1. Can the OECD Bank Profitability database satisfy data needs for FSIs?

2. 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

3. Chapter 1: The Bank Profitability database F irst issued in 1987 Based on a standard framework Three tables Income statement and balance sheet Structure of the financial system Classification of banks assets Methodological information

4. Need for changes Last review of the database in mid-1990s Discussions at the 2002 WPFS meeting In favour of more comparability Need for more information Opportunity to seize: the FSIs

5. 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

6. Table 1: Income statement and Balance sheet Institutional coverage All Banks16 countries Commercial Banks18 countries Large Commercial Banks7 countries Foreign Commercial Banks7 countries Savings Banks8 countries Co-operative Banks6 countries

7. 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

8. 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)

9. 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

10. 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

11. 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)

12. 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?

13. 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

14. 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)

15. 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) Key methodological issues (2)

16. 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) Key methodological issues (3)

17. 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 DTs 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 Key methodological issues (4)

18. 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 Key methodological issues (5)

19. 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

20. 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

21. Main gaps Data frequency and timeliness Institutional coverage Number and definition of variables Consolidation approach Accounting rules

22. 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

23. Institutional coverage 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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.)

30. 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

31. 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? Issues for Consideration of the WPFS

32. 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? Issues for Consideration of the WPFS

33. Issue 4: It seems appropriate to use in priority definitions and recommendations given in the IMF Guide: are there any objections? Issues for Consideration of the WPFS

34. 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? Issues for Consideration of the WPFS

35. Conclusions The Secretariat thanks the IMF which has contributed to this exercice The Secretariat thanks the volunteering countries which are ready to participate to an EDG in order to discuss remaining issues and decide on the follow-up of this exercise.