Financial intermediation services indirectly measured (FISIM) in the national accounts Crown copyright © This work is licensed under the Creative Commons Attribution 3.0 New Zealand licence. You are free to copy, distribute, and adapt the work, as long as you attribute the work to Statistics NZ and abide by the other licence terms. Please note you may not use any departmental or governmental emblem, logo, or coat of arms in any way that infringes any provision of the Flags, Emblems, and Names Protection Act 1981. Use the wording 'Statistics New Zealand' in your attribution, not the Statistics NZ logo. Liability While all care and diligence has been used in processing, analysing, and extracting data and information in this publication, Statistics New Zealand gives no warranty it is error free and will not be liable for any loss or damage suffered by the use directly, or indirectly, of the information in this publication. Citation Statistics New Zealand (2012). Financial intermediation services indirectly measured (FISIM) in the national accounts. Available from www.stats.govt.nz. ISBN 978-0-478-40803-4 (online) Published in November 2012 by Statistics New Zealand Tatauranga Aotearoa Wellington, New Zealand Contact Statistics New Zealand Information Centre: info@stats.govt.nz Phone toll-free 0508 525 525 Phone international +64 4 931 4610 www.stats.govt.nz Contents Contents .............................................................................................................................. 3 List of tables and figures ................................................................................................... 4 1 Purpose and summary .................................................................................................. 5 Purpose............................................................................................................................ 5 What is FISIM? ................................................................................................................ 5 2 The impact of FISIM on GDP ........................................................................................ 7 Previous measurement practice ...................................................................................... 7 3 How FISIM is measured ................................................................................................ 8 4 Which interest transactions include FISIM?............................................................... 9 Excluding interest on securities ....................................................................................... 9 Interbank lending ............................................................................................................. 9 Imports of FISIM .............................................................................................................. 9 5 The impact of FISIM on institutional sectors............................................................ 11 Business, government, and non-profit sectors .............................................................. 11 Household deposits and loans ...................................................................................... 11 Overseas customers ...................................................................................................... 11 6 FISIM values by sector ................................................................................................ 13 7 Adjustment of interest and other values .................................................................. 15 Total FISIM compared with the FSC ............................................................................. 15 8 Future releases to include estimates of allocated FISIM ........................................ 16 Balance of Payments ..................................................................................................... 16 Volume measures of FISIM within quarterly GDP......................................................... 16 Productivity .................................................................................................................... 16 9 FISIM within producer price indices .......................................................................... 17 Appendix 1: Data sources ............................................................................................... 18 Reserve Bank of New Zealand statistics ....................................................................... 18 Annual Enterprise Survey .............................................................................................. 18 Quarterly International Investment Survey .................................................................... 18 Pre-2001 backdated data .............................................................................................. 18 Future data sources: developments of international measurement standards ............. 18 3 List of tables and figures List of tables 1 Supply of FISIM 1999 to 2012 ....................................................................................... 13 2 Use of FISIM. ................................................................................................................. 14 3 Impact of FISIM allocation on total GDP ....................................................................... 14 List of figures 1 Relationships between parts of interest. ......................................................................... 6 2 Percentage increase in GDP, year ended March............................................................ 7 3 Interest transactions with and without a FISIM dimension ............................................ 10 4 Interest flows with a FISIM component, allocated to institutional sectors..................... 