The Most Useful FSIs

7. Respondents judged all major categories of FSIs to be broadly useful. Indicators of capital adequacy, asset quality (lending institutions), and profitability were deemed the most useful, followed by indicators of liquidity and sensitivity to market risk. Users in industrial countries in particular deemed the liquidity and sensitivity to market risk indicators less useful than the others. Several respondents from industrial countries commented that the liquidity and sensitivity to market risk indicators were sophisticated and possibly difficult to construct with precision.

8. With the highest score possible being 4, Table A1.1 presents the 13 FSIs with an average usefulness score of 3.5 or over. These FSIs include central elements of bank soundness. Two of them—the Basel capital adequacy ratio and one of its components—relate to the capital base, which serves as a buffer to withstand shocks; four of them measure profitability, which serves to sustain the capital base. The remaining FSIs assessed to be most useful relate to the quality of banks’ assets—as covered by data on nonperforming loans, the distribution of assets, and asset liquidity. This list is the basis of the core indicators provided in Chapter 1.

Table A1.1.

FSIs by Type of Economy

(Most useful FSIs, with average usefulness scores of 3.5 and higher)

Table A1.1.

FSIs by Type of Economy

(Most useful FSIs, with average usefulness scores of 3.5 and higher)

FSI #	FSI	All Countries	Industrial Countries	Emerging Countries	Developing Countries
1.1	Basel Capital Adequacy Ratio	3.8	3.7	3.9	3.6
1.1a	Ratio of Basel Tier 1 capital to risk-weighted assets	3.6	3.6	3.6	3.5
2.4	Distribution of loans, by sector	3.6	3.5	3.6	3.5
2.5	Distribution of credit extended, by sector	3.5	3.3	3.6	3.6
2.8	Ratio of total large loans to own funds	3.5	3.2	3.6	3.6
2.9	Ratio of gross nonperforming loans to total assets	3.9	3.9	3.9	3.8
2.10	Ratio of gross nonperforming loans net of provisions to total assets	3.8	3.8	3.8	3.8
3.2	Ratio of profits to period-average assets (ROA)	3.6	3.5	3.8	3.6
3.3	Ratio of profits to period-average equity (ROE)	3.6	3.5	3.8	3.6
3.4	Ratio of net interest income to total income	3.5	3.3	3.6	3.6
3.8	Spread between reference lending and deposit rates	3.5	3.4	3.6	3.5
4.3	Ratio of liquid assets to total assets	3.5	3.2	3.6	3.5
4.4	Ratio of liquid assets to liquid liabilities	3.6	3.2	3.7	3.7

View Table

Table A1.1.

FSIs by Type of Economy

(Most useful FSIs, with average usefulness scores of 3.5 and higher)

FSI #	FSI	All Countries	Industrial Countries	Emerging Countries	Developing Countries
1.1	Basel Capital Adequacy Ratio	3.8	3.7	3.9	3.6
1.1a	Ratio of Basel Tier 1 capital to risk-weighted assets	3.6	3.6	3.6	3.5
2.4	Distribution of loans, by sector	3.6	3.5	3.6	3.5
2.5	Distribution of credit extended, by sector	3.5	3.3	3.6	3.6
2.8	Ratio of total large loans to own funds	3.5	3.2	3.6	3.6
2.9	Ratio of gross nonperforming loans to total assets	3.9	3.9	3.9	3.8
2.10	Ratio of gross nonperforming loans net of provisions to total assets	3.8	3.8	3.8	3.8
3.2	Ratio of profits to period-average assets (ROA)	3.6	3.5	3.8	3.6
3.3	Ratio of profits to period-average equity (ROE)	3.6	3.5	3.8	3.6
3.4	Ratio of net interest income to total income	3.5	3.3	3.6	3.6
3.8	Spread between reference lending and deposit rates	3.5	3.4	3.6	3.5
4.3	Ratio of liquid assets to total assets	3.5	3.2	3.6	3.5
4.4	Ratio of liquid assets to liquid liabilities	3.6	3.2	3.7	3.7

9. Table A1.2 presents the FSIs with an average usefulness score of 3.0 to 3.4. These FSIs form the basis of the list of encouraged indicators set out in Chapter 1. They cover some of the elements of capital adequacy, the distribution of bank credit by risk weight category and by country, the financial condition of the corporate and household sectors, some of the elements of operating income and expenses of banks, the maturity and duration of assets and liabilities, and other market risks.

Table A1.2.

Group II FSIs by Type of Economy

(Useful FSIs, with average usefulness scores of 3.0 to 3.4)

Table A1.2.

Group II FSIs by Type of Economy

(Useful FSIs, with average usefulness scores of 3.0 to 3.4)

FSI #	FSI	All Countries	Industrial Countries	Emerging Countries	Developing Countries
1.1b	Ratio of Basel Tier 1 + 2 capital to risk-weighted assets	3.4	3.2	3.6	3.4
1.1c	Ratio of Basel Tier 1 + 2 + 3 capital to risk-weighted assets	3.0	2.9	3.1	3.1
1.2	Distribution of capital adequacy ratios (number of institutions within specified capital adequacy ratio ranges)	3.3	3.3	3.4	3.1
1.3	Leverage ratio (ratio of total on-balance-sheet assets to own funds)	3.2	2.9	3.3	3.3
2.1	Distribution of on-balance-sheet assets, by Basel risk weight category	3.4	3.2	3.5	3.4
2.4a	Loans for investment in commercial real estate	3.2	3.3	3.3	3.1
2.4b	Loans for investment in residential real estate	3.2	3.3	3.2	3.2
2.6	Distribution of credit extended, by country or region	3.1	3.2	3.2	2.8
2.7	Ratio of credit to related entities to total credit	3.4	3.0	3.6	3.5
2.11	Ratio of corporate debt to own funds (“debt-equity ratio”)	3.4	3.4	3.5	3.3
2.12	Ratio of corporate profits to equity	3.3	3.1	3.4	3.2
2.13	Ratio of corporate debt-service costs to total corporate income	3.2	3.2	3.4	3.0
2.14	Corporate net foreign currency exposure	3.2	3.2	3.4	2.9
2.15	Ratio of household total debt to GDP	3.0	3.2	3.0	2.8
3.5	Ratio of trading and foreign exchange gains/losses to total income	3.3	3.2	3.4	3.3
3.6	Ratio of operating costs to net interest income	3.4	3.0	3.6	3.6
3.7	Ratio of staff costs to operating costs	3.2	2.8	3.4	3.4
4.5	Average maturity of assets	3.4	3.0	3.4	3.6
4.6	Average maturity of liabilities	3.4	3.0	3.4	3.6
4.10	Ratio of customer deposits to total (noninterbank) loans	3.2	2.9	3.3	3.3
5.1	Ratio of gross foreign currency assets to own funds	3.1	2.7	3.2	3.2
5.2	Ratio of net foreign currency position to own funds	3.4	3.1	3.6	3.5
5.3	Average interest rate repricing period for assets	3.0	2.8	3.3	3.0
5.4	Average interest rate repricing period for liabilities	3.0	2.8	3.2	3.0
5.5	Duration of assets	3.2	3.0	3.4	3.0
5.6	Duration of liabilities	3.2	3.0	3.3	3.0
5.8	Ratio of net equity position to own funds	3.0	2.8	3.0	3.1

View Table

Table A1.2.

Group II FSIs by Type of Economy

(Useful FSIs, with average usefulness scores of 3.0 to 3.4)

FSI #	FSI	All Countries	Industrial Countries	Emerging Countries	Developing Countries
1.1b	Ratio of Basel Tier 1 + 2 capital to risk-weighted assets	3.4	3.2	3.6	3.4
1.1c	Ratio of Basel Tier 1 + 2 + 3 capital to risk-weighted assets	3.0	2.9	3.1	3.1
1.2	Distribution of capital adequacy ratios (number of institutions within specified capital adequacy ratio ranges)	3.3	3.3	3.4	3.1
1.3	Leverage ratio (ratio of total on-balance-sheet assets to own funds)	3.2	2.9	3.3	3.3
2.1	Distribution of on-balance-sheet assets, by Basel risk weight category	3.4	3.2	3.5	3.4
2.4a	Loans for investment in commercial real estate	3.2	3.3	3.3	3.1
2.4b	Loans for investment in residential real estate	3.2	3.3	3.2	3.2
2.6	Distribution of credit extended, by country or region	3.1	3.2	3.2	2.8
2.7	Ratio of credit to related entities to total credit	3.4	3.0	3.6	3.5
2.11	Ratio of corporate debt to own funds (“debt-equity ratio”)	3.4	3.4	3.5	3.3
2.12	Ratio of corporate profits to equity	3.3	3.1	3.4	3.2
2.13	Ratio of corporate debt-service costs to total corporate income	3.2	3.2	3.4	3.0
2.14	Corporate net foreign currency exposure	3.2	3.2	3.4	2.9
2.15	Ratio of household total debt to GDP	3.0	3.2	3.0	2.8
3.5	Ratio of trading and foreign exchange gains/losses to total income	3.3	3.2	3.4	3.3
3.6	Ratio of operating costs to net interest income	3.4	3.0	3.6	3.6
3.7	Ratio of staff costs to operating costs	3.2	2.8	3.4	3.4
4.5	Average maturity of assets	3.4	3.0	3.4	3.6
4.6	Average maturity of liabilities	3.4	3.0	3.4	3.6
4.10	Ratio of customer deposits to total (noninterbank) loans	3.2	2.9	3.3	3.3
5.1	Ratio of gross foreign currency assets to own funds	3.1	2.7	3.2	3.2
5.2	Ratio of net foreign currency position to own funds	3.4	3.1	3.6	3.5
5.3	Average interest rate repricing period for assets	3.0	2.8	3.3	3.0
5.4	Average interest rate repricing period for liabilities	3.0	2.8	3.2	3.0
5.5	Duration of assets	3.2	3.0	3.4	3.0
5.6	Duration of liabilities	3.2	3.0	3.3	3.0
5.8	Ratio of net equity position to own funds	3.0	2.8	3.0	3.1

Additional Indicators

10. The User Questionnaire also asked respondents to identify FSIs they considered useful but that were not covered in the survey. The most frequently identified useful additional FSIs were asset prices. Among the asset prices suggested were the prices of real estate, both commercial and residential, and equity prices, including the stock prices of the depository corporations subsector relative to the overall stock price index and stock prices disaggregated by industry. Moreover, to prevent the masking of relevant information through the aggregation process and to help in the identification of outliers, clustering of problem cases, or tiering in markets, there were calls for more information on the distribution or dispersion of observations. Several respondents identified the ratio of gross nonperforming loans to total loans as useful, in lieu of the FSI in the survey that used total assets as the denominator.

Importance of Nondepository Financial Institutions

11. About 80 percent of the respondents reported that information on nondepository financial institutions, markets, and activities was important to the overall analysis of financial sector soundness. On nondepository financial institutions,² the majority of the respondents were most interested in information on insurance corporations and pension funds, followed by information on other financial intermediaries. Many of these institutions were viewed by respondents as playing an important role in financial intermediation and possibly in contagion. Several respondents mentioned the importance of specialized financial intermediaries, such as venture capital funds for advanced economies, and microcredit institutions and development banks or funds for developing countries. Some respondents noted the importance of information on financial conglomerates, especially those that included insurance companies.

12. On financial markets, about 90 percent of those responding on the issue indicated that data on the securities markets (public and private debt and equity markets) were important.³ A few thought that information on foreign exchange markets (16 percent) and derivatives markets (6 percent) was also important.

13. Several respondents noted that borrower information (indebtedness and asset-liability mismatches) was useful, as it provided some indication on emerging credit quality trends and risks in the corporate, household, or foreign sectors. Some respondents said that they paid particular attention to large corporations, while a few others mentioned the importance of monitoring other financial activity, such as the functioning of payment, settlement, and clearing systems. In addition, some respondents emphasized that qualitative information—such as the thoroughness of supervision and the transparency of financial policies—was important to the overall assessment of financial sector stability.

Disaggregation of “Depository Corporations” into Subsectors

14. Almost 60 percent of the respondents thought that more disaggregated information on depository corporations was needed, particularly breakdowns by ownership, function, exposure to risk (for example, geographical, asset type, borrower type), and size. A few respondents felt that disaggregated data that highlighted distributions among banks or allowed for peer group analysis were also useful. One respondent felt that the disaggregation of banks’ data should be as fine as possible to enable distinctive activity patterns to be identified. Several respondents, however, stressed that the type of disaggregation would depend on the issue being analyzed.

