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FSI Compilation Guide, 2006
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Financial Sector Assessment -- A Handbook
September 29, 2005

IMF Statistical Topics




Financial Soundness Indicators (FSIs) and the IMF

Last Updated: November 30, 2011

To access FSI data and metadata reported on a regular basis by member countries go to Regular FSI Reporting (Data & Metadata) new

The development of indicators of financial soundness responds to the need for better tools to assess the strengths and vulnerabilities of the financial system. Following an initial consultative meeting of experts and a survey of member countries, the IMF Executive Board endorsed a list of core and encouraged Financial Soundness Indicators (FSIs) in June 2001. The final list of core and encouraged indicators is provided below. To encourage compilation of these indicators by member countries, the Board supported the preparation of a compilation guide on financial soundness indicators by IMF staff.

On June 2, 2003, the IMF Executive Board discussed progress on the work program for FSIs and, to support country efforts to compile FSIs, it endorsed the conduct of a coordinated compilation exercise for FSIs by IMF staff in collaboration with other international agencies. In that meeting, the IMF Executive Board welcomed the ongoing work on the development, compilation, and use of FSIs, and the broad support provided by member countries, international organizations, and other standard-setting bodies in this exercise. At that time, Directors commended the completion of the draft Financial Soundness Indicators: Compilation Guide (Guide), which they considered a milestone in establishing a standard reference on the concepts and definitions.

With a view to ensuring that the agreed list of FSIs continues to reflect the changing financial environment, the capacity of countries to compile FSIs, and the evolving priorities of IMF surveillance, Directors suggested that the list of FSIs be kept under review. In this context, a consultation with the group of experts on FSIs took place at IMF headquarters during October 29-30, 2003, which reviewed the specific issues that had arisen during the public comment period on the Guide and the outreach seminars, and the modifications to the list of indicators suggested by the Directors during their June 2003 review of the Guide. A summary of the meeting of FSI experts in 2003 was provided in the November 17, 2003 issue of the IMF Survey, available at http://www.imf.org/external/pubs/ft/survey/2003/111703.pdf. The conclusions of that meeting were reflected in the Guide and the final list of FSIs provided below.

The IMF's work on FSIs is complementary to other initiatives undertaken to strengthen financial systems, including the joint IMF-World Bank Financial Sector Assessment Program launched in 1999.



Table 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 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 market1
Average daily turnover ratio in the securities market1

Real estate markets

Residential real estate prices
Commercial real estate prices
Residential real estate loans to total loans
Commercial real estate loans to total loans


1Or in other markets that are most relevant to bank liquidity, such as foreign exchange markets.

The Financial Soundness Indicators: Compilation Guide

The primary purpose of the Guide is to provide information and advice on the concepts and definitions, as well as sources and techniques, for the compilation and dissemination of the list of core and encouraged FSIs. It is a comprehensive document that defines the types of financial institutions and sets out detailed accounting rules, such as time of recognition of positions and flows, valuation of instruments, and conceptual advice on individual line items in the income and expense accounts and balance sheet accounts, from which the underlying series used to calculate many FSIs should be drawn. It explains the concepts of, and elaborates the preferred approaches to, aggregation and consolidation. It describes how to calculate each FSI using the guidance provided. Guidance is also provided on measurement issues for real estate prices and certain financial market information.

Practical advice on data sources, compilation issues, and on the dissemination of data is provided along with methods of compiling and analyzing peer group data. The appendices include numerical examples to illustrate some of the more complex conceptual issues, and one page summaries of the advice for each FSI.

The Guide, posted on the IMF website in 2004 and published by the IMF in 2006, incorporated revisions by a group of country and international agency experts in 2002 and 2003 and comments from the country participants in eight outreach seminars. (See also the Relevant Materials section below for related background, statistical research, and policy papers by IMF staff on FSIs.)

In the November 7, 2007 meeting of the IMF Executive Board on the experience with the work program on FSIs and proposals for taking forward the work on FSIs (see below), Executive Directors acknowledged the need for some amendments in the Guide. These amendments can be found in the papers discussed at the Executive Board on November 7, 2007 (See the paper and the background paper).

