Indicator 10.5.1 Financial Soundness Indicators

Indicator 10.5.1: Financial Soundness Indicators

Target 10.5: Improve the regulation and monitoring of global financial markets and institutions and strengthen the implementation of such regulations

International Monetary Fund (IMF)

Definition:

Seven Financial Soundness Indicators (FSIs) are included as SDG indicators for 10.5.1 and expressed as percent.

(1) Regulatory Tier 1 capital to assets

(2) Regulatory Tier 1 capital to risk-weighted assets

(3) Nonperforming loans net of provisions to capital

(4) Nonperforming loans to total gross loans

(5) Return on assets

(6) Liquid assets to short-term liabilities

(7) Net open position in foreign exchange to capital

(1) Regulatory Tier 1 capital to assets: This is the ratio of the core capital (Tier 1) to total (balance sheet) assets. For jurisdictions that have implemented the Basel III leverage ratio, this indicator would be calculated using regulatory Tier 1 capital as the numerator and the exposure measure as the denominator, which comprises balance sheet assets, derivatives exposures, securities financing transaction exposures, and off-balance-sheet items.

(2) Regulatory Tier 1 capital to risk-weighted assets: It is calculated using regulatory Tier 1 capital as the numerator and risk-weighted assets as the denominator. The data for this FSI are compiled in accordance with the implemented Basel Accord (i.e., Basel I, Basel II, or Basel III).

(3) Nonperforming loans net of provisions to capital: This FSI is calculated by taking the value of nonperforming loans (NPLs) less the value of specific provisions for NPLs as the numerator and total regulatory capital as the denominator.

(4) Nonperforming loans to total gross loans: This FSI is calculated by using the value of NPLs as the numerator and the total value of the loan portfolio (including NPLs, and before the deduction of specific provisions for NPLs) as the denominator.

(5) Return on assets: This FSI is calculated by dividing annualized net income before taxes by the average value of total assets (financial and nonfinancial) over the same period.

(6) Liquid assets to short-term liabilities: This FSI is calculated by using liquid assets as the numerator and short-term liabilities as the denominator. The components of liquid assets are defined in the IMF’s 2019 FSIs Compilation Guide (2019 FSIs Guide).

(7) Net open position in foreign exchange to capital: The net open position in foreign exchange should be calculated based on the guidance in the 2019 FSIs Guide. Capital should be total regulatory capital as net open position in foreign exchange is a supervisory concept.

Concepts:

(1) Regulatory Tier 1 capital to assets: Regulatory Tier 1 capital is calculated based on Basel I, II, or III depending on countries’ supervisory practices. Denominator is total balance sheet (non-risk weighted) assets. For jurisdictions that have implemented the Basel III leverage ratio, the denominator also includes off-balance-sheet items.

(2) Regulatory Tier 1 capital to risk- weighted assets: Regulatory Tier 1 capital is calculated based on Basel I, II, or III depending on countries’ supervisory practices. Denominator is risk-weighted assets also calculated based on Basel standards.

(3) Nonperforming loans net of provisions to capital: A loan is classified as nonperforming (NPL) when payment of principal or interest is past due by 90 days or more, or when evidence exists that a full or partial amount of a loan is not going to be recovered even in the absence of a 90-day past due payment. Only specific provisions for NPLs are used in this calculation and they refer to charges against the value of specific NPLs. Data exclude accrued interest on NPLs. Capital is measured as total regulatory capital calculated based on Basel I, II, or III depending on countries’ supervisory practices.

(4) Nonperforming loans to total gross loans: A loan is classified as NPL when payment of principal or interest is past due by 90 days or more, or when evidence exists that a full or partial amount of a loan is not going to be recovered even in the absence of a 90-day past due payment. The denominator is the total value of the loan portfolio (including NPLs, and before the deduction of specific provisions for NPLs).

(5) Return on assets: The numerator is annualized net income before taxes. The denominator is the average value of total assets (financial and nonfinancial) over the same period.

(6) Liquid assets to short-term liabilities: Liquid assets include currency and deposits and other financial assets available on demand or within three months as well as securities traded in liquid markets that can be converted into cash with minimal change in value. The denominator is short-term elements of debt liabilities plus net market value of financial derivatives position. The latter is calculated as financial derivatives liability position minus financial derivative asset position. Short-term refers to three months and should be defined on a remaining maturity basis. If remaining maturity is not available, original maturity can be used as an alternative.

