February 13, 2012, 00:37 CET
FSI (Financial Soundness Indicators)
The national institutions provide comprehensive notes (metadata) on the statistical methodology and on the legal and institutional framework underlying the data surveys. They are designed primarily to highlight the differences in respect of national prudential and accounting standards which impair the indicators’ cross-country comparability. This makes them an indispensable interpretation aid for the data users.
Methodological notes
Core set of indicators
Table: Overview of the implementation of the various indicators in Germany |
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| Deposit takers | ||
| Deposit-takers play a pivotal role in financial systems. Their financial situation and resilience to shocks is therefore of paramount importance for financial stability. The core set of indicators covers the key ratios with regard to the deposit-takers’ situation. | ||
| I001 | Regulatory capital to risk weighted assets | This indicator measures the ratio of regulatory capital to all weighted risk positions pursuant to the Solvency Regulation (by the end of 2006: Principle I (capital requirement)). It is calculated on the basis of single-institution data from credit institutions subject to reporting requirements pursuant to section 10 of the German Banking Act (Kreditwesengesetz). From 2008 on, consolidated reports of waiver-groups pursuant to section 10a of the German Banking Act are included. For this purpose, liable capital is set in relation to the sum of the respective weighted risk positions. Deviations from the IMF methodology result from the national definition of capital and risk weights as well as from the basis of consolidation, which covers the institution as a whole (including foreign branches) but, on a non-consolidated basis, excludes foreign subsidiaries. (The weighted risk positions are the risk-weighted assets and the market price risks to be taken into account pursuant to the Solvency Regulation (by the end of 2006 pursuant to Principle I).) |
| I002 | Regulatory Tier 1 capital to risk-weighted assets | This indicator measures the ratio of regulatory core (tier 1) capital to all weighted risk positions pursuant to the Solvency Regulation (by the end of 2006: Principle I). It is calculated using single-institution data and, from 2008 on, consolidated reports of waiver-groups from credit institutions subject to reporting requirements pursuant to sections 10 and 10a of the German Banking Act, whereby the regulatory tier 1 capital is set in relation to the sum of the respective weighted risk positions. Deviations from the IMF methodology arise with regard to the national definition of risk weights (by end of 2006 of Tier 1 capital) as well as the basis of consolidation, which covers the institution as a whole (including foreign branches) but, on a non-consolidated basis, excludes foreign subsidiaries. (The weighted risk positions are the risk-weighted assets and the market price risks to be taken into account pursuant to the Solvency Regulation (by the end of 2006 pursuant to Principle I).) |
| I003 | Nonperforming loans net of provisions to capital | This indicator is calculated by setting loans requiring individual value adjustments on a net basis (less risk provisions) in relation to the institutions’ balance sheet capital. It corresponds to the value of customer loans (accounts receivable and bill-based loans pursuant to section 15 of the Regulation on the Accounting of Banks and Financial Services Institutions (Verordnung über die Rechnungslegung der Kreditinstitute und Finanzdienstleistungsinstitute) as well as liability loans pursuant to section 26 of the Regulation on the Accounting of Banks and Financial Services Institutions) requiring individual value adjustments after deducting the value adjustments in relation to balance sheet capital. It should be noted that, in Germany, there is no agreed definition of non-performing loans (NPL). Therefore, the definition here for IMF purposes is as value-adjusted loans pursuant to the Auditor’s Report Regulation (Prüfungsberichtsverordnung). Further deviations from the IMF methodology arise owing to national accounting rules and the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries. |
| I004 | Non-performing loans to total gross loans | This indicator sets customer loans requiring individual value adjustments in relation to the institutions’ total gross customer loans. It is determined by setting non-performing loans – which, according to the national definition, are calculated on the basis of customer loans requiring individual value adjustments (accounts receivable and bill-based loans pursuant to section 15 of the Regulation on the Accounting of Banks and Financial Services Institutions as well as liability loans pursuant to section 26 of the Regulation on the Accounting of Banks and Financial Services Institutions) – in relation to the total customer credit volume. Claims on credit institutions are not included. Further deviations from the IMF methodology arise owing to national accounting rules and the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries. |
