation of certain items

Proposals to close the gap: additional variables to be collected by the OECD, following definitions of the Guide

OECD current practice: cross-border cross-sector consolidation approach; neither sector-level nor IFRS-related adjustments

FSI Guide: cross-border approach for domestically controlled DTs; sector-level and IFRS-related adjustments

Proposals to close the gap : converge to the consolidation approach recommended by the Guide, make intra-sector and IFRS-related adjustments

Consolidation approach

Accounting rules

OECD current practice: no accounting guidance

FSI Guide: guidance re. Valuation, use of accruals, recording of gains/losses on financial instruments, ecc.

Proposals to close the gap: use IMF accounting guidance; explore impact of IFRS

Presentation

Chapter 1: The OECD database on Bank Profitability






QUESTION 1

Are there Delegates who do not agree

that the OECD should adapt

its Bank Profitability database

to increase its usefulness,

relying on the work undertaken by the IMF

on Financial Soundness Indicators (FSI)

so that it better meets

the requirements for the compilation of FSI?

Preliminary questions to the WPFS

QUESTION 2

Among Delegates who agree on this work,

which are the experts who would volunteer

to start an EDG to discuss

all issues that are necessary

to ensure a better convergence of

Bank Profitability on the IMF Guide?

Preliminary questions to the WPFS (cont.)

Issue 1:

A further investigation regarding the application of the new IAS rules

before recommending any specific accounting rules based on the IMF Guide

seems to be appropriate:

Are there comments?

Issues for Consideration of the WPFS

Issue 2:

Is there any country which is not able to reduce the time-lag,

between 3 – 6 months,after the end of the reference year

in the transmission of data to the OECD?


Issue 3:

Do Delegates agree that the OECD should collect additional data

on income statement and balance sheet for the sector ‘Deposit-Takers’ as a whole

and publish them in Table 1 of the OECD publication?


Issue 4:

It seems appropriate to use in priority definitions and recommendations

given in the IMF Guide:

are there any objections?


Issue 5:

The list of items relating to Income Statement and Balance Sheet currently requested by the OECD should be expanded in order to be able

to calculate the core-set of FSIs:

Do Delegates agree to rely on the EDG to discuss and decide on the additional

items to be collected?


ConclusionsConclusions

The Secretariat thanks the IMF which has The Secretariat thanks the IMF which has contributed to this exercicecontributed to this exercice

The Secretariat thanks the volunteering The Secretariat thanks the volunteering countries which are ready to participate to countries which are ready to participate to an EDG in order to discuss remaining an EDG in order to discuss remaining issues and decide on the follow-up of this issues and decide on the follow-up of this exerciseexercise. .

can the oecd bank profitability database satisfy data needs for fsis?

Documents

fsis slide

fsis guide slide

financial markets

financial sector

countries table

coverage data

wpfs slide

financial crises