(7) Net open position in foreign exchange to capital: Net open position should be calculated in accordance with the guidance in the 2019 FSIs Guide. The denominator is total regulatory capital as defined above.

Percent (%)

Data in the sectoral financial statements and other memorandum series used to calculate FSIs are in national currency.

The common source data are data reported by banks for supervisory purposes. They include balance sheet, income statement, and memorandum series (such as Tier 1 capital, Tier 2 capital, risk-weighted assets).

The national central banks or bank supervisory agencies.

Data for most countries are reported on a monthly or quarterly basis; a few countries report some FSI data on a semi-annual or annual basis and with a lag of more than a quarter. As of August 2024, there were more than 150 FSI reporters. Some countries’ compilation practices deviate from the 2019 FSIs Guide methodology in certain areas and are documented in the FSIs metadata also posted on the IMF’s FSIs website. Reporting countries provide all or most core FSIs and some encouraged FSIs that can be used to support the interpretation of these seven SDG indicators. FSIs data and metadata reported by countries are available at http://data.imf.org/FSI.

(1) Regulatory Tier 1 capital to assets

$\begin{array}{c}Regulatory\mathrm{\ }Tier\mathrm{\ }1\mathrm{\ }\\ capital\mathrm{\ }to\mathrm{\ }assets\end{array}=\frac{\mathrm{C}\mathrm{o}\mathrm{r}\mathrm{e}\mathrm{\ }\mathrm{c}\mathrm{a}\mathrm{p}\mathrm{i}\mathrm{t}\mathrm{a}\mathrm{l}\mathrm{\ }\left(\mathrm{T}\mathrm{i}\mathrm{e}\mathrm{r}\mathrm{\ }1\right)}{\mathrm{T}\mathrm{o}\mathrm{t}\mathrm{a}\mathrm{l}\mathrm{\ }\mathrm{b}\mathrm{a}\mathrm{l}\mathrm{a}\mathrm{n}\mathrm{c}\mathrm{e}\mathrm{\ }\mathrm{s}\mathrm{h}\mathrm{e}\mathrm{e}\mathrm{t}\mathrm{\ }\mathrm{a}\mathrm{s}\mathrm{s}\mathrm{e}\mathrm{t}\mathrm{s}\mathrm{\ }\left(\mathrm{n}\mathrm{o}\mathrm{n}-\mathrm{r}\mathrm{i}\mathrm{s}\mathrm{k}\mathrm{\ }\mathrm{w}\mathrm{e}\mathrm{i}\mathrm{g}\mathrm{h}\mathrm{t}\mathrm{e}\mathrm{d}\right)}\bullet 100\%$

(2) Regulatory Tier 1 capital to risk-weighted assets

$\begin{array}{c}Regulatory\mathrm{\ }Tier\mathrm{\ }1\mathrm{\ }\\ capital\mathrm{\ }to\mathrm{\ }risk\mathrm{\ }weighted\mathrm{\ }assets\end{array}=\frac{\mathrm{C}\mathrm{o}\mathrm{r}\mathrm{e}\mathrm{\ }\mathrm{c}\mathrm{a}\mathrm{p}\mathrm{i}\mathrm{t}\mathrm{a}\mathrm{l}\mathrm{\ }\left(\mathrm{T}\mathrm{i}\mathrm{e}\mathrm{r}\mathrm{\ }1\right)}{\mathrm{R}\mathrm{i}\mathrm{s}\mathrm{k}\mathrm{\ }\mathrm{w}\mathrm{e}\mathrm{i}\mathrm{g}\mathrm{h}\mathrm{t}\mathrm{e}\mathrm{d}\mathrm{\ }\mathrm{a}\mathrm{s}\mathrm{s}\mathrm{e}\mathrm{t}\mathrm{s}}\bullet 100\%$