12 4 1 Purpose and summary Purpose Financial intermediation services indirectly measured (FISIM) is now included in our National Accounts (Income and Expenditure) and National Accounts (Industry Benchmarks) statistics. The releases, which include FISIM for the first time, are being published in November 2012. This paper explains what FISIM is, how it affects these statistics, and what impact it has on other economic statistics we will release in the future. The inclusion of FISIM means that these outputs are more comparable with the results of other countries, and therefore improves the relevance of our statistics. This is one of the quality improvement initiatives within the Statistics 2020 Te Kāpehu Whetū programme of work. The key changes associated with measuring FISIM are: • the level of GDP increases in all years • most measurements of interest receipts and payments change • the Finance Service Charge (FSC) is superseded by FISIM measurements. These changes are in line with the recommended international measurement standards. These standards are defined in the System of National Accounts 1993. Nearly all countries within the OECD follow these recommendations. What is FISIM? FISIM is one way that banks and similar institutions charge for services. These institutions can be collectively referred to as banking service providers. FISIM is included within interest received and paid by banking service providers, and is measured indirectly because the value is not explicit within an interest transaction. This part of interest represents the value of the service associated with a loan or deposit. There is also a part of interest paid and received which is a return to the owner of funds. This is the more common notion of the economic significance of interest. In the case of a loan from a banking service provider, the actual interest payments made by the borrower include both the return to the owner of the borrowed funds and the service charge. In contrast, the actual receipt of interest by deposit holders is after the service charge has been deducted from the return on the deposited funds. The relationship between these parts of interest, involving a banking service provider, is shown in figure 1. 5 Financial intermediation services indirectly measured (FISIM) in the national accounts Figure 1 Relationships between parts of interest 6 2 The impact of FISIM on GDP Measuring FISIM within specific interest receipts and payments leads to an increase in total GDP. By identifying the service value within each interest transaction, the value can be allocated to the bank’s customer receiving or paying the interest. Allocating the value of FISIM to the customers involved in the interest transaction allows the service to be classified according to how the service is used. The allocation reveals information of additional economic significance. An example of this is the value of charges for management services on household deposit accounts, which is classified as household consumption. Previous measurement practice In contrast, the practice up until now has been to measure the service charge within interest flows as one total. The previous measurement of total financial services within interest flows has been known as the finance service charge (FSC). The FSC was treated as a cost of production for determining value added within the production measure of GDP, all of which was deducted from the total output of the economy. This resulted in an understatement of GDP because not all interest transactions are connected with a production process. FISIM associated with interest on household deposits is one instance of a service charge which is not a cost of production within the New Zealand economy. FISIM on interest receipts and payments involving non-residents usually has no connection to production in New Zealand, and represents exports and imports of services. The total of FISIM that is not a cost of production leads to an increase in GDP. Figure 2 shows the annual increase in GDP as a proportion of total GDP. The markedly higher proportion in 2010 reflects a wider margin between loan and deposit interest rates following the global financial crisis. Figure 2 Percentage increase in GDP Year ended March 1999–2012 1.0 Percent 0.8 0.6 0.4 0.2 0.0 1999 2000 2001 2002 2003 2004 2005 2006 Year ended March Source: Statistics New Zealand 7 2007 2008 2009 2010 2011 2012 3 How FISIM is measured As figure1 shows, the value of FISIM is the difference between the return on funds and the actual interest received or paid. The return on funds is determined by calculating the interest applying to the deposit and loan using a reference rate. The reference rate is without a service element. The midpoint between the loan and deposit rate is used as the reference rate. Using the midpoint means that the service element is equally shared between the borrower and depositor. There are other ways of determining the reference rate, with interbank and government bond rates having been considered. International practice varies, although a number of other countries, for example Australia and Canada, also use midpoints in the calculation of FISIM. Midpoints also have practical advantages. Most notable is that differences between actual and reference rates are less volatile. This has the benefit of FISIM values with greater transparency and being more closely connected to the value of loans and deposits held by banking service providers. 