How should the vulnerabilities of financial systems be analysed? What indicators can be used to measure financial soundness? And how willing or eager are national authorities to disseminate information on financial soundness? This working paper from the Statistics Department of the International Monetary Fund (IMF) analyses a survey of 100 countries on the collection, compilation and dissemination of 54 different Financial Soundness Indicators (FSIs). Indicators were taken from a commonly-used framework to evaluate individual banks and are categorised into capacity adequacy, asset quality, profitability in competitiveness, liquidity, and sensitivity to market risk. Indicators have been classified by the IMF as either core or encouraged.
Typically countries collect data on half the FSIs surveyed. Overall, 80 per cent of responding countries collect information on at least 10 of the core indicators. Countries that have experienced a banking crisis seem to be more likely to collect and compile FSIs, although there are regional variations. The biggest gap in data collection and dissemination seems to be market risk.
- Countries do not widely collect data on FSIs from outside the traditional supervisory data sources and macroeconomic frameworks. This is particularly marked in the areas of market risk, and asset quality. Vulnerability in these areas has been an important element in financial crisis.
- Countries do not always use data collected to compile FSI ratios, and are least likely to compile ratios on market risk and liquidity.
- There is less widespread collection of data on large loans to own funds, non performing loans net of provisions to total assets and net foreign currency position to own funds.
- Only one fifth of countries collect data on duration of assets and liabilities.
- Advanced, transition and Middle Eastern economies appear to have the most developed systems in place for collecting FSI data. Asian countries that have gone through a banking crisis collect more data than those who have not done so.
- Not all the data collected is available to the public. National agencies are more eager to disseminate data on asset quality and profitability and competition and less eager to disseminate data on market risk. Middle Eastern and Asian countries are the most reluctant to disseminate data.
The following policy actions should increase the availability of FSI data, although some countries will need more time and resources to meet these new statistical challenges:
- Countries should disseminate more widely the data that is already being collected
- Resources should be provided to fill the gaps in the collection of data and to facilitate knowledge sharing on how to collect and compile data efficiently.
- A careful consideration of market misinterpretation of the indicators is needed. What is the most meaningful way for agencies to present FSIs?
- Development of common guidelines on compilation of indicators and internationally comparable definitions of terms are also needed.
- Also a flexible approach, which takes into account local resource constraints (especially statistical capacity), domestic financial systems and crossborder activities of local financial institutions is required.