(3) Nonperforming loans net of provisions to capital

$\mathrm{N}\mathrm{P}\mathrm{L}\mathrm{\ }\mathrm{n}\mathrm{e}\mathrm{t}\mathrm{\ }\mathrm{o}\mathrm{f}\mathrm{\ }\mathrm{p}\mathrm{r}\mathrm{o}\mathrm{v}\mathrm{i}\mathrm{s}\mathrm{i}\mathrm{o}\mathrm{n}\mathrm{s}\mathrm{\ }\mathrm{t}\mathrm{o}\mathrm{\ }\mathrm{c}\mathrm{a}\mathrm{p}\mathrm{i}\mathrm{t}\mathrm{a}\mathrm{l}=\frac{\mathrm{V}\mathrm{a}\mathrm{l}\mathrm{u}\mathrm{e}\mathrm{\ }\mathrm{o}\mathrm{f}\mathrm{\ }\mathrm{N}\mathrm{P}\mathrm{L}\mathrm{s}-\mathrm{\ }\mathrm{V}\mathrm{a}\mathrm{l}\mathrm{u}\mathrm{e}\mathrm{\ }\mathrm{o}\mathrm{f}\mathrm{\ }\mathrm{s}\mathrm{p}\mathrm{e}\mathrm{c}\mathrm{i}\mathrm{f}\mathrm{i}\mathrm{c}\mathrm{\ }\mathrm{p}\mathrm{r}\mathrm{o}\mathrm{v}\mathrm{i}\mathrm{s}\mathrm{i}\mathrm{o}\mathrm{n}\mathrm{s}\mathrm{\ }\mathrm{f}\mathrm{o}\mathrm{r}\mathrm{\ }\mathrm{N}\mathrm{P}\mathrm{L}\mathrm{s}}{\mathrm{T}\mathrm{o}\mathrm{t}\mathrm{a}\mathrm{l}\mathrm{\ }\mathrm{r}\mathrm{e}\mathrm{g}\mathrm{u}\mathrm{l}\mathrm{a}\mathrm{t}\mathrm{o}\mathrm{r}\mathrm{y}\mathrm{\ }\mathrm{c}\mathrm{a}\mathrm{p}\mathrm{i}\mathrm{t}\mathrm{a}\mathrm{l}}\bullet 100\%$

(4) Nonperforming loans to total gross loans

$\mathrm{N}\mathrm{P}\mathrm{L}\mathrm{s}\mathrm{\ }\mathrm{t}\mathrm{o}\mathrm{\ }\mathrm{t}\mathrm{o}\mathrm{t}\mathrm{a}\mathrm{l}\mathrm{\ }\mathrm{g}\mathrm{r}\mathrm{o}\mathrm{s}\mathrm{s}\mathrm{\ }\mathrm{l}\mathrm{o}\mathrm{a}\mathrm{n}\mathrm{s}=\frac{\mathrm{V}\mathrm{a}\mathrm{l}\mathrm{u}\mathrm{e}\mathrm{\ }\mathrm{o}\mathrm{f}\mathrm{\ }\mathrm{N}\mathrm{P}\mathrm{L}\mathrm{s}}{\mathrm{T}\mathrm{o}\mathrm{t}\mathrm{a}\mathrm{l}\mathrm{\ }\mathrm{v}\mathrm{a}\mathrm{l}\mathrm{u}\mathrm{e}\mathrm{\ }\mathrm{o}\mathrm{f}\mathrm{\ }\mathrm{t}\mathrm{h}\mathrm{e}\mathrm{\ }\mathrm{l}\mathrm{o}\mathrm{a}\mathrm{n}\mathrm{\ }\mathrm{p}\mathrm{o}\mathrm{r}\mathrm{t}\mathrm{f}\mathrm{o}\mathrm{l}\mathrm{i}\mathrm{o}\mathrm{\ }}\bullet 100\%$