8 4 Which interest transactions include FISIM? There is a FISIM element within interest transactions when the payment or receipt involves a banking service provider, and only when the interest is associated with a loan or deposit. Banking service providers also receive and pay interest on assets and liabilities other than loans and deposits. These assets and liabilities are generally held in the form of a security, which have no FISIM element within the interest flow. Excluding interest on securities The exclusion of interest on securities from the scope of FISIM is a convention within the international measurement standards. The rationale for treating securities differently relates to services delivered specifically to holders of loans and deposits. For example, banking service providers guarantee deposit values and are obliged to settle their deposit liabilities on demand. The situation is different for the owner of a security issued by a banking service provider. In issuing securities, banking service providers have a liability over a set term for a set interest rate. Should the owner of the security wish to recoup the value of the security prior to the end of the set term, there is an option to on-sell the security to a third party. The market price of the security may be more or less than the original value, and the security owner carries this valuation risk. These features mean that the key services delivered to deposit holders are not available to security owners. Interbank lending Individual banking service providers within the New Zealand banking system also borrow and lend between each other, frequently and in large amounts. These transactions are described as interbank lending. Interbank lending between New Zealand banking service providers is effectively outside the scope of FISIM measurement. This is because the interest transactions are expected to occur at a rate very close to the reference rate. Interbank lending also involves non-resident banking service providers. New Zealand banking service providers have large values of assets and liabilities involving other banking service providers overseas. The majority of interbank lending involving nonresidents results in a liability for the New Zealand banking service provider. A large part of this interbank lending is between associated banks. In these circumstances the international measurement standard is to also exclude these interest flows from the scope of FISIM measurement. Imports of FISIM New Zealand residents can import FISIM when transacting with overseas banking service providers. Consistent with interest flows involving New Zealand banking service providers, there is a FISIM component of only loan and deposit interest. New Zealand banking service providers can import FISIM from overseas, however only on interest receipts from deposits. This is a measurement standard to ensure that for cross-border interbank transactions, only one banking service provider produces FISIM. Figure 3 illustrates which interest transactions have a FISIM dimension and which do not. 9 Financial intermediation services indirectly measured (FISIM) in the national accounts Figure 3 Interest transactions with and without a FISIM dimension Interest received by Interest paid by Deposit taking banking service provider Central bank Central bank Deposit taking banking service provider Securities/ other Non deposit taking banking service provider Securities/ other Non deposit taking New Zealand sectors banking service using banking provider services Securities/other Securities/other Interbank transactions Securities/other Loans Securities/ other New Zealand sectors using banking services Loans Overseas sectors using banking services Loans Overseas banking service providers Deposits Interbank transactions Deposits Overseas sectors using banking services Securities Securities/ Securities/ Deposits Deposits /other other other Securities/other Securities/other Securities/ Securities/ Loans other other Securities/other Securities/other Securities/ Securities/ Loans other other Securities/other Securities/ Securities/ Securities/ Deposits Deposits other other other Interest with a FISIM element, generating output by a New Zealand banking service provider. Interest without a FISIM element. Interest with a FISIM element involving an overseas banking service provider (imports). Not measured, or there is zero or negligible interest flow. 10 Overseas banking service providers Securities/other Loans Loans from associates Loans from associates Securities/other 5 The impact of FISIM on institutional sectors Allocating FISIM to the customer involved in the interest transaction reveals information of additional economic significance. The treatment of the value of FISIM within the National Accounts depends on the institutional sector within which the customer operates. Business, government, and non-profit sectors When the customer is a business, the FISIM element of interest is a cost of production. This cost of production is referred to as intermediate consumption. FISIM is included in the measurement of output of the government and non-profit sectors. The non-market output is final consumption of the non-market sectors. Household deposits and loans The FISIM associated with interest on household deposits is a service consumed by households. The FISIM component of interest on loans to households for consumption purposes, for example credit card debt, is also a service consumed by households. There is different treatment of interest on housing loans, and consequently a different treatment of FISIM associated with the interest. This service charge is a cost associated with producing rental services by households owning and occupying their own home. Therefore the FISIM component of interest on mortgages is also intermediate consumption. This treatment is a long-standing measurement standard for the purposes of being able to compare countries with differing rates of home ownership, and to compare results over periods of time when home ownership rates change. Mortgage loans on residential properties are to both landlords and households that own and occupy their home. Because the available data currently makes no distinction all FISIM on residential mortgages is treated as intermediate consumption of households owning and occupying their home. Overseas customers The FISIM on deposits and loans involving overseas customers are services exported by New Zealand banking service providers. The FISIM on deposits and loans provided by overseas banking service providers are imports of services. The institutional sector importing the service leads to the equivalent treatment as if the FISIM was from a New Zealand banking service provider. Figure 4 illustrates the treatment of the FISIM component on deposit and loan interest flows. The interest flows illustrated are between banking service providers and the other institutional sectors. 