15. Almost 30 percent of all respondents (about half of those who felt that more disaggregation was useful) mentioned that they analyzed or would like to analyze institutions by ownership characteristics (for example, domestic versus foreign, private versus state-owned, and publicly held stock versus privately held equity). Of these respondents, almost all stated that a breakdown between domestic and foreign institutions was useful, with some emphasizing that the domestic/foreign distinction was important because foreign institutions might operate under different regulatory and supervisory regimes. At the same time, one-fourth of the respondents stated that a breakdown between private and state-owned institutions was important.

16. About 20 percent of the respondents said that disaggregation by function or exposure was useful. The functions most often mentioned were commercial banking, universal banking, and specialized banking (especially mortgage lending and, to a lesser extent, development lending). About 80 percent of the respondents interested in disaggregation by exposure indicated that they would like information on internationally active banks. Sixteen percent wanted disaggregated information on offshore banks, while another 16 percent wanted information on banks disaggregated by their geographical market.

Systemically Important Institutions

17. Almost 60 percent of the respondents reported doing some evaluation of systemically important institutions. Supervisors tended to be more concerned about such institutions—two-thirds of them reported that they evaluated the condition of these institutions, as opposed to less than half of market participants and about half of the government policy or research analysts.

18. Most respondents reported using a measure of size (of assets and/or deposits) to ascertain the importance of an institution. Sometimes size was coupled with other criteria, for instance, exposure to certain risks (such as foreign exchange risk), complexity of transactions, or complexity of ownership structure. However, some respondents mentioned only risk exposure, or used legal or prudential definitions, while others evaluated all institutions by sector or a particular category. This had as a result that all institutions within a particular classification (for example, problem banks, deposit-taking institutions, institutions with insured deposits, commercial banks, international banks) ended up sometimes being considered systemically important. This was often the case in countries with small, developing, or concentrated markets.

19. Many respondents said that the techniques used to evaluate the condition of systemically important institutions were similar to those used to evaluate other institutions. Most mentioned using the CAMELS framework or ratio analysis. Among the variables stressed by the respondents as important in their evaluations were interbank activity, liquidity, large exposures, foreign exchange exposure, consolidated positions for institutions that are part of a financial group, and risk management practices (including assessment by internal models).

Benchmarks

20. Many respondents reported that specific norms, benchmarks, or thresholds were not used in macroprudential analysis. While some of them were considering using norms and benchmarks in the future, others preferred using comparisons with peer group countries to establish relative rankings.

21. Among those who reported using norms and benchmarks for FSIs, some highlighted their critical role in guiding interpretation of the indicators. For this purpose, benchmarks were constructed in a number of ways, including (1) historical averages, (2) bank supervisors’ prudential thresholds applied at the aggregate level, (3) trigger points, (4) cross-country comparisons, and (5) criteria constructed from econometric studies.

Business Surveys

22. Overall, about half of all respondents reported that they made use of business survey results—qualitative or quantitative measures of business expectations and potential leading indicators of instability—to supplement macroprudential analysis.

Concepts Employed

27. The Compilation and Dissemination Questionnaire asked a series of quantitative and open-ended questions about accounting and statistical issues to assess the state of existing practices, possibly identify best practices that might be used as a basis for development of international standards, and help identify strategies for improving the comparability of FSIs.

28. The responses highlighted a diversity of national practices and revealed many reasons why FSIs might not be comparable across economies:

• Different, and often complex, standards exist for recognition of substandard claims and provisioning.

• National definitions of regulatory capital differ: for instance, as regards deductions and components of each tier of capital. Moreover, numerous countries indicated that they had not approved the inclusion of Tier 3 capital within the base.

• Consolidation practices for foreign branches and subsidiaries differ (see section below). Within each country, some FSIs use global (cross-border) consolidations drawn from supervisory data, while other FSIs use domestic (national residence basis) consolidations drawn from statistical sources. Overall, however, some degree of international conformity exists in consolidation practices because of the rather widespread use of domestic consolidation.

• Valuation practices for financial instruments differ (see section below). Key issues include the limited use of market valuations for debt securities and shares, and the diverse practices for on-balance-sheet recognition of derivatives, repurchase agreements, and securities lending.

• Different rules exist across countries for revaluing foreign currency positions. Although there appears to be convergence in industrial countries toward use of market exchange rates in revaluing foreign-currency-denominated positions, continued use of official rates in a number of emerging and developing countries might hinder the comparability of FSIs.

29. The list of issues above indicated that practices were diverse and that cross-country comparison of FSIs was challenging.

Presentation

35. The majority of respondents preferred the use of ratios and growth rates in presenting their FSIs. However, many respondents also felt that the preferred mode of presentation depended on the particular FSI in question and the type of analysis being conducted. For example, for sectoral aggregates, it was useful to have weighted averages as well as simple averages, accompanied by the frequency distribution of institutions according to the range of values of the indicators.

36. Some respondents noted that measures of dispersion (standard deviations, histograms, Gini indices, and so forth) could be particularly useful in presenting FSIs because they allowed the analyst to identify, among other things, outliers, trends in concentration, and tiering in markets, which could be relevant for the analysis of financial stability.

Deposit Takers

Deposit Takers

Other Financial Corporations

Nonfinancial Corporations

Households

Market Liquidity

Real Estate Markets

Deposit Takers

2. Chapter 6 brings together the concepts and definitions set out in Part I of the Guide to explain how each FSI for deposit takers is to be calculated. Additional definitions of some FSIs were proposed during discussions on the preparation of the Guide, which are set out below. In some instances, more disaggregated data series would be needed to compile these FSIs.

3. The Guide recommends that sector-level data compiled to calculate FSI ratios include any intrasector positions in debt and financial derivatives on a gross basis (paragraph 5.49). This approach allows the interrelationships among groups in the sector, and hence potential contagion risks, to be identified. However, for FSI ratios where gross assets or liabilities are either the denominator or the numerator—for example, return on assets and the capital-to-assets ratio—they could also be calculated excluding intrasector positions in debt and financial derivatives, so that both the numerator and the denominator of the ratio exclude intrasector transactions and positions.

Other Financial Corporations

Nonfinancial Corporations

Households

Financial Market FSIs

Measuring resilience in securities markets

41. Resilience and depth of markets can be measured by the Hui-Heubel Ratio (HHR). This ratio relates the volume of trades as a proportion of the outstanding stock of the given instrument to their impact on prices. Thus, the larger the volume of trades relative to the percentage price change—that is, the lower the HHR—the more resilient and deep the market is. The HHR is specified as follows:

$HHR=\frac{\left[\right(P_{\max }-p_{\min })/P_{\min }]}{[V/(S\times \overline{P}\left)\right]},$

where Pmax	=	highest price over the period
Pmin	=	lowest price over the period
V	=	total value traded over the period
S	=	average number of instruments outstanding during the period
$\overline{P}$	=	average daily closing price of the instrument during the period.

View Table

where Pmax	=	highest price over the period
Pmin	=	lowest price over the period
V	=	total value traded over the period
S	=	average number of instruments outstanding during the period
$\overline{P}$	=	average daily closing price of the instrument during the period.

42. Subject to data availability, the ratio could be calculated on a daily basis for a benchmark domestic government or central bank debt security to capture very short-term price movements. Alternatively, it could be calculated as the average of five-day period measures in a specified period of time (such as three months) to smooth volatility.

43. If there is a lack of data, the numerator in the HHR can be measured as the percentage change in the price of the asset over the period chosen. Other measures of trading volume could also be used, such as the number of securities traded.

44. Table A3.1 below provides an example of how the HHR can be calculated for a benchmark security over a three-month period. The highest and lowest daily prices observed in each week are shown in the first two columns. The value of securities traded and the number of securities outstanding are shown in the next two columns, and the average closing price of the instrument is shown in the fifth column. The HHR, calculated on a weekly basis, is shown in the last column; the monthly average HHR is also shown in that column. The average HHR for the month shown in Table A3.1 indicates that the resilience and depth of the market improved over the three-month period; the HHR declined from 0.9 in month 1 to 0.6 in month 3.

Table A3.1.

Calculating the Hui-Heubel Ratio

¹For instance, for week 1 of month 1, the HHR is calculated as follows:

[(10 – 8) / 8] / [120,000 / (30,000 × 8.6)] = 0.25 / 0.465 = 0.5.

Table A3.1.

Calculating the Hui-Heubel Ratio

	Pmax	Pmin	V	S	$\overline{P}$	HHR1
Month 1
Week 1	10	8	120,000	30,000	8.6	0.5
Week 2	12	9	60,000	30,000	10.2	1.7
Week 3	12	9	150,000	30,000	8.2	0.5
Week 4	10	7	150,000	30,000	9.7	0.8
Monthly Average						0.9
Month 2
Week 1	12	8	120,000	30,000	9.2	1.2
Week 2	13	9	80,000	30,000	10.2	1.7
Week 3	14	12	70,000	30,000	13.0	0.9
Week 4	14	13	130,000	30,000	13.4	0.2
Monthly Average						1.0
Month 3
Week 1	10	8	120,000	30,000	8.6	0.5
Week 2	12	9	170,000	30,000	10.2	0.6
Week 3	9	8	120,000	30,000	8.2	0.3
Week 4	10	7	120,000	30,000	9.7	1.0
Monthly Average						0.6

¹For instance, for week 1 of month 1, the HHR is calculated as follows:

[(10 – 8) / 8] / [120,000 / (30,000 × 8.6)] = 0.25 / 0.465 = 0.5.

View Table

Table A3.1.

Calculating the Hui-Heubel Ratio

	Pmax	Pmin	V	S	$\overline{P}$	HHR1
Month 1
Week 1	10	8	120,000	30,000	8.6	0.5
Week 2	12	9	60,000	30,000	10.2	1.7
Week 3	12	9	150,000	30,000	8.2	0.5
Week 4	10	7	150,000	30,000	9.7	0.8
Monthly Average						0.9
Month 2
Week 1	12	8	120,000	30,000	9.2	1.2
Week 2	13	9	80,000	30,000	10.2	1.7
Week 3	14	12	70,000	30,000	13.0	0.9
Week 4	14	13	130,000	30,000	13.4	0.2
Monthly Average						1.0
Month 3
Week 1	10	8	120,000	30,000	8.6	0.5
Week 2	12	9	170,000	30,000	10.2	0.6
Week 3	9	8	120,000	30,000	8.2	0.3
Week 4	10	7	120,000	30,000	9.7	1.0
Monthly Average						0.6

¹For instance, for week 1 of month 1, the HHR is calculated as follows:

[(10 – 8) / 8] / [120,000 / (30,000 × 8.6)] = 0.25 / 0.465 = 0.5.

Deposit Takers

47. Realized gains and losses on financial instruments could be distinguished from unrealized gains and losses. (This series and those below are set out in Table A3.2, which is a continuation of Table 4.1.)

Table A3.2.

Deposit Takers: Memorandum Series¹

¹This table is a continuation of Table 4.1.

²For domestic consolidated data only, if branches of foreign deposit takers are located in the economy. Gross liabilities could also be identified.

Table A3.2.

Deposit Takers: Memorandum Series¹

Additional series
53.	Duration of assets
54.	Duration of liabilities
55.	Realized gains and losses on financial instruments
56.	Total gains and losses on the sale of fixed assets
57.	Very short-term deposits
58.	Gross new deposits during the period
59.	Gross withdrawal of deposits during the period
60.	Shares and other equity investments in deposit takers in the reporting population
	(i)	Associates
	(ii)	Other deposit takers
61.	Net liabilities of branches of foreign deposit takers to their parents2
62.	Gross loans to the public sector
63.	Domestic government securities owned (market value)
64.	Sectoral distribution of nonperforming loans
65.	Percentage of replacement loans in total loans
66.	Other nonperforming assets
67.	Loan loss reserves
68.	Specific provisions against total debt claims
69.	Shortfall in provisions under the revised Basel Capital Accord
70.	Arrears
71.	Arrears of deposit takers
72.	Assets transferred to special purpose entities
73.	Guarantees
	(i)	Resident
	(ii)	Nonresident
74.	Credit commitments
		Resident
		Nonresident
75.	Assets managed but not owned by deposit takers

¹This table is a continuation of Table 4.1.

²For domestic consolidated data only, if branches of foreign deposit takers are located in the economy. Gross liabilities could also be identified.

View Table

Table A3.2.