| I005 | Sectoral distribution of loans to total loans | This indicator provides information on the distribution of loans across domestic and foreign sectors. The data are taken from the monthly balance sheet statistics of monetary financial institutions (MFIs) in Germany. Deviations from the IMF methodology arise owing to national accounting rules and the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included. |
| I006 | Return on assets | The total return on assets is used to assess profitability in relation to total capital within an accounting period for purposes of comparison. The indicator is calculated as the ratio of profit for the financial year before tax to the average balance sheet total of domestic MFIs. The profit for the financial year is based on a secondary statistical evaluation of the banks’ profit and loss accounts (annual accounts data); the average balance sheet total is calculated on the basis of the banks’ monthly balance sheet statistics. Deviations from the IMF methodology arise owing to the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries. |
| I007 | Return on equity | The return on equity captures the rate of remuneration of equity capital within an accounting period. The indicator is calculated as the ratio of profit for the financial year before tax to the average equity capital of domestic MFIs. The profit for the year is based on a secondary statistical evaluation of the banks’ profit and loss accounts (annual accounts data); average equity capital is calculated on the basis of the banks’ monthly balance sheet statistics. Deviations from the IMF methodology arise owing to national accounting rules and the basis of consolidation, which includes only domestic MFIs. |
| I008 | Interest margin to gross income | This indicator is a measure of the share of net interest received in gross income. It is based on a secondary statistical evaluation of banks’ profit and loss accounts (annual accounts data). Deviations from the IMF methodology arise owing to the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries. |
| I009 | Non-interest expenses to gross income | This indicator is a measure of the share of non-interest expenses in gross income. It is calculated on the basis of a secondary statistical evaluation of the profit and loss accounts (annual accounts data) of domestic MFIs. Deviations from the IMF methodology arise owing to the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries. |
| I010 | Liquid assets to total assets (liquid asset ratio) | This indicator is calculated as the share of prudentially defined liquid assets in the institutions’ total assets on the basis of reports from credit institutions subject to reporting requirements under the Liquidity Regulation (by the end of 2006: Principle II (liquidity requirement)) pursuant to section 11 of the German Banking Act. To this end, the sum total of all liquid assets according to the Liquidity Regulation (by the end of 2006 Principle II) with a residual maturity of three months or less is set in relation to the total assets of credit institutions according to the monthly balance sheet statistics. Deviations from the IMF methodology arise owing to the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries. |
| I011 | Liquid assets to short-term liabilities | This indicator is calculated by comparing the liquid assets with the institutions’ short-term liabilities as prudentially defined: the reports of credit institutions subject to reporting requirements under the Liquidity Regulation (by the end of 2006: under Principle II) pursuant to section 11 of the German Banking Act are used as a basis for this. To this end, all liquid assets are set in relation to liabilities with a residual maturity of three months or less. Deviations from the IMF methodology arise owing to the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries. |
| I012 | Net open position in foreign exchange to capital | This indicator is calculated by measuring the ratio of prudentially defined open foreign exchange positions to the institutions’ regulatory capital. The individual institutions’ reports and, from 2008 on, consolidated reports of waiver-groups under the Solvency Regulation are used as a basis for this. The credit institutions’ currency-related net overall position is set in relation to their regulatory capital. Deviations from the IMF methodology arise owing to limited institutional coverage with regard to the regulatory reporting obligations, the definition of regulatory capital, the identifiability of the net positions of risk models as well as the basis of consolidation, which covers the institution as a whole (including foreign branches) but, on a non-consolidated basis, excludes foreign subsidiaries. |
Encouraged set of indicators
Table: Overview of the implementation of the various indicators in Germany |
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|---|---|---|
| Deposit takers | ||
| The following encouraged set of indicators permits an insight into the deposit-takers’ financial situation beyond the core set. | ||