The Coordinated Compilation Exercise

In its June 2, 2003 discussion of FSIs, the Executive Board of the IMF endorsed a coordinated compilation exercise (CCE) for FSIs to take place following completion of the Guide. In this context, in March 2004, the IMF launched the CCE with a view to (1) developing the capacity of the member countries to compile FSIs important to the surveillance of their financial systems, (2) promoting cross-country comparability of FSIs, (3) coordinating efforts by national authorities to compile FSIs, and (4) disseminating the FSI data compiled in the CCE, along with metadata, to increase transparency and strengthen market discipline. To advance the implementation of the CCE, a meeting for the participating countries1 was held in November 2004 at IMF headquarters. Following that meeting, the CCE work program, its terms of reference, and the report forms for FSI data and metadata developed by the IMF Statistics Department were finalized. Sixty-two countries accepted invitations to participate in the CCE.

In accordance with the terms of reference of the CCE, the participating countries were required to compile at least the 12 core FSIs as of the end-2005 reference date and provide the IMF with data for the core FSIs and the underlying data series, along with detailed metadata. Countries were also encouraged to compile and submit data and metadata for any of 28 encouraged FSIs. In accordance with the terms of reference of the CCE, the IMF disseminated the finalized data & metadata for 57 countries to the public through its website in January 2007. To foster comparability of data across countries, participating countries were encouraged to compile the FSIs in accordance with the guidance in the Guide on a best efforts basis, taking into account their resources and data availability constraints. In determining the need to collect new data, and hence incur an increased resource cost, participating countries were encouraged to make a judgment as to the likely importance of the contribution of the additional data series to the reliability of the FSIs that are compiled and disseminated. Given this and to avoid inappropriate comparisons of differently constructed data, metadata indicating how well each FSI compiled corresponds to its definition in the Guide was essential.

To support the compilation of FSIs by the CCE participating countries, the IMF Statistics Department provided technical assistance by conducting meetings and by providing advice from IMF headquarters. Four regional meetings were organized during May–July 2005 and another four in April–May 2006 (in Vienna, Frankfurt, Singapore, and Brasilia). The meetings were attended by representatives from the participating countries and international and regional agencies. The meetings provided an opportunity to discuss the methodology of the Guide, consult with countries on their FSI compilation issues, and assist them in moving closer to their final submission of FSI data and metadata in the context of the CCE, which took place in the second half of 2006.

In November 2004 and December 2005, respectively, meetings were held at IMF headquarters with representatives from international and regional agencies that are members of a Reference Group established for the CCE. The main goal of the meetings was to ensure that there was appropriate coordination among the various institutions in FSI compilation efforts. Another meeting of the Reference Group was held on May 29, 2007 at IMF headquarters to inform the various institutions on the CCE and discuss these institutions' views on the way forward with FSIs. Moreover, a post-exercise meeting of CCE countries was convened during May 30–31, 2007 at IMF headquarters, in which members of the CCE Reference Group also participated. The meeting was aimed at drawing conclusions from the CCE and provided a forum for participating countries and collaborating regional and international institutions to exchange views on the CCE, FSIs and their methodology, and the way forward regarding the compilation and reporting of FSIs. The meeting concluded that the CCE was very useful and relevant to the participating countries’ financial stability work, promoting compilation and dissemination of data, as well as a broader awareness of FSIs among country authorities. Moreover, participants in the meetings felt that the CCE fostered a clearer understanding of the FSI compilation methodology and the critical issues involved, making transparent (through the metadata) the mode of compilation of FSIs across countries. Participants in the meetings were strongly supportive of continuing the IMF’s involvement in FSI work.

In June 2005, the Executive Board was informed about the progress under the FSI work program, including the CCE, through an Executive Board paper. On November 7, 2007, the IMF Executive Board reviewed the experience with the work program on FSIs and discussed proposals for taking forward the work on FSIs. The Executive Board discussion was based on a paper entitled "Financial Soundness Indicators: Experience with the Coordinated Compilation Exercise and Next Steps," and on supporting information provided in a background paper. These papers also reported on the views of CCE participating countries and collaborating institutions. The Executive Board commended the IMF’s work on the conduct of the CCE. Directors noted that the CCE had helped strengthen the FSI compilation capacities of the participating countries, and had provided useful support for their work on financial stability issues. Directors noted that the CCE, as a pilot undertaking, had yielded valuable lessons for FSI methodology2 and for guiding the IMF's work in this area more generally. Directors also felt that the CCE had proved helpful in fostering convergence in compilation methodology over the medium term by introducing transparency through the metadata that accompanied the FSI data. The Executive Board supported regular collection and dissemination of FSIs by the IMF, with the creation of a centralized public FSI database that would be available to member countries, international institutions, and markets. The conclusions of the November 2007 Executive Board meeting are summarized in the Public Information Notice No. 07/135 of November 20, 2007.