Deposit Takers: Memorandum Series¹

Additional series
53.	Duration of assets
54.	Duration of liabilities
55.	Realized gains and losses on financial instruments
56.	Total gains and losses on the sale of fixed assets
57.	Very short-term deposits
58.	Gross new deposits during the period
59.	Gross withdrawal of deposits during the period
60.	Shares and other equity investments in deposit takers in the reporting population
	(i)	Associates
	(ii)	Other deposit takers
61.	Net liabilities of branches of foreign deposit takers to their parents2
62.	Gross loans to the public sector
63.	Domestic government securities owned (market value)
64.	Sectoral distribution of nonperforming loans
65.	Percentage of replacement loans in total loans
66.	Other nonperforming assets
67.	Loan loss reserves
68.	Specific provisions against total debt claims
69.	Shortfall in provisions under the revised Basel Capital Accord
70.	Arrears
71.	Arrears of deposit takers
72.	Assets transferred to special purpose entities
73.	Guarantees
	(i)	Resident
	(ii)	Nonresident
74.	Credit commitments
		Resident
		Nonresident
75.	Assets managed but not owned by deposit takers

¹This table is a continuation of Table 4.1.

²For domestic consolidated data only, if branches of foreign deposit takers are located in the economy. Gross liabilities could also be identified.

48. Very short-term deposits (one month or less on a remaining maturity basis) are those very liquid liabilities that customers can convert into cash or foreign currencies at very short notice. These liabilities can be compared with total deposits to assess the liquidity of deposit takers.

49. Gross new deposits during the period and gross withdrawal of deposits during the period provide information on the turnover of deposits.

50. Shares and other equity investments in deposit takers in the reporting population are the balance sheet value of such investments in associates (including reverse equity investments by associates) and other deposit takers that are also in the reporting population. These data are excluded from shares and other equity investments (assets) as well as from capital and reserves at the sector level (see Box 5.1). Such information indicates ownership links within the sector.

51. Net liabilities of branches of foreign deposit takers to their parents provide information on the funding of branches from their parents in the domestic consolidated data. Typically, such branches are funded by interbank deposits from their parent rather than having their own capital—their capital requirements being indistinguishable from that of the parent deposit taker. Some host countries require resident branches of foreign banks to have “donation” capital as a sign of the bank’s commitment to the country and to help equalize competitive conditions between these branches and domestically incorporated deposit takers. Amounts of donation capital could be separately identified. However, in practice, donation capital might be in a form that can be moved abroad quickly. Data for such a series might be available from those responsible for compiling data on foreign direct investment.

52. Gross loans to the public sector are those made to the general government, the central bank, and entities that are public corporations (see paragraph 2.19). Information on lending to the public sector is identified in the BIS’s consolidated IBS data.

53. Domestic government securities owned (market value) provides an indication of the importance of domestic government securities in the deposit-taking sector’s balance sheet.

54. Within the total for NPLs (line 42 in Table 4.1), the sectoral distribution of NPLs could be identified to highlight in which sectors or industries (see Box A3.1) NPLs are concentrated.

55. The percentage of replacement (restructured) loans within gross loans (line 18(i) in Table 4.1) is a measure that helps in assessing the credit quality of a loan portfolio. Replacement loans are defined in paragraph 4.86.

56. Using the same criteria as for loans, the value of other nonperforming assets, including securities, could be identified; a rising level might suggest increased financial system vulnerability.

57. Loan loss reserves are the outstanding amount of reserves intended to absorb potential but unidentified losses arising from the deposit takers’ loan portfolio. Additions, or reductions, to the amount of loan loss reserves (other than any net write-offs) are made through the general loan loss provisions included in the income and expense account. The size of such reserves in relation to nonperforming loans can be an indication of the adequacy of provisioning policy.

58. Specific provisions against total debt claims provides an indication of the adequacy of provisions vis-à-vis a broader measure of assets at risk than the ratio of specific provisions to loans.

59. As described in Chapter 4 (paragraph 4.71), using the IRB approach under the revised Basel Capital Accord, any shortfall in provisions for expected losses would be deducted 50 percent from Tier 1 and 50 percent from Tier 2 capital. If there are significant shortfalls in such provisioning, the nonperforming loans net of specific provisions-to-capital ratio (measured using total regulatory capital) will be affected (see paragraph 6.24). This series monitors the extent of underprovisioning against expected losses.

60. Arrears are amounts past due for payment on loans or other assets. Arrears can arise through the late payment of principal and/or interest on debt instruments as well as through the failure to meet the terms of other types of transactions, such as for goods and services provided. This statistic provides the actual amounts owed to deposit takers that have not been paid or written off. If time-series data are disseminated, this statistic provides the user with an indication of any difficulties on the asset side of the balance sheet and their development over time, irrespective of valuation or provisioning policies. If arrears are significant, distinguishing them by different types of instrument—loans and securities in particular—might be useful. Principal and interest arrears could also be identified separately.

61. Arrears of deposit takers are arrears on deposit takers’ own liabilities. Rising amounts might suggest increased financial system vulnerability.

62. Assets transferred to special purpose entities are those assets that are still outstanding and that the originating deposit-taker has removed from its balance sheet by transferring them to an SPE or, as it is often called, a Special Purpose Vehicle (SPV). A change of ownership should have occurred before assets are removed from a deposit taker’s balance sheet.

63. To highlight potential vulnerabilities, disaggregating the data in this item between those assets transferred to SPEs where a clean break has occurred and those where such a break has not occurred might be considered. Such a distinction is made in the revised Basel Capital Accord to help determine capital adequacy requirements. A clean break is defined as arising when (1) the transferred assets have been legally isolated from the transferring institution (transferor), and (2) the transferor does not maintain effective or indirect control over the transferred assets. A transferor is deemed to have maintained effective control over the transferred assets if it is able to repurchase the assets from the transferee to realize their benefits and is obligated to retain the risk of the assets. The retention of servicing rights to the asset does not necessarily constitute indirect control.

64. Guarantees are contingent liabilities arising from an irrevocable obligation to pay a third-party beneficiary when another party, such as a client of the guarantor, fails to perform some contractual obligation. Guarantees represent a potential liability for deposit takers. They include loan and other payment guarantees, letters of credit, and performance bonds. These are described in Chapter 3 (paragraphs 3.14 and 3.15). The intention of this item is to be consistent with the definition of guarantees used in the BIS’s IBS data and so should include contingent liabilities of deposit takers as protection sellers of credit derivatives—that is, payments that would need to be made in the event of a default of the credit on which the derivative is written. If the guarantee data include such information on credit derivatives, it is suggested that they be separately identified and that separate data on deposit takers’ purchases of protection through credit derivatives also be collected. Such information would allow the net and gross positions on protection bought and sold through credit derivatives to be identified. Guarantees (and credit derivatives) should be valued in terms of the maximum potential loss—that is, assuming 100 percent of the amount guaranteed (protected) will need to be paid.³ A resident/ nonresident disaggregation is useful to allow reconciliation with the BIS’s IBS data.

65. Credit commitments irrevocably oblige a deposit taker to extend credit and hence could affect its liquidity position. They include lines of credit, other types of loan commitments, NIFs, and commitments to purchase securities (under NIFs, for example). These are described in Chapter 3 (paragraphs 3.16 and 3.17). The intention is to be consistent with the definition of credit commitments used in the BIS’s IBS data. Credit commitments should be valued in terms of the maximum amount that could be advanced under the commitment. A resident/nonresident disaggregation is useful to allow reconciliation with the BIS’s IBS data.

66. Assets managed but not owned by deposit takers. These assets represent a form of savings by other sectors that supplements savings captured in the deposit takers’ information.

67. Duration measures the weighted average life of assets and liabilities, with the weights being the present value of each cash flow as a percentage of the value of the assets or liabilities. In other words, duration adjusts maturity to take account of the size and timing of payments between the current period and maturity, or (for floating-rate instruments) between the current period and the date of the next repricing (see paragraphs 3.51 to 3.56)

68. Duration is intended to identify the sensitivity of the value of deposit takers’ portfolios of financial assets and liabilities to changes in interest rates.⁴ The greater the duration, the greater is the risk of loss/gain of value, with the corresponding impact on capital, if interest rates rise/fall. Duration is measured for tradable debt assets and liabilities, that is, those debt instruments for which the expectation is that they are valued at market or fair value. If there is a lack of data, duration might be compiled only for domestic currency debt instruments, or for debt instruments denominated in other units of account if the debt instruments are not denominated in the domestic currency.⁵

69. Appendix VI provides detail on measuring duration at the sector level and also introduces “gap” analysis, which is an alternative approach to assessing interest rate risk of a portfolio of assets and liabilities.

Other Financial Corporations

70. As in the case of deposit takers, the memorandum series shares and other equity investments in other financial corporations in the reporting population provide information on the ownership links within the sector. (This series and those below are set out in Table A3.3, which is a continuation of Table 4.2.)

Table A3.3.

Other Financial Corporations: Memorandum Series¹

¹This table is a continuation of Table 4.2.

Table A3.3.

Other Financial Corporations: Memorandum Series¹

Additional series
21.	Shares and other equity investments in other financial corporations in the reporting population
	(i) Associates
	(ii) Other other financial corporations
22.	Nonperforming loans owned by special asset management companies
23.	Assets managed but not owned by other financial corporations

¹This table is a continuation of Table 4.2.

View Table

Table A3.3.

Other Financial Corporations: Memorandum Series¹

Additional series
21.	Shares and other equity investments in other financial corporations in the reporting population
	(i) Associates
	(ii) Other other financial corporations
22.	Nonperforming loans owned by special asset management companies
23.	Assets managed but not owned by other financial corporations

¹This table is a continuation of Table 4.2.

71. Nonperforming loans owned by special asset management companies is the nominal value of the loans owned by those entities that are usually created by the authorities for the purpose of managing NPLs and recovering assets. Even though the NPLs have been sold by deposit takers to the special asset management companies, these loans still exist in the economy, and the cost of their resolution may be considerable. Without monitoring these loans, the amount of NPLs in the financial system would be underestimated. However, caution should be exercised in interpreting these data, as it is also important to know the institutional arrangements under which NPLs are transferred and whether the value of the assets transferred are covered by the value of collateral (see also paragraph 6.22).

72. Assets managed but not owned by other financial corporations. These are assets managed by fund managers and other similar financial corporations. These assets represent a form of savings by other sectors that supplements savings captured in the deposit takers’ information.

Nonfinancial Corporations

73. Debt-service interest payments are defined in Chapter 4; interest payments are those periodic payments that meet interest costs arising from the use of another entity’s funds. The use of this series in calculating the debt service coverage ratio was described earlier in this appendix. (This series and those below are set out in Table A3.4, which is a continuation of Table 4.3.)

Table A3.4.

Nonfinancial Corporations: Memorandum Series¹

¹This table is a continuation of Table 4.3.

Table A3.4.

Nonfinancial Corporations: Memorandum Series¹

Additional series
38.	Debt-service interest payments
39.	Debt-service receipts (interest and principal) from other nonfinancial corporations
	(i) Interest
	(ii) Principal
40.	Shares and other equity investments in nonfinancial corporations in the reporting population
	(i) Associates
	(ii) Other nonfinancial corporations
41.	Liquid assets (core measure)
42.	Liquid assets (broad measure)
43.	Variable-rate debt

¹This table is a continuation of Table 4.3.

View Table

Table A3.4.

Nonfinancial Corporations: Memorandum Series¹

Additional series
38.	Debt-service interest payments
39.	Debt-service receipts (interest and principal) from other nonfinancial corporations
	(i) Interest
	(ii) Principal
40.	Shares and other equity investments in nonfinancial corporations in the reporting population
	(i) Associates
	(ii) Other nonfinancial corporations
41.	Liquid assets (core measure)
42.	Liquid assets (broad measure)
43.	Variable-rate debt

¹This table is a continuation of Table 4.3.

74. Debt-service receipts from other nonfinancial corporations⁶ are a subset of the total debt-service payments (line 35 of Table 4.3); with these two series, both intrasector debt-service payments and those to other sectors can be identified. The use of this series in calculating the debt-service coverage ratio was described earlier in this appendix. Separately identifying interest allows the debt-service coverage ratio calculated using interest only in the numerator to also be calculated excluding intrasector interest payments.

75. As with deposit takers and other financial corporations, shares and other equity investments in other nonfinancial corporations in the reporting population provide information on the ownership links within the sector.

76. For nonfinancial corporations, the core and broad measures of liquid assets are defined as for deposit takers; however, for nonfinancial corporations, deposits at deposit takers available on demand or within three months or less are included in the core measure, whereas such deposits are excluded for deposit takers because they are intrasectoral claims.

77. Variable-rate debt is the total value of debt instruments on which interest costs are linked to a reference index, such as London Interbank Offered Rate (LIBOR); the price of a specific commodity; or the price of a specific financial instrument that normally changes over time in a continuous manner in response to market pressures. All other debt instruments should be classified as fixed-rate instruments. When the value of the principal is indexed, the change in value resulting from indexation—periodically and at maturity—is classified as interest. Therefore, if principal only is indexed, such debt is to be classified as variable-rate debt regardless of whether interest is fixed or variable, provided the reference index meets the criterion above: that is, it normally changes over time in a continuous manner in response to market pressures. An attribution of debt by type of interest provides an indication of the exposure of nonfinancial corporations to interest rate movements. Nonetheless, interest rate derivative contracts, which are widely employed, can modify these risk characteristics. Thus, information on the notional amounts of such contracts and whether they receive fixed or variable-rate interest flows would also be useful.