(5) Return on assets

$\mathrm{R}\mathrm{e}\mathrm{t}\mathrm{u}\mathrm{r}\mathrm{n}\mathrm{\ }\mathrm{o}\mathrm{n}\mathrm{\ }\mathrm{a}\mathrm{s}\mathrm{s}\mathrm{e}\mathrm{t}\mathrm{s}=\frac{\mathrm{A}\mathrm{n}\mathrm{n}\mathrm{u}\mathrm{a}\mathrm{l}\mathrm{i}\mathrm{z}\mathrm{e}\mathrm{d}\mathrm{\ }\mathrm{n}\mathrm{e}\mathrm{t}\mathrm{\ }\mathrm{i}\mathrm{n}\mathrm{c}\mathrm{o}\mathrm{m}\mathrm{e}\mathrm{\ }\mathrm{b}\mathrm{e}\mathrm{f}\mathrm{o}\mathrm{r}\mathrm{e}\mathrm{\ }\mathrm{t}\mathrm{a}\mathrm{x}\mathrm{e}\mathrm{s}}{\mathrm{A}\mathrm{v}\mathrm{e}\mathrm{r}\mathrm{a}\mathrm{g}\mathrm{e}\mathrm{\ }\mathrm{v}\mathrm{a}\mathrm{l}\mathrm{u}\mathrm{e}\mathrm{\ }\mathrm{o}\mathrm{f}\mathrm{\ }\mathrm{t}\mathrm{o}\mathrm{t}\mathrm{a}\mathrm{l}\mathrm{\ }\mathrm{a}\mathrm{s}\mathrm{s}\mathrm{e}\mathrm{t}\mathrm{s}}\bullet 100\%$

(6) Liquid assets to short-term liabilities

$\begin{array}{c}Liquid\mathrm{\ }assets\mathrm{\ }to\mathrm{\ }\\ short\mathrm{\ }term\mathrm{\ }liabilities\end{array}=\frac{\mathrm{L}\mathrm{i}\mathrm{q}\mathrm{u}\mathrm{i}\mathrm{d}\mathrm{\ }\mathrm{a}\mathrm{s}\mathrm{s}\mathrm{e}\mathrm{t}\mathrm{s}}{\mathrm{S}\mathrm{h}\mathrm{o}\mathrm{r}\mathrm{t}\mathrm{\ }\mathrm{t}\mathrm{e}\mathrm{r}\mathrm{m}\mathrm{\ }\mathrm{l}\mathrm{i}\mathrm{a}\mathrm{b}\mathrm{i}\mathrm{l}\mathrm{i}\mathrm{t}\mathrm{i}\mathrm{e}\mathrm{s}}\bullet 100\%$

(7) Net open position in foreign exchange to capital

$\begin{array}{c}Net\mathrm{\ }open\mathrm{\ }position\mathrm{\ }in\mathrm{\ }foreign\mathrm{\ }\mathrm{\ }\\ exchange\mathrm{\ }to\mathrm{\ }capital\end{array}=\frac{\mathrm{N}\mathrm{e}\mathrm{t}\mathrm{\ }\mathrm{o}\mathrm{p}\mathrm{e}\mathrm{n}\mathrm{\ }\mathrm{p}\mathrm{o}\mathrm{s}\mathrm{i}\mathrm{t}\mathrm{i}\mathrm{o}\mathrm{n}\mathrm{\ }\mathrm{i}\mathrm{n}\mathrm{\ }\mathrm{f}\mathrm{o}\mathrm{r}\mathrm{e}\mathrm{i}\mathrm{g}\mathrm{n}\mathrm{\ }\mathrm{e}\mathrm{x}\mathrm{c}\mathrm{h}\mathrm{a}\mathrm{n}\mathrm{g}\mathrm{e}}{\mathrm{T}\mathrm{o}\mathrm{t}\mathrm{a}\mathrm{l}\mathrm{\ }\mathrm{r}\mathrm{e}\mathrm{g}\mathrm{u}\mathrm{l}\mathrm{a}\mathrm{t}\mathrm{o}\mathrm{r}\mathrm{y}\mathrm{\ }\mathrm{c}\mathrm{a}\mathrm{p}\mathrm{i}\mathrm{t}\mathrm{a}\mathrm{l}}\bullet 100\%$

2024-09-27

International Monetary Fund (IMF)

Linkages with any other Goals and Targets: Recommendation II.2 of G-20 Data Gap Initiative – 2 concerned Financial Soundness Indicators (FSIs). The G-20 economies were asked to report the seven FSIs required from Special Data Dissemination Standards Plus (SDDS Plus) adherent economies on a quarterly frequency, with a timeliness of one quarter. These are the same FSIs as covered by this SDG Indicator 10.5.1 except that the SDG indicator includes the FSI net open position in foreign exchange to capital instead of the residential real estate prices. The G-20 economies were also asked to voluntarily initiate regular collection of Concentration and Distribution Measures, depending on the results of their cost-benefit analysis and national priorities. The implementation of the two FSI-related recommendations was concluded at end-2021.

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