Numerical Examples
| Pages | 230-255 |
Page 230
1. This appendix provides a series of numerical examples to illustrate key compilation and methodological concepts described in the Guide and to provide guidance on how to calculate FSIs. The examples are grouped together in the following three sections.
Part 1: A base data set of examples consisting of income and expense and balance sheet statements, as an illustration of how the agreed FSIs can be calculated.
Part 2: Examples illustrating the accounting rules for (1) gains and losses on financial instruments and (2) interest income on nonperforming loans.
Part 3: Examples illustrating consolidation and associated sector-level issues, including (1) an extended base data set, (2) examples illustrating the sector-wide consolidation of capital, and (3) examples illustrating accounting for goodwill in sector- wide capital.
While the focus of these examples is on the deposit- taking sector, they can also apply to other corporate sectors. This appendix therefore includes in addition the following section:
Part 4: A discussion of calculating FSIs for non- financial corporations.
2. To illustrate the principles involved, a base data set for income and expense, balance sheet, and associated memorandum items is provided below, which is used to calculate FSIs. The data set provided is consistent with the guidance in Chapter 4 and Chapter 6. Nonetheless, some simplifying assumptions are made to put aside the consolidation issues (and the additional data needs) relating to the interbank positions and flows that are described in Chapter 5. These simplifying assumptions are relaxed in the later examples on consolidation in Part 3.
3. In this example, the economy has three deposit takers. There are no financial relations among them, nor do they have foreign branches or investments in foreign subsidiaries and associates. 1 End-period financial statements (income and balance sheet accounts) for the three resident deposit takers are presented in Tables A5.1 and A5.2, together with the aggregated income and balance sheet statements.
4. All three deposit takers extend loans to residents of the local economy, but the sectoral allocation differs. Each deposit taker also extends some loans to non- residents; a geographical distribution is reported as an addendum to the balance sheet. Deposits from (non- bank) residents in the local economy are the main form of funding, but deposit takers 2 and 3 have also raised some significant amounts through the issuance of debt securities. Financial derivative instruments are used by all three deposit takers but are limited to interest rate swaps. On the income and expense side, deposit taker 1's performance is weaker than the other deposit takers', reporting zero net income for the period.
5. Using the guidance in Chapter 6 and the base data set of financial accounts, Table A5.3 presents the agreed FSIs at the sector level and, for illustrative purposes, for each bank individually. Moreover, where relevant, the value of the numerator and denominator for each FSI is shown. Because of the lack of financial relations among the three resident deposit takers, the sector-level FSIs can be calculated using the aggregated balance sheet and income statement data shown in Tables A5.1 and A5.2, without the need for sector-level consolidation adjustments discussed in Chapter 5. Furthermore, since the deposit takers have no foreign operations, the construction of FSIs on a domestic basis is sufficient for this economy.Page 231
Table A5.1. Income and Expense Statements: Deposit Takers-Aggregated Data*
(In millions of U.S. dollars; unless otherwise stated)
| Deposit Taker 1 | Deposit Taker 2 | Deposit Taker 3 | Aggregation | |
| A | B | C | A + B + C | |
| 1. Interest income | 400 | 800 | 300 | 1,500 |
| (i) Gross interest income | 400 | 800 | 300 | 1,500 |
| (ii) Less provisions for accrued interest on nonperforming assets | - | - | - | - |
| 2. Interest expense | 100 | 140 | 100 | 340 |
| 3. Net interest income (= 1 minus 2) | 300 | 660 | 200 | 1,160 |
| 4. Noninterest income | 250 | 700 | 400 | 1,350 |
| (i) Fees and commissions receivable | 110 | 300 | 200 | 610 |
| (ii) Gains or losses on financial instruments | 50 | 100 | 100 | 250 |
| (iii) Prorated earnings | 50 | 140 | 20 | 210 |
| (iv) Other income | 40 | 160 | 80 | 280 |
| 5. Gross income (= 3 plus 4) | 550 | 1,360 | 600 | 2,510 |
| 6. Noninterest expenses | 500 | 600 | 150 | 1,250 |
| (i) Personnel costs | 300 | 300 | 100 | 700 |
| (ii) Other expenses | 200 | 300 | 50 | 550 |
| 7. Provisions (net) | 50 | 80 | 10 | 140 |
| (i) Loan loss provisions | 50 | 80 | 10 | 140 |
| (ii) Other financial asset provisions | - | - | - | - |
| 8. Net income (before extraordinary items and taxes) | ||||
| (= 5 minus (6 + 7)) | - | 680 | 440 | 1,120 |
| 9. Extraordinary items | - | - | - | - |
| 10. Income tax | - | 272 | 176 | 448 |
| 11. Net income after tax (= 8 minus (9 + 10)) | - | 408 | 264 | 672 |
| 12. Dividends payable | - | 300 | 140 | 440 |
| 13. Retained earnings (= 11 minus 12) | - | 108 | 124 | 232 |
* For a description of the line items, refer to Chapter 4. purposes, for each bank individually. Moreover, where relevant, the value of the numerator and denominator for each FSI is shown. Because of the lack of financial relations among the three resident deposit takers, the sector-level FSIs can be calculated using the aggregated balance sheet and income statement data shown in Tables A5.1 and A5.2, without the need for sector-level consolidation adjustments discussed in Chapter 5. Furthermore, since the deposit takers have no foreign operations, the construction of FSIs on a domestic basis is sufficient for this economy.