Financial Conglomerates

78. In many economies, financial conglomerates are important to domestic markets. Financial conglomerates are defined in the Guide as enterprises that have controlling interest in a range of entities that straddle the different types of financial activity described above. This could include bank holding companies. In other words, a holding company might own a deposit taker and an insurance company, and/or other entities. The Guide recommends that data be presented separately for each financial sector (deposit takers, other financial corporations, and so forth) because the nature of their financial activities differs; nonetheless, if financial conglomerates are significant within the economy,⁷ subject to national confidentiality commitments, compilers could disseminate the information specified below:

• Names of large financial conglomerates.

• The value of assets owned on a basis that allows the information to be disaggregated by type of financial activity in which the conglomerate is involved, for example, deposit takers, insurance corporations, and security dealers.

• The balance sheet value of equity investments of non-deposit-taking conglomerate entities (resident and nonresident) in deposit takers in the reporting population. Such data would highlight cross-sector ownership patterns of conglomerate entities with relation to the deposit-taking sector.

• Return on equity and capital-to-assets ratios for the largest conglomerates.

Interest Income and Expense

6. In both the 1993 SNA and the IASs, it is recommended that interest accrue continuously on debt instruments, consistent with the approach in the Guide.

7. In the 1993 SNA, as in the Guide, interest accrues at the contractual rate of interest—the effective rate on issuance. In the Guide, lines 1(i) and 2 in Table 4.1, lines 4 and 5 in Table 4.3, and part of line 2 in Table 4.4 in principle correspond to the 1993 SNA’s full sequence of accounts to line D.41 in the Primary Income Account. Moreover, if FSIM⁴ are calculated for deposit takers, they correspond in part to line P.11 of the Production Account for deposit takers, in part to line P.2 of intermediate consumption in the Production Account for enterprises and in part to line P.31 of final consumption in the Use of Income Account for households.

8. In IASs, interest income is defined as one type of revenue (besides royalties and dividends) arising from the use by others of an enterprise’s financial assets (IASs 18.29–18.31) (also IASs 32.30–32.31) [IASs 32.35–32.36]. Interest income is recognized on an accrual basis over time, based on the effective yield on the asset, which is defined as the rate of interest required to discount the stream of future cash receipts expected over the life of the asset to equate to the initial carrying amount of the asset. Interest income includes the amount of amortization of any discount or premium arising from a difference between the issue price and the par value.⁵ If debt instruments are traded and market prices are established, then for creditors there is a difference of approach between the Guide and the IASs in that the effective rate of interest on acquisition may be different from that on issuance. The greater the variability of market prices, the more significant this difference could be.

9. For creditors, interest on nonperforming assets is treated differently in the 1993 SNA and in IASs. In the 1993 SNA, creditors (and debtors) should continue to accrue interest on nonperforming assets unless the asset is written off. In contrast, IAS 39.116 [IAS 39. AG.93] states that impaired assets should be written down to their estimated recoverable amount and creditors should base the calculation of interest income on the rate of interest that was used to discount the future cash flows for the purpose of measuring the recoverable amount.

10. In “Sound Practices for Loan Accounting and Disclosure,” the BCBS (1999) recommends in standard 11 that when a loan is identified as impaired, a bank should cease accruing interest in accordance with the terms of the contract. Interest on impaired loans should not contribute to net income if doubts exist concerning the collectability of loan interest or principal. However, in some countries, when impaired loans are carried at the present value of expected future cash flows, interest may accrue at the effective rate implicit in the present value calculation.

11. The Guide follows BCBS in that interest on nonperforming assets should not contribute to net interest income.

Fees and Commissions Receivable/Payable

12. In the 1993 SNA, fees and commissions receivable reflect the value of services provided (for deposit takers, 1993 SNA, paragraph 6.123). In the 1993 SNA’s full sequence of accounts, line 4(i) in Table 4.1 in principle corresponds to the fees and commissions included in line P.11 in the Production Account.

13. In IASs, financial fees and commissions are a form of revenue, and they are defined in IAS 18.20 and in its Appendix paragraph 14. The latter distinguishes fees that are an integral part of the effective yield of an instrument from those that are earned on services provided (such as for servicing a loan) and from those that are earned on the execution of a significant act (such as commission on the allotment of shares to a client). Fees that are an integral part of the effective yield of a financial instrument—and hence affect the rate at which interest accrues—include commitment fees to originate or purchase a loan where it is probable that the enterprise will enter into a specific lending arrangement, and origination fees relating to the creation or acquisition of a financial instrument that is held by the enterprise as an investment. Such fees are regarded as an integral part of generating an ongoing involvement with the financial instrument, and as such are deferred and recognized as an adjustment to the effective yield. The Guide differs from IASs in that it does not adjust the effective yield of an instrument for these fees but prefers to record them under fees and commissions.

Gains/Losses on Financial Instruments (Including Foreign Exchange)

14. In contrast to what appears in the Guide, in the 1993 SNA trading gains or losses do not appear in the distribution and use of income accounts. In the 1993 SNA full sequence of accounts, such trading gains and losses in principle correspond within the Revaluation Account to lines AF.2 (currency and deposits—partial coverage of foreign currency gains and losses), AF.3 (securities other than shares), AF.5 (shares and other equity—excluding equity investments in associates and subsidiaries), and AF.7 (financial derivatives; see IMF, 2000b). Holding gains and losses in the 1993 SNA include changes in the value of financial assets and liabilities due to changes in market prices and exchange rate movements. The change in value is measured as the difference in the unit of account between the value of an asset or liability at the end of the accounting period and its value at the start of the accounting period. Moreover, if the instruments were acquired during the period, the value at which they were first entered in the balance sheet is to be used. If they were sold during the period, their value at the start of the accounting period would have to be used. If, however, they were purchased during the period and sold during the period, then the value when they were purchased should be used. Thus, within an accounting period, the 1993 SNA concept of holding gains/losses encompasses both realized and unrealized gains/losses. As line 4(ii) in Table 4.1 excludes some, and line 6 in Table 4.3 excludes all, unrealized gains and losses, additional data would need to be requested to extract the required information from the 1993 SNA data. Line 6 in Table 4.3 includes the equivalent to the foreign exchange component of line AF in the Revaluation Account.

15. For banks and similar financial institutions, IAS 30.15 states that gains and losses from the following items are normally reported on a net basis: (1) disposals and changes in the carrying amount of dealing securities, (2) disposals of investment securities, and (3) dealings in foreign exchange. These items are consistent with the Guide (although, unlike the Guide, IAS 30.15 makes no reference to financial derivative instruments). Moreover, IASs 39.103–39.107 [IASs 39.55–39.57] state that a gain or loss on a financial asset or liability classified as at fair value that is not part of a hedging relationship should be included in net profit or loss; a gain or loss on an available-for-sale financial asset can be treated similarly, or it can be recognized in equity through the statement of changes in equity until the financial asset is sold, collected, or otherwise disposed of, or until it is determined to be impaired, at which point the cumulative gain or loss should be included in net profit and loss for the period. For financial assets and liabilities carried at amortized cost, a gain or loss is recognized in net profit or loss when the financial asset or liability is derecognized or impaired [IAS 39.56]. The IASs 39.121–39.165 [IASs 39.85–39.102] provide separate guidance for hedging instruments. Clearly, while the different treatment in IASs of gains and losses according to the purpose for holding the instrument differs from the approach in the Guide, within the IASs the treatment of instruments held for trading and one of the alternative treatments for available-for-sale financial assets are in line with the Guide’s recommendations.

16. IAS 21.15 explains the treatment of foreign exchange differences related to “monetary items,” which are in turn defined as money held and assets and liabilities to be received or paid in fixed or determinable amounts of money. It states that foreign exchange differences arising from the settlement of monetary items at rates different from those at which they were initially recorded during the period or reported in previous financial statements should be recognized as income or expenses in the period in which they arise, with two exceptions.

17. The first exception, set out in IAS 21.17, covers exchange-rate-related changes in the value of a monetary item that in substance forms part of an enterprise’s net investment in a foreign entity. Such differences should be classified as part of equity in the enterprise’s financial statements until the disposal of the net investment, at which time they should be recognized as income or expenses (depending on whether the cumulative amount of the exchange-rate-related differences that have been deferred and that relate to the foreign entity reflects a gain or a loss [IAS 21.37]).

18. The second exception, set out in IAS 21.19, covers exchange-rate-related changes in the value of a foreign currency liability accounted for as a hedge of an enterprise’s net investment in a foreign entity. Such differences should also be classified as part of equity in the enterprise’s financial statements until the disposal of the net investment, at which time they should be recognized as income or expenses (depending on whether the cumulative amount of the exchange-rate-related differences that have been deferred and that relate to the foreign entity reflects a gain or a loss [IAS 21.37]).

19. Both of these exceptions are consistent with the Guide’s approach of excluding gains and losses on those foreign exchange instruments related to equity holdings in subsidiaries, although the Guide does not recommend inclusion of gains and losses of earlier periods in present period earnings, when these instruments are disposed of.

Rent, Rental, and Royalty Income Receivable

20. In the 1993 SNA, as in this Guide, this item covers income from rents on land or subsoil assets; rentals from buildings, other structures, and equipment; and royalty income from other produced and nonproduced assets. Therefore, part of line 4(iv) in Table 4.1, line 6 in Table 4.3, and part of line 2 in Table 4.4 of the Guide in principle most closely correspond to line D.45 in the Allocation of Primary Income Account (rents) and line P.11 in the Production Account (rental and royalty income—classified as services)⁶ in the 1993 SNA. In concept, line D.45 covers only rent on land and subsoil, but the 1993 SNA does acknowledge (paragraph 7.131) that in practice a single payment may cover rent on land and rentals on buildings. If a split can be made, rentals receivable should be classified as a provision of services (line P.11 in the Production Account). There is no specific standard for rent in IASs except insofar as it is mentioned generally in the IASB Framework, paragraph 74, that rent is part of the revenues of an enterprise. In accordance with IAS 40.66 (d)(i), rental income from investment property should be included in the income statement.

Prorated Share of Income from Associates and Subsidiaries

21. For foreign affiliates, the reinvested earnings element within the “prorated earnings” line (4(iii) in Table 4.1 and line 6 in Table 4.3) of the Guide correspond to line D.43 in the 1993 SNA. There is no equivalent concept for resident affiliates. The dividends element of the prorated share of income is covered below.

22. In IAS 28.3, under accounting by the equity method, the income statement reflects the investor’s share of the results of the operations of the investee. This is applicable to associates, the subject of IAS 28, and is one of the three approaches that can be adopted for unconsolidated subsidiaries (IAS 27.30). IASs permit the use of the equity method for jointly controlled ventures, if the assets and liabilities of the joint venture are not proportionately consolidated with the venturer’s financial statement (IASs 31.32–31.34).

Dividends Declared

23. The standard in the Guide is the same as in the 1993 SNA and in IAS 18.30 in recommending that property income to be distributed to shareholders in the entity be recognized as income when the shareholder’s right to receive payment is established. Dividends within the “other income” line (4(iv) in Table 4.1; line 6 in Table 4.3) and dividends within “property income receivable” (line 2 in Table 4.4) of the Guide in principle correspond to lines D.421 and D.422 (resources) in the Allocation of Primary Income Account in the 1993 SNA’s full sequence of accounts. Dividends paid or payable in Table 4.1 (line 12) and in Table 4.3 (line 11) also correspond to D.421 and D.422 (uses).

Net Gains/Losses from Sales of Fixed Assets

24. In the 1993 SNA, net gains or losses from the sale of fixed assets are defined as the change in the value of fixed assets due to changes in their market price. These gains and losses are included in line AN.11 (holding gains and losses in respect of fixed assets) in the Revaluation Account in the 1993 SNA’s full sequence of accounts. The change in price is measured as the difference between the value of the fixed asset at the end of the accounting period and its value at the start of the accounting period or, if acquired during the period, its value on the date on which it was first entered in the balance sheet. This 1993 SNA concept thus encompasses both realized and unrealized gains/losses. Since net gains/losses on fixed assets within line 4(iv) in Table 4.1 and line 6 in Table 4.3 of the Guide cover only realized gains during the period, additional data would need to be requested to extract the required information from the 1993 SNA data.

