BANK PROFITABILITY
PROPOSALS FOR A REVISION
OF OECD BANKING STATISTICS
AND INDICATORS
Working Party on Financial Statistics
13-14 October 2008
By Hakan Atasoy, Consultant
PURPOSE
 Review the list of financial statement items included in “OECDBank 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
variations in implementation.
series,
acknowledging
national
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 (IMFencouraged)
 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, IMFcore, 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, IMFencouraged 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
encouraged)
deposits
to
gross
non-interbank
loans
(IMF-
 Cash and loans to banks to amounts due to banks (ECB)
 Net open position in foreign exchange to regulatory capital (IMFcore)
 Net open position in equities to regulatory capital (IMFencouraged)
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