6. In the Guide, it is recommended that gains and losses on financial instruments that are valued at market or fair value in the balance sheet be included in the income and expense statement in the period in which they arise. Numerical examples are provided below to illustrate the application of the Guide 's recommendation and highlight the asymmetries that can arise at the sector level in the absence of consistent reporting of such gains and losses.
7. This example, set out in Tables A5.4 and A5.5, illustrates the Guide 's approach to recording unrealized gains and losses on traded instruments and highlights the impact over time of adopting a different approach.
8. In this example, deposit takers 1 and 2 purchase a traded financial asset during period 1 at a purchase price of 100. Deposit taker 1 revalues the asset at its market price at the end of each period and records unrealized losses during periods 2 and 3 in the income statement. The asset is sold during period 4, and deposit taker 1 records a gain of 5 during this period. This approach is in line with the Guide 's recommendations. Therefore, as can be seen in Table A5.4, lower retained earnings are recorded in the periods 2 and 3 when unrealized losses arise, and a small gain is recorded in period 4, when the asset is sold.Page 232
Table A5.2. Balance Sheets: Deposit Takers-Aggregated Data*
(In millions of U.S. dollars, unless otherwise stated)
| Deposit Taker 1 | Deposit Taker 2 | Deposit Taker 3 | Aggregation | |
| A | B | C | A + B + C | |
| Balance Sheet | ||||
| 14. Total assets (= 15 + 16 = 31) | 12,450 | 18,201 | 7,450 | 38,101 |
| 15. Nonfinancial assets | 500 | 500 | 300 | 1,300 |
| 16. Financial assets (= 17 through 22) | 11,950 | 17,701 | 7,150 | 36,801 |
| 17. Currency and deposits | 200 | 200 | 100 | 500 |
| 18. Loans (after specific provisions) | 9,200 | 13,900 | 5,350 | 28,450 |
| (i) Gross loans | 9,250 | 14,400 | 5,600 | 29,250 |
| (i.i) Interbank loans | 1,000 | 900 | 600 | 2,500 |
| (i.i.i) Resident | - | - | - | - |
| (i.i.ii) Nonresident | 1,000 | 900 | 600 | 2,500 |
| (i.ii) Noninterbank loans | 8,250 | 13,500 | 5,000 | 26,750 |
| (i.ii.i) Central bank | - | - | - | - |
| (i.ii.ii) General government | 400 | 5,000 | 2,000 | 7,400 |
| (i.ii.iii) Other financial corporations | 500 | 2,000 | - | 2,500 |
| (i.ii.iv) Nonfinancial corporations | 7,000 | 2,000 | - | 9,000 |
| (i.ii.v)Other domestic sectors | 350 | 2,500 | 2,500 | 5,350 |
| (i.ii.vi) Nonresidents | - | 2,000 | 500 | 2,500 |
| (ii) Specific provisions | 50 | 500 | 250 | 800 |
| 19. Debt securities | 2,250 | 3,000 | 1,300 | 6,550 |
| 20. Shares and other equity | 100 | 301 | 200 | 601 |
| 21. Financial derivatives | 200 | 200 | 200 | 600 |
| 22. Other assets | - | 100 | - | 100 |
| 23. Liabilities (= 28 + 29) | 11,050 | 16,501 | 6,850 | 34,401 |
| 24. Currency and deposits | 10,200 | 11,700 | 5,150 | 27,050 |
| (i) Customer deposits | 10,200 | 11,200 | 3,650 | 25,050 |
| (ii) Interbank |
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