25. IAS 16.56 states that gains or losses “from the retirement or disposal of an item of property, plant, and equipment should be determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset and should be recognized as income or expense in the income statement.” This concept is the same as in the Guide, although the Guide recommends market valuation of fixed assets, while IAS 16 favors valuation on the basis of historic value. IAS 40 permits enterprises to use either the model in IAS 16 or a fair value model for investment property (but not for owner-occupied property). Under IAS 40, if an enterprise chooses the fair value model, all changes in fair value should be recognized in the income statement (IAS 40.28).

Other Income

26. In the 1993 SNA, miscellaneous current transfers, such as compensation payments received, are included in D.75. IAS 8.18 covers income from litigation settlements.

Personnel Costs Including Wages and Salaries

27. The concept of personnel costs (line 6(i) of Table 4.1 and implicit in line 2 of Table 4.3) in the Guide corresponds in the 1993 SNA’s full sequence of accounts to D.1, Compensation of Employees in the Generation of Income Account, and D.623, Unfunded Employee Social Insurance Benefits in the Secondary Distribution of Income Account. Wages and salaries from employment (line 1 in Table 4.4) correspond to line D.11. In the 1993 SNA (paragraphs 7.21 to 7.47), compensation of employees is defined as the total remuneration, in cash or in kind, payable by an employer to an employee in return for work done during the accounting period. Included is remuneration payable to workers away from work for short periods. Compensation of employees can be broken down into the following: (1) wages and salaries in cash and in kind, and (2) employers’ social contributions, actual and imputed, for such items as postemployment benefits.

28. The 1993 SNA does not explicitly cover compensation in the form of options to buy the shares of the entity at some future time at an agreed price (stock options).

29. IAS 19.4 has a similar concept to the 1993 SNA, defining employee benefits as including the following:

• Short-term employee benefits, such as wages and salaries and social security contributions. These benefits cover paid annual leave and paid sick leave, profit sharing and bonuses, and nonmonetary benefits (such as medical care, housing, cars, and free or subsidized goods or services).

• Postemployment benefits, such as pensions, other retirement benefits, postemployment life insurance, and postemployment medical care.

• Other long-term employee benefits, including long service leave or sabbatical leave, and long-term disability benefits.

• Termination benefits.

• Equity compensation benefits, including stock options (although no guidance is provided on recognition or measurement).

30. The first bullet above is close to the concept of wages and salaries in cash and in kind in the 1993 SNA, except for social security contributions, which are included in employers’ social contributions in the 1993 SNA.

Depreciation

31. Depreciation within line 6(ii) of Table 4.1 and line 2 of Table 4.3 of the Guide corresponds in the 1993 SNA’s full sequence of accounts to line K.1 (consumption of fixed capital (CFC)). CFC is defined (paragraphs 6.179–6.180) as the amount of fixed assets consumed during the period under consideration as a result of normal wear and tear and foreseeable obsolescence. CFC should be estimated on the basis of the stock of fixed assets, valued at purchasers’ prices as of the current period, and the probable average economic life of the different categories of assets. CFC can be calculated according to the straight-line method by which the value of a fixed asset is written off at a constant rate over the whole lifetime of the asset or, depending on the pattern of decline in the efficiency of a fixed asset, according to a geometric depreciation method (1993 SNA, paragraphs 6.193–6.197).

32. IASs 16.41–16.48 describe a similar treatment for depreciation. They state that the depreciable amount of an item of property, plant, and equipment should be allocated on a systematic basis over its useful life. The depreciation method used should reflect the pattern in which the asset’s economic value is consumed by the enterprise. These methods could include the straight-line method, the diminishing-balance method, and the sum-of-the-units method. Straight-line depreciation, as noted above, results in a constant charge over the useful life of the asset. The diminishing-balance method results in a decreasing charge over the useful life of the asset. The sum-of-the-units method results in a charge based on the expected output of the asset. IAS 16.43 states that the useful life of a depreciable asset should be estimated after considering (1) the expected physical wear and tear, (2) obsolescence, (3) legal or other limits on the use of the asset, and (4) expected usage by the enterprise.

33. The main difference between CFC and the IASs’ treatment of depreciation is in the valuation of the fixed assets, which is required to be the current purchasers’ prices for CFC but tends to be at historical cost under IASs. CFC should also be distinguished from business accounting of depreciation for tax purposes. However, IASs also state that the depreciation method should be reviewed periodically and, if there has been significant change in the expected pattern of economic benefits, there should be a change in the depreciation charge for the current and future periods (IAS 16.52), which may narrow the difference between CFC and IASs valuations.

34. Losses due to unforeseen obsolescence, such as through the introduction of new technology or unforeseen damage (other than events covered under extraordinary items), are recorded as depreciation. This is consistent with IAS 16.50, and such losses correspond to K.9 in the 1993 SNA (excluding exceptional losses in inventories, which like depreciation is covered in the line cost of sales in Table 4.3).

Other Noninterest Expenses (Such as Plant and Equipment Expenses Including Rentals, Advertising Costs, and Premiums Paid for Deposit Insurance)

35. These expenses are related to the ordinary operations of the entity other than those identified elsewhere in this appendix. The ongoing expenses of operating an enterprise, covered within line 6(ii) in Table 4.1 and line 2 in Table 4.3 of the Guide, correspond in the 1993 SNA’s full sequence of accounts to line P.2 (intermediate consumption), together with D.71 (net nonlife insurance premiums) and D.75 (miscellaneous current transfers). However, unlike the Guide, the series in the 1993 SNA do not include estimated costs related to product warranties.

36. In the IASB Framework paragraphs 70 and 78–80, expenses are defined to encompass those that arise in the course of the ordinary activities of the enterprise, although they are not defined in detail. Expenses arising from product warranties are described in IASB Framework paragraph 98 and more fully in IAS 37.24. In principle, the IAS approach is consistent with the approach taken in the Guide for these expenses. IAS 8.18 covers expenses arising from litigation settlements.

37. Rentals payable on buildings, other structures, and equipment are included under this item, along with rents paid on land and subsoil assets, and royalties payable on the use of other produced and non-produced assets. Receipts for rents, rental, and royalty income were discussed earlier, in a separate section in this appendix.

Taxes Other Than Income Taxes

38. Taxes included in line 6(ii) of Table 4.1 and line 2 in Table 4.3 of the Guide correspond in the 1993 SNA’s full sequence of accounts to line D.29 (taxes on production) and line D.59 (other current taxes). These taxes are compulsory, unrequited payments in cash and in kind levied in respect of the production (such as taxes on payroll or the workforce), as well as on the ownership or use of land or buildings and on other assets and net wealth (described in paragraphs 7.70 and 8.53–8.54 of the 1993 SNA).

39. The IASs have no specific definitions for taxes that are not levied on income.

40. Operating subsidies from general government included in line 6(ii) of Table 4.1 of the Guide correspond in the 1993 SNA’s full sequence of accounts to subsidies on production (line D.39). IAS 20.29 explains that government grants related to income could be presented as a credit in the income statement or deducted in reporting of the related expenses. The IAS regards either method as acceptable. These grants are defined in IAS 20.3 as assistance by government in the form of a transfer of resources.

Loan Loss Provisions

41. The 1993 SNA does not have a concept of provisions for loan losses. However, the writing off of bad debts by creditors (K.10) provides some coverage of loan losses (and losses on other claims). The distinctions made in the Guide for loan loss provisions follow the IASs. The Guide, however, relies on national practice in identifying provisions.

42. IAS 30.45 states that for banks, provisions for specific loans (specific provisions—that is, losses that have been specifically identified) and provisions for losses not specifically identified (general provisions—which experience indicates are present in the portfolio of loans and advances) should both be recognized as expenses. Under IAS 30.51, local circumstances or legislation may require or allow a bank to set aside amounts for general banking risks, including future losses or other unforeseeable risks. However, such amounts set aside should be accounted for as appropriations of retained earnings and not expenses in determining net profit or loss for the period. A bank may also be required or allowed to set aside amounts for contingencies (IAS 37). Such amounts also do not qualify for recognition as provisions but should be recognized as appropriations of retained earnings (IAS 30.51) so as not to distort net income and equity.

Other Financial Assets Provisions

43. As with loans, the 1993 SNA does not address the concept of provisions for securities or other financial assets.⁷ IASs discuss provisions for losses on financial assets in IASs 39.109–39.111 [IASs 30.43–30.49, 39.58–39.70, and 39. IG. E.4], where it is stated that when the carrying amount of the impaired asset is greater than its recoverable amount—estimated by discounting the expected future cash flows using the financial instrument’s original effective interest rate—the carrying amount of the asset should be reduced to its estimated recoverable amount either directly or through use of an allowance account, with the loss included in net profit or loss for the period. This concept is not identical to the Guide’s recommendation that the market value of investment securities be recorded on the balance sheet. If the securities are not recorded at market value, provisions for securities may be greater or smaller than the change in the market value, depending on the deposit takers’ views on recoverable amounts on the securities.

Bad Debt Recoveries

44. The IASs recommend that if there is an improvement in the standing of a debtor so that the amount of impairment or bad debt loss decreases, such a reversal should be included in net profits or loss for the period.⁸ One approach would be to make adjustments to an Allowance Account. This approach is consistent with that for line 7 of Table 4.1 of the Guide, which allows for provisions to be reduced if there was an overprediction of expected losses in an earlier period.

Extraordinary Items

45. The extraordinary items in line 9 in Table 4.1 and line 8 in Table 4.3 of the Guide correspond in the 1993 SNA’s full sequence of accounts to line K.7 (catastrophic losses) and line K.8 (uncompensated seizures). The IAS 8.6 defines an extraordinary item as an event or transaction that is clearly distinct from the ordinary activities of an enterprise and is unlikely to recur frequently or regularly. The IAS 1.75 requires the separate disclosure of extraordinary items in the income statement for the period. Such items are determined by the nature of the event or transaction in relation to the business ordinarily carried out by the enterprise rather than by the frequency with which such events are expected to occur. For example, losses sustained as a result of an earthquake may qualify as an extraordinary item for many enterprises but not for insurance enterprises that insure against such risks. The IASs suggest that extraordinary items for most enterprises include an earthquake or other natural disaster and the expropriation of assets (IASs 8.11–8.15). The concept in the Guide is consistent with that in the IASs.

Income Tax Expense

46. Income tax expense, line 10 in Table 4.1 and line 9 in Table 4.3, corresponds in the 1993 SNA’s full sequence of accounts to line D.51. Consistent with the Guide, the 1993 SNA defines these taxes as those assessed on the incomes, profits, and capital gains of individuals, households, corporations, and nonprofit institutions (paragraph 8.52). IAS 12.2 states that “income taxes include all domestic and foreign taxes which are based on taxable profits.”

Revenues from Sales of Goods and Services (Nonfinancial Corporations)

47. Line 1 in Table 4.3 of the Guide corresponds in the 1993 SNA’s full sequence of accounts to line P.11 (market output for nonfinancial corporations), which in turn equals line P.1 (gross output) less line P.12 (output for own use) less the value of changes in the inventories of goods produced as outputs (finished goods element of line P.52). However, as noted in the 1993 SNA (paragraph 6.43), under normal circumstances the available data are accounting data on sales, and thus the national accountant is required to adjust sales for changes in inventories to arrive at the data for production. Moreover, in the 1993 SNA, the system for recording transactions by retailers and wholesalers is not to record purchases of goods for resale but rather to measure the margin on goods purchased for resale (paragraph 3.30).

48. IASs 18.14 and 18.20 recognize the sale of goods when an enterprise has transferred to the buyer the significant risks and rewards of ownership of the goods and the amount of revenue can be reliably estimated. They also recognize the rendering of services when the amount of revenue can be reliably estimated and the stage of completion of the transaction at the balance sheet date can be measured reliably. This is consistent with the change-of-ownership concept in the Guide.

Current Transfers (Households)

49. Line 3 in Table 4.4 of the Guide corresponds in the 1993 SNA’s full sequence of accounts to lines D.62 (social benefits) and D.7 (other current transfers) in the Secondary Distribution of Income Account. Social benefits include pensions and unemployment benefits (1993 SNA, 8.75–8.83) and other current transfers (1993 SNA, 8.84). The concept in the Guide is the same as in the 1993 SNA. IASs do not have a specific definition of current transfers.

Other Income (Households)

50. Line 4 in Table 4.4 of the Guide corresponds in the 1993 SNA’s full sequence of accounts to lines B.2 (operating surplus) and B.3 (mixed income) in the Generation of Income Account for households.

Taxes, Social Contributions, and Other Current Transfers Made (Households)

51. Line 5 in Table 4.4 of the Guide includes social security taxes. In the 1993 SNA’s full sequence of accounts, these taxes correspond to lines D.6112 and D.6113 (social contributions). IAS 12 defines income tax expense, but IASs do not have a specific definition for social security taxes. (Income taxes were discussed in a separate section, above.) Other current transfers made corresponds in the 1993 SNA’s full sequence of accounts to line D.7 (uses) and to line D.62 (social benefits other than social benefits in kind). As these transfers relate to households, they are not covered in the IASs.