11 Financial intermediation services indirectly measured (FISIM) in the national accounts Figure 4 Interest flows with a FISIM component, allocated to institutional sectors Interest received by Interest paid by NZ banking service providers NZ banking service providers Financial businesses outside the banking sector Businesses (producer enterprises) Government sector (non market producer) Non profit sector (non-market producer) Household sector Intermediate consumption Intermediate consumption Government final consumption Non profit final consumption Household final consumption Non-bank overseas Overseas banking sector (rest of world service providers (rest of world sector) sector) Export of services Export of services Financial businesses outside the banking sector Intermediate consumption Imported services – intermediate consumption Businesses (producer enterprises) Intermediate consumption Imported services – intermediate consumption Government sector (non market producer) Government final consumption Imported services – government final consumption Non profit sector (nonmarket producer) Non profit final consumption Household sector consumers Household final consumption Imported services – household final consumption Household sector housing Intermediate consumption Imported services – intermediate consumption Non bank overseas sector (rest of world sector) Export of services Overseas banking service providers (rest of world sector) Imported services – intermediate consumption Interest flows without a FISIM component Imported services – Imported services Imported services – Imported services – Imported services – – intermediate government final non profit final household final intermediate consumption consumption consumption consumption consumption 12 Imported services – non profit final consumption 6 FISIM values by sector Measurements of FISIM by institutional sectors determine the economic significance of service charges within interest transactions. Up until this release, all of the service charge derived from interest flows was treated as intermediate consumption and deducted from the total output of the economy. However, services which are used for a purpose other than intermediate consumption are termed as final consumption. The values of FISIM allocated to final consumption increases the level of GDP because they are not deducted from output as intermediate consumption. Table 1 shows the total of FISIM output and FISIM imports, which are the components of the total supply of FISIM. Table 1 Supply of FISIM 1999 to 2012 Year FISIM output of NZ banking service providers Total FISIM imports Total supply of FISIM ($ million) 1999 2,199 118 2,317 2000 2,410 127 2,537 2001 2,448 124 2,572 2002 2,684 135 2,818 2003 3,033 142 3,175 2004 3,247 119 3,366 2005 3,450 125 3,575 2006 3,546 131 3,677 2007 3,788 159 3,947 2008 3,663 160 3,824 2009 4,489 181 4,671 2010 6,155 256 6,411 2011 5,298 221 5,518 2012 5,212 186 5,398 Source: Statistics New Zealand The FISIM allocated to institutional sectors shows the values of intermediate and final consumption, and represents the total use of FISIM. 13 Financial intermediation services indirectly measured (FISIM) in the national accounts Table 2 Use of FISIM Year Intermediate consumption Household final consumption Non-market sector final consumption Exports of FISIM Total use of FISIM 88 174 2,317 ($ million) 1999 1,442 615 2000 1,580 632 99 226 2,537 2001 1,611 623 101 237 2,572 2002 1,757 684 104 274 2,818 2003 1,974 758 121 321 3,175 2004 2,154 782 129 300 3,366 2005 2,340 811 142 281 3,575 2006 2,483 795 142 257 3,677 2007 2,687 842 146 271 3,947 2008 2,632 820 140 231 3,824 2009 3,228 1,026 159 258 4,671 2010 4,416 1,422 217 354 6,411 2011 3,765 1,241 209 304 5,518 2012 3,639 1,257 212 290 5,398 Source: Statistics New Zealand The increase in GDP can be derived from table 1 and table 2, which is the sum of household final consumption, non-market sector final consumption, and exports net of imports. Table 3 Impact of FISIM allocation on total GDP Year Total increase in GDP due to FISIM allocation Expenditure on GDP ($ million) Percentage increase in GDP ($ m illion) 1999 758 105,647 0.7% 2000 830 112,033 0.7% 2001 837 118,377 0.7% 2002 927 127,282 0.7% 2003 1059 133,906 0.8% 2004 1092 143,138 0.8% 2005 1110 153,188 0.7% 2006 1063 161,645 0.7% 2007 1101 169,869 0.6% 2008 1031 183,997 0.6% 2009 1262 185,555 0.7% 2010 1738 189,718 0.9% 2011 1533 198,525 0.8% 2012 1573 206,058 0.8% Source: Statistics New Zealand 14 7 Adjustment of interest and other values The allocation of FISIM has a direct impact on interest values on loans and deposits, although has no impact on savings. For sectors using banking services, interest receipts on deposits have increased to be equal to the return on funds for those deposits. Interest payments on loans made by banking service providers have reduced to also be equal to the return on funds, as illustrated in figure 1. The change to the