On July 31st 2009, a first batch of member countries initiated regular reporting and dissemination of FSI data and detailed metadata through the IMF's website. The IMF will aim over time to add to the list of reporting member countires.


1 "Country" as used in this website does not always refer to a territorial entity that is a state as understood by international law and practice; the term also covers nonsovereign territorial entities, for which statistical data are provided internationally on a separate basis.
2 In that meeting, Executive Directors acknowledged the need for some amendments in the Guide. These amendments can be found in the papers discussed at the Executive Board on November 7, 2007 and in a stand-alone document "Amendments to the Financial Soundness Indicators (FSIs): Compilation Guide (Guide)."

Relevant Materials include:

Amendments to the Financial Soundness Indicators (FSIs): Compilation Guide (Guide)

IMF Executive Board Concludes Financial Soundness Indicators—Experience with the Coordinated Compilation Exercise and Next Steps
Public Information Notice (PIN) No. 07/135
November 20, 2007

Financial Soundness Indicators: Experience with the Coordinated Compilation Exercise and Next Steps
Prepared by the Statistics Department
October 18, 2007

Financial Soundness Indicators: Experience with the Coordinated Compilation Exercise and Next Steps: Background Paper
Prepared by the Statistics Department
October 18, 2007

Countries Take Stock of Financial Soundness Exercise
IMF Survey article reports on the post-exercise meeting of countries participating in the Coordinated Compilation Exercise in May 2007 at the IMF
June 18, 2007

Financial Soundness Indicators: Compilation Guide, 2006

Progress on the Financial Soundness Indicators Work Program
June 14, 2005

Stress Testing Financial Systems: What to Do When the Governor Calls (pdf file)
Matthew T. Jones, Paul L. Hilbers, and Graham L. Slack
IMF Working Paper No. 04/127 (2004)
This paper intends to answer some of the basic questions that may arise as part of the process of stress testing. It discusses stress testing in a financial system context, highlighting some of the differences between stress tests of systems and of individual portfolios. It also provides an overview of the process itself, from identifying vulnerabilities, to constructing scenarios, to interpreting the results.

Experts Meeting on Financial Soundness Indicators (October 29-30, 2003)
(pdf file)
IMF Survey
article reports on meeting of experts from 17 member countries and 6 international and regional agencies at the IMF in October 2003 to discuss the revised draft of the Compilation Guide on Financial Soundness Indicators.

Public Information Notice (PIN) No. 03/71 (June 13, 2003)

IMF Executive Board Discusses Financial Soundness Indicators.

Financial Soundness Indicators

Prepared by the Staff of the Monetary and Financial Systems and the Statistics Departments
May 14, 2003

Financial Soundness Indicators-Background Paper

Prepared by the Staff of the Monetary and Financial Systems and the Statistics Departments
May 14, 2003

Availability of Financial Soundness Indicators
(pdf file)
Graham Slack
IMF Working Paper No. 03/58 (2003)
Presents cross-country aspects of survey results from 100 countries on the collection, compilation, and dissemination of data on FSIs.

Experts Meeting on Financial Soundness Indicators (October 21, 2002)
(pdf file)
IMF Survey
article reports on meeting of 32 experts from member countries and international organizations at the IMF in September 2002 to discuss a preliminary draft of the Compilation Guide on Financial Soundness Indicators.

Financial Soundness Indicators: Analytical Aspects and Country Practices

V. Sundararajan, Charles Enoch, Armida San José, Paul Hilbers, Russell Krueger, Marina Moretti, and Graham Slack
IMF Occasional Paper No. 212
April 8, 2002
Discusses the use of financial soundness indicators in the operational work of the IMF and reports on the results of an IMF Survey on the Use, Compilation, and Dissemination of Macroprudential Indicators.

Macroprudential Indicators of Financial System Soundness

By a Staff Team led by Owen Evans, Alfredo M. Leone, Mahinder Gill, and Paul Hilbers
IMF Occasional Paper No. 192
April 8, 2000
Takes stock of current knowledge in the area of macroprudential indicators, particularly analytical, identification, and measurement issues.

Consultative Meeting on Macroprudential Indicators (September 27, 1999)
(pdf file)
IMF Survey
article reports on a seminar of high-level experts to discuss ways to assess soundness of financial system to improve surveillance.