Gross Disposable Income (Households)

52. The concept in the Guide is intended to correspond in the 1993 SNA’s full sequence of accounts to line B.6 in the Secondary Distribution of Income Account (gross of any consumption of fixed capital).

Assets, Liabilities, and Net Worth

53. In the 1993 SNA, economic assets are stores of value over which ownership rights are enforced by institutional units, individually or collectively, and from which economic benefits⁹ may be derived by their owners by holding or using them over a period of time. In the 1993 SNA, financial assets differ from other assets in that there is nearly always a counterpart liability on the part of another institutional unit.¹⁰ Assets and counterpart liabilities that meet the definition are recognized on balance sheet.

54. In terms of specific assets and liabilities identified, the Guide is very close to the 1993 SNA, differing only in the presentation of capital. The concept of capital and reserves in the Guide is the residual after taking account of all assets and liabilities, and thus is a wider concept than equity and other shares in the 1993 SNA, as it also includes the 1993 SNA’s concept of net worth (total assets less total liabilities).

55. IASB Framework, paragraph 49 defines an asset as a resource controlled by an enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise. It defines a liability as a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. The definition of financial assets and liabilities in IAS 32.5 [IAS 32.11] provides an overview of the categorization of financial assets and liabilities. Financial assets comprise (1) cash; (2) a contractual right to receive cash or other financial instruments from another enterprise, or to exchange financial instruments with another enterprise under conditions that are potentially favorable; (3) a contract that may be settled in the entity’s own equity instruments; and (4) an equity instrument of another enterprise. Financial liabilities comprise contractual obligations (1) to deliver cash or another financial asset to another enterprise or (2) to exchange financial instruments with another enterprise under conditions that are potentially unfavorable. Equity is defined as the residual interest in the assets of the enterprise after deducting all of its liabilities.

56. There are potential differences between the Guide and the IASs as to what is deemed to be an asset or a liability. For example, unlike the Guide, IASs consider that unpatented know-how may meet the definition of an asset if, by keeping such knowledge secret, the enterprise controls the benefits that are expected to flow from it (IASB Framework, paragraph 57). Similarly, if an enterprise as a matter of policy rectifies products after the warranty period has expired, the expected costs are liabilities (IASB Framework, paragraph 60). However, under IASs, on-balance-sheet recognition also depends on whether the value of the asset or liability can be measured reliably (IASB Framework, paragraphs 89 and 91). This requirement for reliable valuation brings the IASs definitions of on-balance-sheet recognition of assets and liabilities close to the Guide’s.

57. In the IASs, the presentation of assets and liabilities is less prescriptive and more dependent on the activity of the individual enterprise than in the Guide, and it is different from that in the 1993 SNA. Moreover, the IASs’ presentation of instruments varies between the asset and liability sides of the balance sheet, and the focus is more on the liquidity of the enterprise, which differs from the emphasis in the Guide and in the 1993 SNA.

Nonfinancial Assets

58. Line 15 in Table 4.1, line 2 in Table 4.2, line 14 in Table 4.3, and line 8 in Table 4.4 of the Guide correspond in the 1993 SNA’s full sequence of accounts to nonfinancial assets (AN) in the balance sheet (excluding purchased goodwill, which is part of AN.22).

59. These lines from the Guide are closely equivalent to the sum of items identified in IAS 1.66 as (1) property, plant, and equipment; (2) inventories; and (3) intangible assets.

60. The definition of nonfinancial produced assets adopted in the Guide is in line with that in IAS 16.6, which defines property, plant, and equipment to include tangible assets that (1) are held by an enterprise for use in the production or supply of goods or services, for rental to others, or for administration purposes; and (2) are expected to be used during more than one period. Excluded from the scope of the IASs are (1) forests and similar regenerative natural resources, which are only classified as an asset in the Guide if they are cultivated assets; and (2) mineral rights, the exploration for and the extraction of minerals, oil, natural gas, and similar nonregenerative resources (IAS 16.2), because these activities are so specialized that they give rise to accounting issues that may need to be dealt with in different ways (IAS 38.6).

61. Inventories in the Guide are defined consistently with IAS 2, where they include assets that are (1) held for sale in the ordinary course of business, (2) in the process of production for such sale, or (3) in the form of materials or supplies to be consumed in the production process or in the rendering of services (IAS 2.4).

62. Intangibles are defined in IAS 38 as identifiable nonmonetary assets without physical substance held for use in the production or supply of goods or services for rental to others or for administrative purposes (IAS 38.7). This definition is broadly consistent with the one used in the Guide but, as noted above, could be interpreted more widely to include “assets,” such as unpatented know-how, when the value of the benefits arising from these “assets” can be reliably measured. Intangibles do not include goodwill (IAS 38.10), which is recognized as an asset in IASs when the cost of acquisition exceeds the acquirer’s interest in the fair value of the assets and liabilities acquired as of the date of transaction (IAS 22.41). The Guide does not recognize goodwill as an asset.

Nonfinancial Produced Assets

63. Line 15 in Table 4.3 of the Guide corresponds in the 1993 SNA’s full sequence of accounts to nonfinancial produced assets (AN.1) in the balance sheet. This line also corresponds to the sum of items identified in IAS 1.66 as property, plant, and equipment that is produced (that is, excluding land (IAS 2)), such as inventories (IAS 16) and that part of intangible assets (IAS 38) that is produced, such as computer software and valuables.

Nonfinancial Produced Fixed Assets

64. Line 15(i) in Table 4.3 of the Guide corresponds in the 1993 SNA’s full sequence of accounts to nonfinancial produced fixed assets (AN.11) in the balance sheet.

65. In the IASs, produced fixed assets are recorded under item (a) identified in IAS 1.66 as property, plant, and equipment that is produced (that is, excluding land), as well as that part of item (b) intangible assets that are produced, such as computer software.

Inventories

66. Line 15(ii) in Table 4.3 of the Guide corresponds in the 1993 SNA’s full sequence of accounts to inventories (AN.12). In the IASs, this line corresponds to the item (e) identified in IAS 2, paragraph 4 as inventories in the balance sheet.

Nonfinancial Nonproduced Assets

67. Line 16 in Table 4.3 of the Guide corresponds in the 1993 SNA’s full sequence of accounts to nonfinancial nonproduced assets (AN.2) in the balance sheet. In the IASs, this line closely corresponds to that nonproduced part of the item (a) identified in IAS 1.66 as property, plant, and equipment—that is, land—and intangible assets that are nonproduced, such as goodwill, patents, leases, and other transferable contracts relating to nonfinancial assets (IAS 38). In the IASs, the value of nonpatented know-how can also be included, if it can be measured reliably.

Residential and Commercial Real Estate

68. Residential and commercial real estate, which is reflected in line 9 in Table 4.4 of the Guide, is not explicitly identified either in the 1993 SNA or in the IASs. Nonetheless, in the 1993 SNA, dwellings and other buildings and structures are described in paragraphs 10.69–10.71 and included within nonfinancial produced assets (AN.1), while land is described in paragraphs 10.59 and 10.60 and included within nonfinancial nonproduced assets (AN.2) in the balance sheet. In the IASs, real estate is included within the item (a) identified in IAS 1.66 as property, plant, and equipment (IAS 16.35).

Financial Assets

69. Line 16 in Table 4.1, line 3 in Table 4.2, line 17 in Table 4.3, and line 11 in Table 4.4 of the Guide correspond in the 1993 SNA’s full sequence of accounts to financial assets (AF) in the balance sheet.¹¹

70. In the IASs, there is a need to distinguish between deposit takers and other corporate entities. For deposit takers, IAS 30 sets out the assets that should be separately disclosed in their financial statements. These include cash and balances with the central bank; treasury bills and other bills eligible for rediscounting with the central bank; government and other securities held for dealing purposes; placements with, and loans and advances to, other banks; other money market placements; loans and advances to customers; government and other securities held for dealing purposes; and investment securities (IAS 30.19). IASs are clear that financial statements should include, but not be limited to, these items. For instance, in the list of instruments in IAS 30 no reference is made to financial derivatives, which under IAS 39 should be recognized on balance sheet at fair value (IASs 39.10 and 39.27) [IAS 39.9], except for derivatives that are designated and effective hedging instruments. Moreover, in some instances IAS 1 is relevant for the presentation of the accounts of deposit takers, such as in the case of tax assets (see immediately below). With these exceptions, although presented differently, the definition of the items and the coverage of financial assets in the IASs are close to the Guide.

71. With regard to nonbank entities, IAS 1.66 presets assets on a liquidity basis, in the same manner as for deposit takers. While IASs do not prescribe the order or format in which items are to be presented, these standards do regard each of the items presented as sufficiently different in nature or function so as to deserve separate presentation on the balance sheet, along with subtotals necessary to present fairly the enterprise’s financial position. The coverage of assets is again close to that of the Guide, but the classification and definition of items used are quite different. The financial assets identified by IAS 1.66 are item (g) cash and cash equivalents—cash on hand, demand deposits, and short-term, highly liquid investments that are readily convertible to cash and that are subject to an insignificant risk of change in value (IAS 7.6); item (f) trade and other receivables—assets created by the entity providing money, goods, or services directly to a debtor; item (d) investments accounted for using the equity method—investments in associates (IAS 28) and unconsolidated subsidiaries (IAS 27.30); related tax assets (IAS 12.5), which are not considered assets in the Guide except to the extent that taxes have been overpaid and a refund is owed; and item (c) other financial assets, which include securities.

Liabilities

72. Line 23 in Table 4.1, line 11 in Table 4.2, line 24 in Table 4.3, and line 17 in Table 4.4 of the Guide correspond in the 1993 SNA’s full sequence of accounts to liabilities (AF) in the balance sheet.

73. As with assets, in the IASs it is necessary to distinguish deposit takers from other corporate entities. IAS 30.19 sets out the liabilities that should be reported by deposit takers in their financial statements as follows: (1) deposits from other banks, (2) other money market deposits, (3) amounts owed to other depositors, (4) certificates of deposit, (5) promissory notes and other liabilities evidenced by paper, and (6) other borrowed funds. As with assets, the list should include, but not be limited to, these items.

74. In regard to other corporate entries, IAS 1.66 presents liabilities as follows: item (h) trade and other payables (short-term liabilities); item (i) tax liabilities, which are recognized in the Guide if unpaid tax amounts are actually owed to the general government; item (j) provisions; and item (k) noncurrent interest-bearing liabilities (long-term liabilities). The latter are recognized when an enterprise has a present obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. These provisions include such items as product warranties and cleanup costs for environmental damage (IAS 37.19). The Guide prefers that provisions for estimated costs related to product warranties be included as a cost of sales and as a general reserve in capital. As with assets, the IASs do not prescribe the order or format in which items are to be presented but regard the items listed as sufficiently different in nature or function so as to deserve separate presentation on the balance sheet, along with subtotals as necessary, to present fairly the enterprise’s financial position.

Currency and Deposits

75. On the asset side, line 17 in Table 4.1, line 4 in Table 4.2, line 18 in Table 4.3, and line 12 in Table 4.4 of the Guide correspond in the 1993 SNA’s full sequence of accounts to financial assets (AF.2) in the balance sheet. On the liability side, line 24 in Table 4.1 and line 12 in Table 4.2 of the Guide correspond in the 1993 SNA’s full sequence of accounts to liabilities (AF.2) in the balance sheet.

76. In the IASs, for deposit takers, the closest equivalent to assets is the sum of items identified as cash and balances with the central bank and placements with other banks (IASs 30.19 and 30.21). For other sectors, the closest equivalent is cash (cash on hand and demand deposits) and, perhaps, some element of cash equivalents (short-term highly liquid investments (IAS 7.6)). In IAS 7.8, overdrafts can be recorded as part of cash and cash equivalents rather than as loans, as recommended in the Guide.

77. In the IASs, deposit takers’ currency and deposits liabilities are equal to the sum of deposits from other banks and amounts owed to other depositors (IAS 30.19).

Loans

78. On the asset side, line 18(i) in Table 4.1 and line 5 in Table 4.2 of the Guide correspond in the 1993 SNA’s full sequence of accounts to loans (AF.4) in the balance sheet. Similarly, on the liability side, line 25 in Table 4.1, line 13 in Table 4.2, line 25 in Table 4.3, and line 18 in Table 4.4 of the Guide correspond in the 1993 SNA’s full sequence of accounts to loans (AF.4) in the balance sheet.

