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Experts discuss way ahead on financial soundness indicators

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
November 2003
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As part of ongoing international efforts to strengthen financial system surveillance, experts from 17 member countries and 6 international and regional agencies met on October 29-30 to discuss the latest draft of the IMF’s Compilation Guide on Financial Soundness Indicators. The meeting—the second of its kind—was intended to help finalize the draft and propose a work program to help member countries that will be compiling financial soundness indicators.

Since September 2002, when the experts first met to discuss the Guide, much work has been done on financial soundness indictors, Carol S. Carson, Director of the IMF’s Statistics Department, said. In March 2003, the IMF posted a first draft of the Guide on its website and invited public comment. The substantial comments from public and private sector agencies fed into a revised draft that the group was now considering.

The IMF also took measures to increase awareness of the Guide and elicit additional feedback from country officials. IMF staff has held three regional outreach seminars this year, with three additional seminars scheduled to take place in the coming months. And in June, the IMF’s Executive Board broadly endorsed the Guide’s conceptual framework, welcoming it as “a milestone in establishing a standard reference.” Indeed, as Stefan Ingves and V. Sundararajan, Director and Deputy Director, respectively, of the IMF’s Monetary and Financial Systems Department, noted in their opening remarks, the Guide represents an important tool for member countries and will help strengthen the use of financial sector indicators in the IMF-World Bank Financial Sector Assess-ment Program (FSAP) and in ongoing IMF surveillance of members’ economic and financial policies.

Guide revisions

In their comments on the latest draft of the Guide, the experts expressed appreciation for the added emphasis now given to flexibility in the implementation of financial soundness indicators. This change incorporates earlier concerns that, with differences in accounting practices and resource constraints, some countries might not be able to meet all of the called-for guidelines immediately. Nevertheless, the chair of the expert group, Charles Enoch, Deputy Director, Monetary and Financial Systems Department, emphasized that flexibility should not be interpreted as a lack of rigor. Good descriptions of the data provided (metadata) remain essential, he said.

Much of the meeting was spent reviewing the specific issues that had arisen during the public comment period and the outreach seminars. Among the topics were whether foreign-controlled banks should be included in the financial soundness indicators’ data series, whether restructured loans should be included as part of nonper-forming loans, and how often financial soundness indicator data should be compiled and disseminated. The experts largely endorsed the guidance in the revised draft and made additional suggestions based on their country experience. These will be drawn upon in finalizing the Guide.

The experts voiced their support for two new chapters on the analysis and use of financial soundness indicators and also indicated that new material on stress-testing, differences in the methodology for consolidating data, and numerical examples on compiling the financial sector indicators would be useful.

To ensure that the indicators continue to reflect the evolving priorities of IMF surveillance and the capacity of countries to compile these data, the experts were invited to comment on possible modifications to the list of indicators suggested by IMF Executive Directors during their June review of the Guide. The experts lent their support to some of the proposed modifications in the existing list of financial soundness indicators, but there was no support for including additional indicators in the list.

With good progress made on all of the above topics, the experts agreed that, subject to some limited review of several proposed text changes, the Guide was ready to be finalized. The Guide is expected to be completed in early 2004, after which it will be provided to the IMF Executive Board for endorsement.

What next?

Country compilation of financial sector indicators is the ultimate objective of the methodological work embodied in the Guide. To help countries tackle this task, the IMF intends to conduct a coordinated compilation exercise for about 60 countries, beginning in mid-2004. The experts lent their broad support to a preliminary draft of the terms of reference for this initiative. They also discussed possible ways in which the IMF could cooperate with other international and regional organizations on this effort.

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