| I013 | Capital to assets ratio | This indicator provides information on the extent to which the institutions’ assets are covered by capital. The data are taken from the monthly balance sheet statistics of MFIs in Germany. Deviations from the IMF methodology arise owing to national accounting rules and the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included. |
| I014 | Large exposures to capital | This indicator shows the ratio of the large exposures incurred by the institutions to the institutions’ regulatory capital. It is calculated on the basis of individual institutions’ reports and, from 2008 on, consolidated reports of waiver-groups on large exposures pursuant to sections 13, 13a and 13b of the German Banking Act as well as on regulatory capital pursuant to sections 10 and 10a of the German Banking Act. To this end, the volume of all large exposures is compared with the credit institutions’ regulatory capital. Deviations from the IMF methodology arise owing to the national definition of the concept for large exposures, the definition of regulatory capital and the basis of consolidation, which covers the institution as a whole (including foreign branches) but, on a non-consolidated basis, excludes foreign subsidiaries. |
| I015 | Geographical distribution of loans to total loans | This indicator is intended to enable a rough assessment of the credit risk which German MFIs incur through their lending activities abroad. The data are taken from the monthly balance sheet statistics of MFIs in Germany. Deviations from the IMF methodology arise owing to the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included. |
| I016 | Gross asset position in financial derivatives to capital | This indicator provides a rough assessment of the replacement risk of derivative contracts with a positive market value. The basic data are collected as part of the half-yearly OTC derivatives statistics of the Bank for International Settlements (BIS). Deviations from the IMF methodology arise with regard to the group of institutions, as only the key institutions in this segment are surveyed (on a voluntary basis); they cover most of the market. |
| I017 | Gross liability position in financial derivatives to capital | This indicator provides a rough assessment of the potential loss arising from derivative contracts with a negative market value. The basic data are collected as part of the half-yearly OTC derivatives statistics of the BIS. Deviations from the IMF methodology arise with regard to the group of institutions, as only the key institutions in this segment are surveyed (on a voluntary basis); they cover most of the market. |
| I018 | Trading and foreign exchange gains and losses to gross income | This indicator is a measure of the share of net income or expenditure on own account dealings in gross income. It is based on a secondary statistical evaluation of the banks’ profit and loss accounts (annual accounts data). Deviations from the IMF methodology arise owing to the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries. |
| I019 | Personnel expenses to non-interest expenses | This indicator provides information about staff costs in relation to non-interest expenses. It is calculated on the basis of a secondary statistical evaluation of the profit and loss accounts (annual accounts data) of domestic MFIs. Deviations from the IMF methodology arise owing to the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries. |
| I020 | Spread between reference lending and deposit rates | The spread between lending and deposit rates serves as a rough proxy for assessing the profitability and competitiveness of domestic MFIs. The indicator is calculated on the basis of the harmonised MFI interest rate statistics from a sample of MFIs. It is derived according to the IMF methodology from the difference between the weighted averages of deposit and lending rates. Deviations from the IMF methodology arise owing to the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included. |
| I021 | Spread between highest and lowest interbank rates | This indicator sheds light on the risk premium in the interbank money market. The indicator is based on the asking rates for interbank money with a one-week maturity. The spread is the difference between the highest and the lowest interest rates posted by different banks. Only banks resident in Germany are taken into consideration. (Sources: European Banking Federation, own calculations) |
| I022 | Customer deposits to total (non-interbank) loans | This indicator is a measure of liquidity. It is based on data taken from the monthly balance sheet statistics of MFIs in Germany. Deviations from the IMF methodology arise owing to national accounting rules and the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included. |
| I023 | Foreign-currency-denominated loans to total loans | This indicator measures the share of foreign currency loans in total loans. It is based on data taken from the monthly balance sheet statistics of MFIs in Germany. Deviations from the IMF methodology arise owing to the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included. |