79. In the IASs, for deposit takers, on the asset side, loans most closely equate to the sum of loans and advances to customers and loans and advances to other banks (other than the central bank) (IAS 30.19). The latter item can be easily identified as placements with other banks should be separately identified (IAS 30.21) and excluded from the item “placements with, and loans and advances to, other banks” to provide information on loans. On the liability side, loans would be a subitem within other borrowed funds. In the IASs, specific and general provisions for loan losses can be deducted from the carrying amount of the appropriate category of loans (IAS 30.45). However, deposit takers should disclose the aggregate amount of provisions for loan losses at the balance sheet date (IAS 30.43c). Loans are defined in IAS 39.10 [39.9].

80. For other corporate entities, on the asset side, loans will be a subitem of other financial assets. On the liability side, overdrafts can be included within cash and cash equivalents (IAS 7.8), while loans are also to be included within noncurrent interest-bearing liabilities (IAS 1.66).

81. On two specific issues, the treatment of securities repurchase agreements (repos) in the IASs is consistent with the collateralized loan approach in the Guide (IAS 39.10 and IASs 39.35–39.39) [IAS 39. AG.51]. Moreover, the IASs’ treatment of financial leases is substantially the same as for loans (IAS 17) and is consistent with the classification of loans in the Guide.

Interbank Loans

82. Line 18(i.i) in Table 4.1 of the Guide corresponds in the 1993 SNA’s full sequence of accounts to loans to deposit takers (AF.4 S.122) in the balance sheet.

83. In the IASs, this line is equal to loans and advances to other banks and excludes placements with other banks (IAS 30.19 and 30.21). In other words, compared with the item in IAS 30.19, placements with other banks should be separately identified (IAS 30.21) and excluded from the item “placements with, and loans and advances to, other banks” to provide information on loans.

Noninterbank Loans

84. Line 18(i.ii) in Table 4.1 of the Guide corresponds in the 1993 SNA’s full sequence of accounts to loans (AF.4) less loans to deposit takers (AF.4 S.122) in the balance sheet. In the IASs, this line is equal to loans and advances to customers (IAS 30.19).

Sectoral and Geographical Distribution of Loans

85. Line 18(i) in Table 4.1 of the Guide can be attributed by institutional sector. In the 1993 SNA’s full sequence of accounts, this sectoral detail corresponds to items AF.4 S.1–AF.4 S.2.

86. The 1993 SNA does not specify the geographical location of the debtor, except for the resident and nonresident distinction.

87. IAS 14 establishes principles for reporting financial information by business and geographic segment. Business segments are determined by the type of products or services produced (IAS 14.9) and so could be considered broadly similar to the industrial classification of lending—one of the possibilities provided in the Guide. The geographic segment is based on providing goods and services within a particular economic environment and could be a single country, a group of two or more countries, or a region within a country (IAS 14.9). A country attribution would facilitate the regional attribution of lending described in the Guide. Moreover, sectoral and geographic analyses of concentrations of credit risk should be disclosed in accordance with IAS 30.40–30.41 and IASs 32.74–32.76 [IAS 32.83–32.85]. IAS 30.41 suggests that geographical areas may comprise individual countries or groups of countries, or regions within a country; customer disclosures may deal with sectors such as governments, public authorities, and commercial and business enterprises.

Specific Provisions for Loan Losses

88. As with nonperforming loans (NPLs), the 1993 SNA does not have a concept equivalent to specific provisions (line 18(ii) in Table 4.1) of the Guide. Loan values are not adjusted for provisions in the 1993 SNA. Therefore, until the loans are written off, provisions for impaired assets are implicitly and indistinguishably included as part of net worth (B.90) in the 1993 SNA’s full sequence of accounts.

89. In IAS 30.43c, the aggregate amount of the provision for losses on loans and advances by banks at the balance sheet date should be disclosed, so that users of financial statements know the impact that losses on loans and advances have on deposit takers’ financial positions (IAS 30.47). In contrast to the Guide, both specific and general loan loss provisions are included in the disclosure (IAS 30.45). (The difference arises because in the Guide, the FSI of loans less provisions nets specific provisions only, whereas in the IASs both specific and general provisions are netted against the value of loans.)

Debt Securities

90. On the asset side, line 19 in Table 4.1, line 6 in Table 4.2, line 19 in Table 4.3, and line 13 in Table 4.4 of the Guide correspond in the 1993 SNA’s full sequence of accounts to securities other than shares (AF.3) in the balance sheet. Similarly, on the liability side, line 26 in Table 4.1, line 14 in Table 4.2, and line 26 in Table 4.3 of the Guide correspond to securities other than shares (AF.3) in the balance sheet in the 1993 SNA.

91. For deposit takers, on the asset side, line 19 in Table 4.1 of the Guide corresponds to the sum of treasury bills and other bills eligible for discount at the central bank, other money market placements, the debt securities element of government and other securities for dealing purposes, and investment securities (IAS 30.19).¹² Separate identification of debt securities from within these latter two items may not be provided in the main financial statements, but in accordance with IAS 32.60(c) [IAS 32.71(c)], supplementary information should indicate which of the enterprise’s financial assets are not exposed to interest rate risk, such as some investments in equity securities. This supplementary information, used in conjunction with items on government and other securities for dealing purposes as well as investment securities, may permit the identification of holdings of debt securities, depending on the level of detail provided in the published accounts (see also IAS 32.64) [IAS 32.74].

92. For deposit takers, on the liability side, line 26 in Table 4.1 of the Guide corresponds to the sum of certificates of deposit, other money market deposits, promissory notes, and other liabilities evidenced by paper (IAS 30.19), and the debt securities element of “other borrowed funds.”

93. For other corporate entities, on the asset side, debt securities correspond to the debt securities element of cash equivalents and financial assets not otherwise identified. Unless further subclassification is required, debt securities might not be identifiable in the IASs.

Insurance Technical Reserves

94. On the assets side, line 8 in Table 4.2 of the Guide corresponds in the 1993 SNA’s full sequence of accounts to AF.6 in the balance sheet. Similarly, on the liability side, line 15 in Table 4.2 of the Guide corresponds to AF.6 in the balance sheet in the 1993 SNA. IASs do not have disclosure requirements specific to insurance technical reserves. However, in accordance with IAS 1.67, additional items should be presented on the balance sheet, when such a presentation is necessary to fairly represent the enterprise’s financial position. IFRS 4 concerns accounting for rights and obligations arising under insurance contracts.

Trade Credit

95. On the asset side, line 21 in Table 4.3 of the Guide corresponds in the 1993 SNA’s full sequence of accounts to trade credit and advances (AF.81) in the balance sheet. Similarly, on the liability side, line 27 in Table 4.3 of the Guide corresponds to AF.81 in the balance sheet in the 1993 SNA.

96. In the IASs, on the asset side, line 21 in Table 4.3 of the Guide corresponds most closely to trade and other receivables and, line 27 on the liabilities side, to trade and other payables (IAS 1.66).

Shares and Other Equity

97. On the asset side, line 20 in Table 4.1, line 7 in Table 4.2, line 20 in Table 4.3, and line 14 in Table 4.4 of the Guide correspond in the 1993 SNA’s full sequence of accounts to AF.5 in the balance sheet. However, in practice there may be a difference, depending on how equity investments in associates and unconsolidated subsidiaries are valued. This issue is briefly discussed in terms of foreign affiliates in paragraph 13.74 of the 1993 SNA.

98. In the IASs, for deposit takers, line 20 in Table 4.1 of the Guide corresponds to the equity securities element of government and other securities held for dealing purposes and to investment securities (IAS 30.19). Separate identification of equity securities from within these two items may not be provided in the main financial statements, but in accordance with IAS 32.60(c) [IAS 32.71(c)], supplementary information should indicate which of the enterprise’s financial assets are not [directly] exposed to interest rate risk, such as some investments in equity securities. For nonbank corporations, equity securities are included within investments accounted for using the equity method and other financial assets (IAS 1.66). Accounting by the equity method refers to investments in associates (IAS 28.6) and unconsolidated subsidiaries (IAS 27.30), essentially valuing such investments initially at cost and thereafter at the investor’s share of net assets of the investee (IAS 28.3).

Financial Derivatives

99. On the asset side, line 21 in Table 4.1, line 9 in Table 4.2, line 22 in Table 4.3, and line 15 in Table 4.4 of the Guide correspond in the 1993 SNA’s full sequence of accounts to financial derivatives (AF.7) in the balance sheet. On the liabilities side, line 29 in Table 4.1, line 18 in Table 4.2, line 30 in Table 4.3, and line 21 in Table 4.4 of the Guide correspond to AF.7 in the balance sheet in the 1993 SNA.¹³

100. In IAS 39.10 [IAS 39.9], financial derivatives are defined, and with the exception of commodity derivatives (see below), this definition is consistent with that in the Guide (see also IASs 32.9–32.11). IAS 39.10 [IAS 39.9] makes it clear that financial derivatives are to be recognized as financial instruments and recorded at fair value in profit and loss, except when they are designated and effective hedging instruments. While the IASs do not make specific recommendations for the separate identification of positions in financial derivatives, in accordance with IAS 39.27 [IAS 39.14], financial derivatives are recognized on the balance sheet.¹⁴ Regarding commodity derivatives, whereas the Guide includes such derivative contracts within its definition, in the IASs there is some flexibility in that contracts specifically settled in cash according to a formula are classified as financial derivatives, but not otherwise. This is because the IASs do not recognize as financial instruments contracts to deliver goods and services (IASs 32 A9–17) [IASs 32 AG.20–24].

Other Assets

101. Line 22 in Table 4.1, line 10 in Table 4.2, line 23 in Table 4.3, and line 16 in Table 4.4 of the Guide correspond in the 1993 SNA’s full sequence of accounts to the sum of insurance technical reserves (AF.6) and other accounts receivable (AF.8) (excluding trade credits (AF.81) for nonfinancial corporations, as it is separately identified in the Guide) in the balance sheet.

102. In the IASs, these lines most closely correspond to the trade and other receivables (IASs 1.66 and 39.10) [IAS 39 AG.26]—although the trade credit element for nonfinancial corporations is separately identified in the Guide—and to tax assets (IAS 1.66). However, in contrast to the Guide, when the future economic benefit is the receipt of goods or services rather than the right to receive cash or another financial asset, such benefits are not recognized as a financial asset (IAS 32.12) [IAS 32 AG.11]. Nonetheless, if taxes paid exceed the amounts due for the period, the excess should be regarded as an asset (IAS 12.12). Under certain circumstances, in contrast to the Guide, the IASs recognize deferred tax assets (IAS 12.24)—essentially when it is probable that taxable profits will be available against which tax benefits arising from past losses can be utilized. With regard to obligations under insurance contracts, IAS 32 explicitly excludes them from financial instruments (IAS 32.1) except for certain reinsurance and investment contracts issued by insurance companies (IAS 32.3). IAS 38 notes that contracts involving insurance companies are specialized and give rise to accounting issues that need to be dealt with in a different way (IAS 38.6).¹⁵

Other Liabilities

103. Line 27 in Table 4.1, line 16 in Table 4.2, line 28 in Table 4.3, and line 19 in Table 4.4 of the Guide correspond in the 1993 SNA’s full sequence of accounts to other accounts payable (AF.8) (excluding trade credits (AF.81) for nonfinancial corporations as they are separately identified elsewhere) and possibly insurance technical reserves (AF.6) (except for such liabilities of other financial institutions, which are separately identified elsewhere) in the balance sheet. In the IASs, these lines most closely correspond with the trade credit and other payables (excluding those elements included under other items) and with tax liabilities to the extent that they are amounts owed on profits already earned (IAS 12.5).

Debt

104. Line 28 in Table 4.1, line 17 in Table 4.2, line 29 in Table 4.3, and line 20 in Table 4.4 of the Guide correspond in the 1993 SNA’s full sequence of accounts to the sum of liabilities in the form of deposits (AF.2), securities other than shares (AF.3), loans (AF.4), liabilities for insurance technical reserves (AF.6), and other accounts payable (AF.8; see also IMF, 2000b) in the balance sheet.

105. In the IASs, for deposit takers, debt is the sum of deposits from other banks, other money market deposits, amounts owed to other depositors, certificates of deposit, promissory notes and other liabilities evidenced by paper, other borrowed funds (IAS 30.19), and tax liabilities (IAS 1.66), to the extent that they are amounts accrued and unpaid on profits already earned. For other corporate entities, debt is the sum of trade and other payables, noncurrent interest-bearing liabilities, and tax liabilities, to the extent that they are amounts accrued and unpaid on profits already earned (IAS 1.66).

