Statistical Information

and the Banking Sector

PLENARY 1:
INFORMATION IN KEY
ECONOMIC SECTORS
Introduction

 Focus is to demonstrate how

statistical information is critical
for banking and more broadly
monetary and financial sector
activities.
Structure of Presentation

 Sector definition, structure,

objectives and stylized facts
 Importance of statistical
information for banking and
financial activities
 Sources and limitations
 Approaches at addressing
limitations and challenges
 Conclusion
Sector definition

 The banking sector consists of all

resident corporations engaged in
financial intermediation in any given
economy (IMF-MFSM 2000)
 (Financial intermediation is a productive
activity in which these corporations raise
funds by incurring liabilities on their own
accounts for the purposes of channeling
these funds to other institutional units by
way of lending – resource allocation from
saves to investors)
Sector Structure
 Banking Sector
 Central Bank :
 monetary authority and oversees
 Depository corporations
 Commercial banks, merchant banks, savings,
credit union, rural and development banks, etc.
engaged in allocation of savings to investment
opportunities in the interest of profit making
 Financial Sector
 Banking sector
 Other financial institutions (security
markets, brokers, insurance, pension
funds, etc)
Sector Objectives
 Note! The task of financial intermediation
is well promoted in a stable operating
environment for the institutional units
engaged in it. Therefore:
 Central Banks’ objectives are:
 Formulate and implement policies to ensure
monetary stability; and
 Undertake actions to ensure financial sector
soundness
 All of these geared to creating the
enabling environment for financial
intermediation.
Objectives’ cont’d

 Depository corporations’
objectives:
 engaged in resource allocation to
make profit and enhance
shareholders’ earnings or value

 To fulfill these objectives, sound

and broad statistical basis is
needed.
Stylized facts on structural
changes in the banking industry
 Prevalence of banking crises
 IMF in 1996 estimated that @130 countries had
experience banking crisis of some sort.

 Increasing concern for contagion because

of:
 Increase international nature of banking business
 Increasing integration of international financial
markets
 Deregulation and openness to international
competition etc
 Although there are pluses for these changes,
they present a challenge and make crises
difficult to detect.
Importance of statistical
information in this new banking
environment
 This would be demonstrated against
the background of the objectives of
the key players in the sector given
the new environment for banking
business:
 Role of statistics in central banking
 Role of statistics in commercial banking
 Role of statistics to the non- bank public
Role of statistics for central
banking
 Recall primary objectives:
 Monetary policy to ensure monetary
stability and
 Financial stability or financial sector
soundness. All to support efficiency in
intermediation
 Statistics provides the main support
in pursuing these objectives
Statistics for central banking
 For Monetary Policy Purposes
 Central bank economists need to know the
working of the economy, to decipher the role
their policy can have in the economy
(transmission mechanism of their policy)
 Data would be required to test their empirical
framework to determine the transmission
mechanism that relates what the central bank
can control, i.e various aspects of the balance
sheet, to influence the ultimate objective.
 For this, economic and financial statistics are
required: national accounts aggregates,
government finance statistics, balance of
payments statistics, cpi, financial market
statistics, etc
Stat for central banking cont’d

 Use of financial soundness

indicators
 Basis for monitoring the health and
efficiency of the financial sector
 They a measure of financial strength of the
banking sector
 Form the basis for assessing vulnerability of
the sector to instability
 CAMEL framework quite useful and
largely supported by both theoretical
and empirical literature. Will highlight
the importance of only few indicators.
Financial soundness
indicators
 CAMEL:
 Capital adequacy indicators
 Asset quality indicators
 Management soundness indicators
 Earnings and profitability indicators
 Liquidity indicators
 For the central bank, information on
these components for individual
banks and aggregated give provide
signals of the soundness of the
banking system.
Use of Statistics in deposit
money banking
 Recall objective is to engage in financial
intermediation to make profit and increase
shareholders’ earnings.
 Need information on:
 Their operating environment (macroeconomic
statistics and sector statistics)
 Their internal management
 Earnings and profitability
 Asset quality and capital adequacy
 Reason: to satisfy prudential requirement
to stay in business and the guide their
business decisions
Stats in DMBs
 Macroeconomic statistics for commercial
banks
 Many studies relate banking crises to certain
macroeconomic developments
 E.g. Fisher (1993), Demirguc-Kunt and
Detragiache (1998), Kaminsky and Reinhart
(1996)
 They point to, falling growth rates, high inflation,
weak export sector performance, volatile
exchange and interest rates as sources of
financial fragility.
 To support internal governance or
monitoring of internal control system,
indicators such as expense ratio, earnings
per employee, rate of expansion in # of
banks are important
 Stats in DMBs

 Earnings and profit information such as

returns on assets, returns on equity, etc are
useful
 To address problems of debt contract such
as adverse selection and moral hazard
arising from asymmetry of information
between borrower and lender, data on
ability to pay is needed
 e,g debt- equity ratio signals exposure to
private sector, household debt to GDP is a
measure of leverage
Information for the public

 Also to address information

asymmetry problems, the public
needs market information on the
banking sector as well:
 E.g.
 prices of financial instruments
 Credit worthiness of banking
institutions; etc
Data Sources and Limitations

 Sources:
 Banking sector, both producer and
user of statistics
 National statistics institutes, help
where the banks
 Limitations
 Timeliness and quality
Addressing limitations and
challenges
 International efforts at developing
guides and manual;
 Frameworks for data disseminations

 Challenges:
 Need for efficient payment system
infrastructure to enhance timeliness of
banking sector statistics
 The challenge is tougher as countries
move to a monetary union with the need
to conduct a common monetary policy .
Conclusion
 Range of statistics require for
banking and financial activities is
daunting
 drive policy makers, markets and the
public alike
 Economic policy and business
decisions are all driven and
formulated using statistics as
building block
 Raw material for policy proposal,
therefore need to be of good quality
and made available in time.