| I024 | Foreign-currency-denominated liabilities to total liabilities | This indicator measures the share of foreign currency liabilities in total liabilities. It is based on data taken from the monthly balance sheet statistics of MFIs in Germany. Deviations from the IMF methodology arise owing to national accounting rules and the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included. |
| I025 | Net open position in equities to capital | This indicator shows the ratio of the open equity positions (net) to the institutions’ regulatory capital. It is calculated on the basis of individual institutions’ reports and, from 2008 on, consolidated reports of waiver-groups. The credit institutions’ equity-price-related net overall position is set in relation to their regulatory capital. Deviations from the IMF methodology arise owing to limited institutional coverage with regard to the reporting obligations, the national definition of regulatory capital, the identifiability of the net positions of risk models as well as the basis of consolidation, which covers the institution as a whole (including foreign branches) but, on a non-consolidated basis, excludes foreign subsidiaries. |
| Other financial corporations | ||
| Other financial corporations are linked to deposit-takers in many different ways and can likewise be of systemic relevance to financial system stability. However, the data available for other financial corporations are somewhat less comprehensive than those for the banking sector. The following ratios which – in relating to investment funds, insurance corporations and financial services institutions pursuant to section 1 (1a) numbers 1-4 of the German Banking Act as well as pension funds – cover most of this sector, capture their position concisely. | ||
| I026 | Assets to total financial system assets | This indicator provides information about the relative importance of the other financial corporations sector within the financial system. It is based on data from the financial accounts, which draw on various primary sources such as banking statistics, capital market statistics, securities deposit statistics and balance of payments statistics. Deviations from the IMF methodology arise owing to national accounting rules and – to a lesser extent – the consolidation of the sectoral financial assets. |
| I027 | Assets to GDP | This indicator provides information about the importance of the other financial corporations sector with regard to the economic output of the whole economy. The numerator for this indicator is calculated on the basis of the financial accounts, which draw on various primary sources such as banking statistics, capital market statistics, securities deposit statistics and balance of payments statistics. The denominator is computed by the Federal Statistical Office and is derived from the national accounts. Deviations from the IMF methodology arise owing to national accounting rules and – to a lesser extent – the consolidation of the sectoral financial assets. (Sources: Statistisches Bundesamt, own calculations) |
| Non-financial corporations sector | ||
| Non-financial corporations are the financial sector’s key (credit) customers. If the situation in the non-financial corporations sector deteriorates, this leads to a decline in the non-financial corporations’ creditworthiness and debt repayment capability which, in turn, may have a direct effect on the financial institutions’ situation. The data available for non-financial corporations are, all in all, somewhat less comprehensive than those for the financial sectors, which is why various data sources must be consulted. The following indicators provide information about the sector’s resilience to shocks. | ||
| I028 | Total debt to equity | This indicator provides information about the extent of debt financing in relation to equity capital (valued at market rates). It is calculated on the basis of the financial accounts, which mainly draw on the counterparty data of various primary statistical sources, such as banking statistics. Deviations from the IMF methodology arise owing to national accounting rules and the consolidation of sectoral equity capital and debt. |
| I029 | Return on equity | This indicator measures the efficiency and profitability of the non-financial corporations sector. It is generated using both the national and the financial accounts. Deviations from the IMF methodology arise owing to national accounting rules, the definition and consolidation of corporate profits, and sectoral equity capital (valued at market rates). (Sources: Statistisches Bundesamt, own calculations) |
| I030 | Earnings to interest and principal expenses (Debt service coverage) | This indicator measures the ability to make regular debt service payments from the cash flow. It is generated on the basis of the national accounts. Deviations from the IMF methodology arise owing to national accounting rules, the definition and consolidation of the aggregates, and the principal repayments not covered by the indicator. (Sources: Statistisches Bundesamt, own calculations) |
| I031 | Net foreign exchange exposure to equity | This indicator is not compiled. |
