Background. Some Key Aspects of the Guide. Structure of the Guide. Conceptual Framework. Specification of Financial Soundness Indicators. Compilation and Dissemination of Financial Soundness Indicators. Analysis of Financial Soundness Indicators. Appendixes. Terminology.


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1.1 The primary purpose of this Compilation Guide on Financial Soundness Indicators (the Guide ) is to provide guidance on the concepts and definitions, and sources and techniques, for the compilation and dissemination of the financial soundness indicators (FSIs) identified by the IMF's Executive Board (see Table 1.1). The Guide is intended to encourage compilation of FSIs and promote cross-country comparability of these data, as well as assist compilers and users of FSI data, for the purpose of supporting national and international surveillance of financial systems.

1.2 FSIs are indicators of the current financial health and soundness of the financial institutions in a country, and of their corporate and household counterparts. They include both aggregated individual institution data and indicators that are representative of the markets in which the financial institutions operate. FSIs are calculated and disseminated for the purpose of supporting macroprudential analysis. This is the assessment and surveillance of the strengths and vulnerabilities of financial systems, with the objective of enhancing financial stability and, in particular, limiting the likelihood of failure of the financial system.

1.3 FSIs are a new body of economic statistics that reflect an amalgam of influences. This is evident from the conceptual framework described below. Some concepts are drawn from prudential and commercial measurement frameworks, which have been developed to monitor individual entities. Other concepts are drawn from macroeconomic measurement frameworks, which have been developed to monitor aggregate activity in the economy. Given the flexibility provided by the Guide, these frameworks can be drawn upon to develop the data set out in the Guide. Advice is also provided on reconciling the data relevant for the Guide with these frameworks. However, some new data sources may need to be developed. In this regard, the Guide serves as a benchmark or reference point for future development work and as a reference document for technical assistance to support the compilation efforts.

1.4 While the international community, through the IMF Executive Board, considers that fostering comparability of FSI data is a medium-term objective, in discussions during the preparation of this Guide many commentators stressed the need for flexibility in the application of the guidance set out below. So, as experience is gathered on compiling this new set of macrostatistics, users should be aware that data sourced from national prudential and commercial measurement frameworks will vary across countries, thus limiting cross-country comparability of data. Looking ahead, the work of the Basel Committee on Banking Supervision (BCBS) on revising its Capital Accord to be more risk sensitive could affect the calculation of FSIs primarily sourced from supervisory data, and subsequent editions of the Guide could accommodate such revisions.

1.5 It is also recognized that the compilation of FSI data is likely to require a relatively high level of technically skilled staff at the compiling agencies.


1.6 By allocating funds for viable investment projects and providing payment services, healthy and robust financial systems help increase economic activity and welfare. However, experience has shown that financial systems are prone to instability and crisis that have the potential to disrupt financial activity and impose huge and widespread costs on the economy. With the liberalization of financial markets and the greater recognition of the importance of systemic effects of financial sector weakness, policymakers and others are paying increasing attention to the stability of national financial systems. Thus the long- established surveillance of individual institutions is being supplemented by the monitoring of risks to the stability of national financial systems arising from the collective behavior of individual institutions. This work is known as macroprudential analysis.

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Table 1.1. Financial Soundness Indicators: The Core and Encouraged Sets *

Core Set
Deposit takers Capital adequacy Regulatory capital to risk-weighted assets Regulatory Tier 1 capital to risk-weighted assets Nonperforming loans net of provisions to capital
Asset quality Nonperforming loans to total gross loans Sectoral distribution of loans to total loans
Earnings and profitability Return on assets Return on equity Interest margin to gross income Noninterest expenses to gross income
Liquidity Liquid assets to total assets (liquid asset ratio) Liquid assets to short-term liabilities
Sensitivity to market risk Net open position in foreign exchange to capital
Encouraged Set
Deposit takers Capital to assets Large exposures to capital Geographical distribution of loans to total loans Gross asset position in financial derivatives to capital Gross liability position in financial derivatives to capital Trading income to total income Personnel expenses to noninterest expenses Spread between reference lending and deposit rates Spread between highest and lowest interbank rate Customer deposits to total (noninterbank) loans Foreign-currency-denominated loans to total loans Foreign-currency-denominated liabilities to total liabilities Net open position in equities to capital
Other financial corporations Assets to total financial system assets Assets to gross domestic product (GDP)
Nonfinancial corporations sector Total debt to equity Return on equity Earnings to interest and principal expenses Net foreign exchange exposure to equity Number of applications for protection from creditors
Households Household debt to GDP Household debt service and principal payments to income
Market liquidity Average bid-ask spread in the securities market ** Average daily turnover ratio in the securities market **
Real estate markets Real estate prices Residential real estate loans to total loans Commercial real estate loans to total loans

1.7 The traditional focus of prudential data reporting and analysis is on the microprudential objective of limiting the likelihood of failure of individual institutions. Macroprudential analysis has a somewhat different set of data requirements owing to its focus on identifying risks emerging in the financial system as a whole. For instance, while increased lending to the real estate market, or to the corporate sector, may be profitable to a bank in the short term, if such lending is mirrored in other banks, the resultant sharp expansion of...

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