Capital and Reserves

106. Line 30 in Table 4.1, line 19 in Table 4.2, line 31 in Table 4.3, and line 22 in Table 4.4 of the Guide closely correspond in the 1993 SNA’s full sequence of accounts to the sum of shares and other equity (AF.5) and net worth (B.90) in the balance sheet. There is a difference in that in the Guide, unlike in the 1993 SNA, the level of capital and reserves is affected by specific provisions against loans and, where applicable, other assets and by the exclusion of purchased goodwill. Moreover, to avoid double counting of deposit takers’ capital and reserves at the sector level, intrasector equity investments are excluded. In addition, a difference may arise from the different valuation approaches used to value equity investments in domestic associates and subsidiaries between the Guide and the 1993 SNA. In the Guide, the subcategorization of capital and reserves for deposit takers and nonfinancial corporations is derived from the IMF’s MFSM (IMF, 2000a, p. 34), and not the 1993 SNA. However, beyond the differences with the 1993 SNA mentioned above, there are differences in coverage between the Guide and the MFSM at the sub-categorization level. For example, in contrast to the MFSM, the Guide excludes general provisions from net income (and thus potentially from retained earnings) and includes them in capital and reserves.

107. In the IASs, capital and reserves most closely correspond in concept to total equity, which is the difference between assets and liabilities (and, as seen above, there are some differences in coverage of these instruments between the Guide and the IASs). Equity is the sum of issued capital, retained earnings, reserves representing appropriations of retained earnings, and reserves representing capital maintenance adjustments (IASB Framework, paragraph 65). Under IAS 1.74, information on issued capital should be disclosed. Capital maintenance adjustments are distinguished between financial and physical capital maintenance and are equivalent to holdings gains and losses on financial instruments that are not recorded in the income statement. The minority interest that may arise from consolidating a subsidiary is that part of the net assets of a subsidiary attributable to interests that are not owned directly or indirectly through subsidiaries by the parent (IAS 27.6). In accordance with IAS 27, Consolidated Financial Statements and Accounting for Investments in Subsidiaries, a financial instrument classified as an equity instrument by a subsidiary is eliminated on consolidation when held by the parent or presented by the parent in the consolidated balance sheet as a minority interest separate from the equity of its own shareholders. Hence, minority interest is part of capital and reserves.

Liquid Assets

108. The Guide’s concept of liquid assets—as assets that are readily available to an entity to meet a demand for cash—does not have an equivalent in the 1993 SNA. Therefore, lines 39 and 40 in Table 4.1, and lines 41 and 42 in Table A3.4 of the Guide do not conceptually correspond to any 1993 SNA lines. Nonetheless, from the 1993 SNA’s full sequence of accounts, an approximation of the core measure of liquid assets is possible by summing currency (AF.21), transferable deposits (AF.22), (very) short-term loans (AF.41), and other accounts receivable (AF.8). Adding holdings of short-term (less than one year maturity) securities other than shares (AF.31) and perhaps holdings for shares and other equity (AF.5) provides an approximation of the wider measure. These measures of liquid assets will differ from the Guide in that certain assets are not covered (non-transferable deposits of less than three months’ maturity and long-term holdings of securities traded on liquid markets) and in that several assets that are covered should be excluded (nontradable short-term securities other than shares and other nontradable assets of more than three months’ maturity). For deposit takers, the Guide excludes from liquid assets any nontraded claims on other deposit takers.

109. The IASs focus more closely on liquidity than does the 1993 SNA. For deposit takers, from IAS 30.19 the following items equate most closely to liquid assets in line 40 in Table 4.1 of the Guide: cash and balances at the central bank, treasury bills and other bills eligible for rediscounting with the central bank, government and other securities held for dealing purposes, and market placements excluding those with other banks. However, any money market placements of more than three months’ maturity that cannot readily be converted into cash should be excluded. On the other hand, investment securities that are traded on liquid markets should be included. Moreover, IASs 30.30–30.39 require the disclosure of a breakdown of assets (and liabilities) into relevant maturity groupings based on the remaining period at the balance sheet date until the contractual maturity date—five maturity bands are suggested, the first two of which include assets with remaining maturities of three months or less.

110. For nonfinancial corporations, the closest equivalent to the concept of liquid assets used in the Guide is cash and cash equivalents—assets held for the purpose of meeting short-term cash commitments rather than for investment or other purposes (IAS 7.7). For an investment to qualify as a cash equivalent it must be readily convertible to a known amount of cash and be subject to an insignificant risk of change in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition (IASs 7.6 and 7.7). Equity investments are excluded unless they are in substance cash equivalents (IAS 7.7). However, bank borrowings in the form of overdrafts that are repayable on demand can be included (deducted) as a component of cash and cash equivalents (IAS 7.8)—in contrast with the Guide, which classifies overdrafts as a liability item. Cash and cash equivalents, together with trade receivables with three months or less to maturity, are close in concept to the core measure of liquid assets in the Guide. Such instruments are covered within other financial assets (IAS 1.66).

Short-Term Liabilities

111. The Guide’s definition of what is short term and its definition of liabilities are the same as in the 1993 SNA. However, while in the 1993 SNA’s full sequence of accounts, short-term liabilities in the form of securities other than shares (AF.31) and loans (AF.41) are identified, this is not the case for deposits, other accounts payable, and financial derivatives.

112. The IASs have a similar, but not identical, over- and under-one year maturity distinction to that used in the Guide (IAS 1.60 and the glossary in IASB [2002]), unless the enterprise’s operating cycle is different from a one year—in which case the boundary with long term is different. Disclosure of information on current liabilities in accordance with IAS 1.60 provides a measure of short-term liabilities that is broadly consistent with the Guide’s definition. Moreover, a bank should disclose a breakdown of liabilities (and assets) into relevant maturity groupings based on the remaining maturity at the balance sheet date until the contractual maturity date, in accordance with IAS 30.30. As for assets, IAS 30.33 suggests distinguishing financial liabilities into five maturity groupings.

Nonperforming Loans

113. As with liquid assets, the 1993 SNA does not have a concept corresponding to nonperforming loans. In the 1993 SNA’s full sequence of accounts, such loans are indistinguishably included as part of loans (AF.4). Thus, the stock of NPLs cannot be derived from the 1993 SNA.

114. IAS 39.110 [IAS 39.58–39.70] provides guidance on identifying assets that may be impaired that is broadly consistent with the approach in the Guide. Whereas the Guide places more emphasis on past due payments exceeding a time limit, guidance on impairment in IAS 39 covers both actual breaches of contract (although no overdue date is recommended) and other evidence of impairment. In addition, IAS 30.43 states that a bank should disclose (a) the accounting basis used to determine the carrying amount of uncollectible loans and advances, (b) details of changes in any allowance account for impairment allowances, (c) the aggregate amount of any allowance account for impairment losses at the balance sheet date, and (d) the aggregate amount included in the balance sheet for loans and advances on which interest is not being accrued.¹⁶ The basis used to determine when to stop accruing interest may vary across enterprises and may differ from the 90-day guidelines suggested in the Guide.

Foreign-Currency-Denominated Assets and Liabilities

115. The 1993 SNA does not define foreign currency assets and liabilities (although this information may be available to economic statisticians from the source data used to construct the national accounts).

116. IAS 32.43(i) [IAS 32.52(a)(i)] requires disclosure of information that assists users of financial statements in assessing the extent of risks associated with, among other things, currency risk—the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. However, the standards do not prescribe either the format or level of detail of the information to be disclosed (IASs 32.44–32.45) [32.51–32.52].

Net Open Position in Foreign Exchange

117. The 1993 SNA does not provide any equivalent concept. Under IAS 30.40, a bank should disclose the amount of any significant net foreign currency exposures.

Large Exposures

118. The 1993 SNA does not have a concept of large exposures because it is concerned with aggregate economic statistics rather than with the credit risks faced by individual institutional units. Under IAS 30.40, a bank should disclose any significant concentration of its assets, liabilities, and off-balance-sheet items. Such disclosures should be made using breakdowns by geographical areas, customer or industry groups, or other concentration of risk that are appropriate in the circumstances of the bank. IAS 32.74 [IAS 32.83] notes that identification of significant concentrations is a matter of judgment by management, taking into account the circumstances of the enterprise and its debtors. Disclosure of concentrations of credit risk includes a description of the shared characteristic that identifies each concentration and the amount of the maximum credit risk exposure associated with all recognized and unrecognized financial assets sharing that characteristic (IAS 32.76) [IAS 32.85].

Arrears

119. In the 1993 SNA’s full sequence of accounts, there is no separate identification of arrears (line 70 in Table A3.2), although such an item can be included as memorandum item (1993 SNA, 11.101). Arrears are not discussed in the IASs.

Background

2. To illustrate the principles involved, a base data set for income and expense, balance sheet, and associated memorandum items is provided below, which is used to calculate FSIs. The data set provided is consistent with the guidance in Chapter 4 and Chapter 6. Nonetheless, some simplifying assumptions are made to put aside the consolidation issues (and the additional data needs) relating to the interbank positions and flows that are described in Chapter 5. These simplifying assumptions are relaxed in the later examples on consolidation in Part 3.

The Basic Data Set of Financial Accounts

3. In this example, the economy has three deposit takers. There are no financial relations among them, nor do they have foreign branches or investments in foreign subsidiaries and associates.¹ End-period financial statements (income and balance sheet accounts) for the three resident deposit takers are presented in Tables A5.1 and A5.2, together with the aggregated income and balance sheet statements.

Table A5.1.

Income and Expense Statements: Deposit Takers—Aggregated Data¹

(In millions of U.S. dollars; unless otherwise stated)

¹For a description of the line items, refer to Chapter 4.

Table A5.1.

Income and Expense Statements: Deposit Takers—Aggregated Data¹

(In millions of U.S. dollars; unless otherwise stated)

		Deposit Taker 1 A	Deposit Taker 2 B	Deposit Taker 3 C	Aggregation A + B + C
1.	Interest income	400	800	300	1,500
	(i) Gross interest income	400	800	300	1,500
	(ii) Less provisions for accrued interest on nonperforming assets	—	—	—	—
2.	Interest expense	100	140	100	340
3.	Net interest income (= 1 minus 2)	300	660	200	1,160
4.	Noninterest income	250	700	400	1,350
	(i) Fees and commissions receivable	110	300	200	610
	(ii) Gains or losses on financial instruments	50	100	100	250
	(iii) Prorated earnings	50	140	20	210
	(iv) Other income	40	160	80	280
5.	Gross income (= 3 plus 4)	550	1,360	600	2,510
6.	Noninterest expenses	500	600	150	1,250
	(i) Personnel costs	300	300	100	700
	(ii) Other expenses	200	300	50	550
7.	Provisions (net)	50	80	10	140
	(i) Loan loss provisions	50	80	10	140
	(ii) Other financial asset provisions	—	—	—	—
8.	Net income (before extraordinary items and taxes) (= 5 minus (6 + 7))	—	680	440	1,120
9.	Extraordinary items	—	—	—	—
10.	Income tax	—	272	176	448
11.	Net income after tax (= 8 minus (9 + 10))	—	408	264	672
12.	Dividends payable	—	300	140	440
13.	Retained earnings (= 11 minus 12)	—	108	124	232

¹For a description of the line items, refer to Chapter 4.

View Table

Table A5.1.

Income and Expense Statements: Deposit Takers—Aggregated Data¹

(In millions of U.S. dollars; unless otherwise stated)

		Deposit Taker 1 A	Deposit Taker 2 B	Deposit Taker 3 C	Aggregation A + B + C
1.	Interest income	400	800	300	1,500
	(i) Gross interest income	400	800	300	1,500
	(ii) Less provisions for accrued interest on nonperforming assets	—	—	—	—
2.	Interest expense	100	140	100	340
3.	Net interest income (= 1 minus 2)	300	660	200	1,160
4.	Noninterest income	250	700	400	1,350
	(i) Fees and commissions receivable	110	300	200	610
	(ii) Gains or losses on financial instruments	50	100	100	250
	(iii) Prorated earnings	50	140	20	210
	(iv) Other income	40	160	80	280
5.	Gross income (= 3 plus 4)	550	1,360	600	2,510
6.	Noninterest expenses	500	600	150	1,250
	(i) Personnel costs	300	300	100	700
	(ii) Other expenses	200	300	50	550
7.	Provisions (net)	50	80	10	140
	(i) Loan loss provisions	50	80	10	140
	(ii) Other financial asset provisions	—	—	—	—
8.	Net income (before extraordinary items and taxes) (= 5 minus (6 + 7))	—	680	440	1,120
9.	Extraordinary items	—	—	—	—
10.	Income tax	—	272	176	448
11.	Net income after tax (= 8 minus (9 + 10))	—	408	264	672
12.	Dividends payable	—	300	140	440
13.	Retained earnings (= 11 minus 12)	—	108	124	232

¹For a description of the line items, refer to Chapter 4.