| I032 | Number of applications for protection from creditors | This indicator provides information about bankruptcy developments. It is based on the Federal Statistical Office’s insolvency statistics. The indicator is significantly influenced by national insolvency legislation. (Sources: Statistisches Bundesamt) |
| Households | ||
| Households affect the situation in the financial sector both directly and indirectly: directly through their decision to invest their savings or to take out loans, and indirectly through their consumption behaviour which, in turn, has an impact on the financial sector through the non-financial corporations sector. | ||
| I033 | Household debt to GDP | This indicator provides information about the level of indebtedness in relation to the economic output of the whole economy. The numerator for this indicator is calculated on the basis of the financial accounts, which draw on the counterparty data of various primary statistics, such as banking statistics. The denominator is computed by the Federal Statistical Office and is derived from the national accounts. Minor deviations from the IMF methodology arise through the posting of interest accrued. (Sources: Statistisches Bundesamt, own calculations) |
| I034 | Household debt service and principal payments to income | This indicator measures households’ ability to service their debts. It is generated on the basis of the financial and the national accounts. Deviations from the IMF methodology arise owing to the principal repayments not covered by the indicator. (Sources: Statistisches Bundesamt, own calculations) |
| Market liquidity | ||
| Capital transactions can be settled smoothly only if there is a sufficiently high degree of market liquidity, ie only as long as it is constantly possible to find a buyer or seller for all financial products without greatly impinging on the market price. | ||
| I035 | Average bid-ask spread in the securities market | This indicator sheds light on the liquidity situation in the securities market in question. It is calculated separately for a Federal bond (Bund) and a representative corporate bond with comparable maturities. The spread is the difference between the highest bid rate and the lowest asking rate provided by market participants at a given point in time. (Sources: Bloomberg, own calculations) |
| I036 | Average daily turnover ratio in the securities market | This indicator gives the daily turnover rate in outstanding securities in the market. It is based on data from the Deutsche Bundesbank’s capital market statistics as well as from Deutsche Börse AG, and is calculated as the ratio of turnover to the volume of listed Federal securities outstanding, both in euro. |
| Real estate markets | ||
| The cyclical developments in the real estate markets are highly correlated with the financial sector’s lending behaviour. A real estate boom is often preceded or accompanied by a sharp rise in lending to the private sector. By contrast, a downturn in the real estate market is frequently flanked by a marked decline in lending. Moreover, financial crises in the past have often been preceded by a strong downturn in the real estate market. | ||
| I037 | Residential real estate prices | This indicator measures developments in residential property prices. It is based on data provided by BulwienGesa AG for 125 towns and cities. Separate indices are calculated for newly constructed and pre-owned residential properties (terraced houses and owner-occupied apartments), each providing comfortable living conditions in average to good locations. Deviations from the IMF methodology arise owing to the fact that the indicator does not include data on price developments in commercial real estate. |
| I038 | Commercial real estate prices | This indicator is not compiled. |
| I039 | Residential real estate loans to total loans | This indicator measures the share of housing loans granted by German MFIs in the overall volume of loans. It is based on data taken from the quarterly borrowers statistics of MFIs in Germany. Deviations from the IMF methodology arise owing to the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included. |
| I040 | Commercial real estate loans to total loans | This indicator measures the share of commercial real estate loans granted by German MFIs in the overall volume of loans. It is based on data taken from the quarterly borrowers statistics of MFIs in Germany. Deviations from the IMF methodology arise owing to the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included. |
Supplementary information for selected indicators
- P/L Statistics (Statistics on the profit and loss accounts of banks): I006-I009, I018-I019
- Financial accounts: I026-I030, I032-I034
- Monthly Report February 2009, p. 52: I037
- Further breakdowns of residential real estate prices
Further methodological notes
- IMF: Statistical methods, legal and institutional framework, structural ratios
- Compilation Guide, Financial Soundness Indicators, IMF, 2006, Washington D.C.
Background information
- “Financial Soundness Indicators: a contribution to improving the worldwide availability of data for financial stability analysis“, Article, Financial Stability Review 2006, Deutsche Bundesbank, Frankfurt am Main.
