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B A N K P R O F I T A B I L I T Y
PROPOSALS FOR A REVISION OF OECD BANKING STATISTICS
AND INDICATORS
Working Party on Financial Statistics13-14 October 2008
By Hakan Atasoy, Consultant
PURPOSE
Review the list of financial statement items included in “OECD-Bank Profitability” publication in accordance with the IMF’s “Financial Soundness Indicators (FSI)” for deposit takers
Take into account evolving international accounting standards and their impact on banking statistics. Vast implementation of these standards among the member countries (25 over 30 and 2 from 2011 for listed companies)
This document has been presented after taking into account the discussions of the countries’ volunteer experts in electronic discussion group (EDG)
BALANCE SHEET
ASSETS Cash and balances with central bank
Loans and receivables due from banks
Loans and receivables due from customers
Financial assets at fair value through profit or loss
Available for sale financial assets
Held to maturity investments
Derivatives-hedge accounting
Tangible and intangible assets
Interest in associates and joint ventures
Other assets
ACCOUNTING FOR ASSETS Loans and receivables: Amortized cost (IAS 39)
Held to maturity investments: Amortized cost (IAS 39)
Financial assets at fair value through profit or loss: Fair value (IAS 39)
Available for sale financial assets: Fair value. Unrealized gains and losses disclosed in total equity (IAS 39)
Derivatives-Hedge accounting: Fair value (IAS 39)
Tangible and intangible assets: Cost model or Revaluation model (IAS 16, 38, 40)
Interest in associates and Joint ventures: Equity method (IAS 28, 31)
MODIFICATIONS-ASSETS
Classification based on intentions of management. Similar classification in US GAAP (FASB 115, FASB 159).
Not instrument based approach. However, subdivisions by instruments added (Debt, Equity instrument etc).
Loans and receivables cover both loans and deposit placements in line with bank reporting practices.
Tradable loans or loans that have active market classified as trading, available for sale or held to maturity. Loans can be designated as fair value after initial recognition.
Financial derivatives divided as trading and hedging. Trading derivatives disclosed in Fair Value through Profit or Loss.
LIABILITIES
Financial liabilities at fair value through profit or loss
Due to banks
Due to customers
Debt certificates
Subordinated liabilities
Derivatives-hedge accounting
Provisions
Other liabilities
Total equity
ACCOUNTING FOR LIABILITIES
Financial liabilities measured at fair value (IAS 39) Financial liabilities at fair value through profit or loss (trading derivatives, short selling, liabilities intended for repurchase in the short term, liabilities designated at fair value) Derivatives-hedge accounting
Financial liabilities measured at amortized cost (IAS 39) Due to banks Due to customers Debt certificates Subordinated liabilities
Provisions (IAS 19, 37)
MODIFICATIONS-LIABILITIES
Due to banks and due to customers cover both loan borrowings and deposits in line with bank reporting practices.
Provision for contingencies and charges and subordinated liabilities disclosed separately.
Negative values from trading derivatives disclosed in financial liabilities at fair value through profit or loss; negative values from hedging derivatives disclosed in derivatives-hedge accounting.
Detailed breakdown of total equity: Capital & reserves, Revaluation changes, Net profit or loss and Minority interest.
Goodwill not deducted from total equity but an asset of the acquirer.
INCOME STATEMENT
INCOME STATEMENT
Total profit or loss from continuing operations Net interest income: (Interest income – Interest expense) Net non-interest income: (Dividend income + Net fees & commissions + Gains / Losses on financial instruments + Share of earnings of associates & Joint ventures + Other income) Operating expenses: (Staff expenses + Administrative expenses + Other expenses) Impairment losses on financial assets: (Loans + Other) Tax expense
Total profit or loss from discontinued operations after tax
Net profit
MODIFICATIONS-INCOME STATEMENT
Seperation of income statement as continuing and discontinued operations in accordance with IFRS 7. Similar seperation in US GAAP (SFAS 144).
No extraordinary item in accordance with IAS 1.
Fees and commissions shown on a net basis.
New added items Dividend income Share of earnings of associates & joint ventures Administrative expenses.