value of interest will be equal to the FISIM associated with the loans and deposits. The allocation of the value of FISIM increases the categories of use associated with the institutional sector. For example the household sector account has increased household final consumption from the service charge on deposits and consumer loans. Within the household sector account there is also increased intermediate consumption from the service charge on housing loans. For all sectors the allocation of FISIM has no effect on saving. For banking service providers, the effect on savings from the changes in interest is offset by changes to output. For users of banking services the effect of changes on interest are offset by changes to a category of use. Total FISIM compared with the FSC The total FISIM output of New Zealand banking service providers is a lower value than the FSC. This is because the FSC was derived from the interest flows of all interest bearing assets and liabilities while FISIM is derived from only loans and deposits. 15 8 Future releases to include estimates of allocated FISIM The National Accounts include annual measurements of FISIM in current prices. Other macro-economic statistical releases will include FISIM measurements consistent with the National Accounts as follows. Balance of Payments Balance of Payments and International Investment Position: September 2012 quarter, to be published on 19 December 2012, will include quarterly measurements of imported and exported FISIM. In general, exports of FISIM are slightly higher than imports, and therefore this leads to either a reduced balance of service deficit or an increased surplus. However there is no effect on the current account balance because the changes to imports and exports will be offset by changes in interest flows. Volume measures of FISIM within quarterly GDP Quarterly constant and current price measurements of FISIM will be accounted for in the next quarterly GDP release. Indicators of quarterly volume change will reflect changes in the real value of deposit and loan balances. Further information on the impact and basis of FISIM measurements within the quarterly GDP results will be included in Gross Domestic Product: September 2012 quarter, to be published on 20 December 2012. Productivity The GDP volume measures will feed through to the overall measured sector productivity results, and the industry breakdown. The results, accounting for allocated FISIM, will be included in the productivity releases to be published in March 2013: • Productivity Statistics: 1978–2012 • Industry Productivity Statistics: 1978–2011. 16 9 FISIM within producer price indices It has been normal practice for producer price indices (PPIs) to adjust coverage in line with changes in the National Accounts. However, the impact of FISIM will be considered in light of a wider review to be concluded in 2013, and changes to the PPI coverage will be dependent on the outcome of this review. Further details of the PPI measurement of financial service prices can be found in Producers Price Index: September 2012 quarter. 17 Appendix 1: Data sources Reserve Bank of New Zealand statistics Balance sheet values of assets and liabilities held by registered banks and non-bank lending institutions (NBLIs) are published by the Reserve Bank of New Zealand (RBNZ). Registered banks and NBLIs are representative of New Zealand banking service providers. These balance sheet results form the basis of measuring the values of loans and deposits for calculating FISIM. Measurements of interest rates applying to all assets and liabilities held by registered banks are also published by RBNZ. These interest rates are used to model actual and reference rates, which have been applied to all loans and deposits for calculating FISIM. Annual Enterprise Survey The balance sheet data published by RBNZ provides high-level institutional sector and industry breakdowns of assets and liabilities. A more detailed breakdown of institutional sectors, and industries within the sectors, is modelled using interest receipts and payment data from the Annual Enterprise Survey. Quarterly International Investment Survey The Quarterly International Investment Survey (QIIS) is run by Statistics NZ. Measurements of loan and deposit values from QIIS are used in the calculation of FISIM, however interest values from QIIS are not. Interest rates modelled from domestic loans and deposits are used for this purpose. Loan and deposit values from QIIS are used for measuring FISIM exports, which are on the balance sheet of New Zealand banking service providers. The QIIS loan and deposit values are also used as the basis for measuring FISIM imports, which are held by overseas banking service providers and involve New Zealand residents. Pre-2001 backdated data The data sources described above have been available from 2001 onwards, which is when the QIIS was established. Prior to 2001, non-resident loans and deposits could be modelled from values of non-resident assets and liabilities published by RBNZ. Consistent measurements of NBLI assets and liabilities are not available prior to 1999. The annual changes in the FISIM values from 1972 to 1998 have been broadly aligned to changes in the previously published FSC. Data to indicate proportions of FISIM components in these early years has been used when available. Future data sources: developments of international measurement standards There are ongoing developments that influence international standards for measuring financial services. There has been increased attention to this subject in recent years, particularly since the global financial crisis in 2008. These factors will be closely monitored and taken into account in developing the Official Statistics System in line with future data needs. 18