FINANCIAL SOUNDNESS INDICATORS AND MEMORANDUM ITEMS
FSI – Capital Adequacy
Regulatory capital to risk weighted assets (ECB + IMF-core)
Regulatory tier 1 capital to risk weighted assets (ECB + IMF-core)
Tier 1 capital to assets (IMF-encouraged; Tier 1 used as numerator for cross-border consolidated data)
Required memorandum items: Regulatory capital, Risk weighted assets, Tier 1 capital
Defer to Basel I and Basel II as the standards for compiling supervisory-based underlying series, acknowledging national variations in implementation.
FSI – Asset Quality-I Nonperforming loans to gross loans (ECB, IMF-core)
Nonperforming loans net of specific provisions to regulatory capital (ECB, IMF-core)
Sectoral distribution of loans to gross loans (ECB, IMF-core)
Residential real estate loans to gross loans (ECB, IMF-encouraged)
Commercial real estate loans to gross loans (IMF-encouraged)
Foreign currency denominated loans to gross loans (IMF-encouraged)
Foreign currency denominated liabilities to total liabilities (IMF-encouraged)
Gross asset/liability position in financial derivatives to tier 1 capital (IMF-encouraged, tier 1 used as denominator for cross-border consolidated data)
Large exposures to regulatory capital (IMF-encouraged)
FSI – Asset Quality-II
Required memorandum items: Gross loans (Gross loans ≠ Loans and receivables) Non-performing loans (Non-performing loans ≠ Impaired loans) Specific provisions (Specific provisions ≠ Allowances for impairment) Sectoral distribution of gross loans Residential/Commercial real estate loans Foreign currency denominated loans/liabilities Large exposures
Definitions of the memorandum items in line with IMF Guide.
FSI – Earnings & Profitability-I
Return on equity-Net income to average tier 1 capital (ECB, IMF-core, tier 1 used as denominator for cross-border consolidated data)
Return on assets-Net income to average assets (ECB, IMF-core)
Return on risk weighted assets-Net income to average RWA (ECB)
Total profit or loss before tax from continuing operations to average assets (ECB)
Net interest income to average assets (ECB)
Net non-interest income to average assets (ECB)
Operating expenses to average assets (ECB)
Net impairment losses on financial assets to average assets (ECB)
FSI – Earnings & Profitability-II
Net interest income to total income (ECB, IMF-core but a slight difference in definition)
Net non-interest income to total income (ECB)
Net fees and commissions income to total income
Gains (losses) on financial instruments to total income (ECB, IMF-encouraged but a slight difference in definition)
Operating expenses to total income (ECB, IMF-core but a slight difference in definition)
Staff expenses to operating expenses (ECB, IMF-encouraged but a slight difference in definition)
FSI – Earnings & Profitability-III
Required memorandum items: Average assets Average tier 1 capital Average risk weighted assets
Slight differences for some ratios: Total income includes fees and commissions on net basis Fees and commissions expense not classified as operating expenses in line with reporting practices Total income and expense excludes profit from discontinued operations.
FSI – Liquidity and Sensitivity to Market Risk-I
Core liquid assets to total assets (IMF-core)
Broad liquid assets to total assets (IMF-core)
Core liquid assets to short-term liabilities (ECB, IMF-core)
Broad liquid assets to short-term liabilities (ECB, IMF-core)
Customer deposits to gross non-interbank loans (IMF-encouraged)
Cash and loans to banks to amounts due to banks (ECB)
Net open position in foreign exchange to regulatory capital (IMF-core)
Net open position in equities to regulatory capital (IMF-encouraged)
FSI – Liquidity and Sensitivity to Market Risk-II
Required memorandum items: Core/Broad liquid assets Short-term liabilities Customer deposits (Customer deposits ≠ Due to customers) Net open position in foreign exchange Net open position in equities
Definitions of the memorandum items in line with IMF Guide.
Consolidation and Coverage
IMF : DCCBCS and/or CBCSDI
ECB: CBCSDI excluding insurance sector
IAS 27: Cross sector consolidation basis irrespective of sector
OECD: Proposal in line with IMF
Current Coverage: Commercial banks, Cooperative banks, Savings banks
Possible Extension of the coverage, in line with IMF: Development banks, Credit unions, investment banks, mortgage banks, building societies, micro-finance institutions and any other financial institutions that take deposits Institutions that are banks in legal sense but not deposit takers
THANK YOU