Methodological notes

Core set of indicators

Table: Overview of the implementation of the various indicators in Germany

Deposit takers
Deposit-takers play a pivotal role in financial systems. Their financial situation and resilience to shocks is therefore of paramount importance for financial stability. The core set of indicators covers the key ratios with regard to the deposit-takers’ situation.
I001	Regulatory capital to risk weighted assets	This indicator measures the ratio of regulatory capital to all weighted risk positions pursuant to the Solvency Regulation (by the end of 2006: Principle I (capital requirement)). It is calculated on the basis of single-institution data from credit institutions subject to reporting requirements pursuant to section 10 of the German Banking Act (Kreditwesengesetz). From 2008 on, consolidated reports of waiver-groups pursuant to section 10a of the German Banking Act are included. For this purpose, liable capital is set in relation to the sum of the respective weighted risk positions. Deviations from the IMF methodology result from the national definition of capital and risk weights as well as from the basis of consolidation, which covers the institution as a whole (including foreign branches) but, on a non-consolidated basis, excludes foreign subsidiaries. (The weighted risk positions are the risk-weighted assets and the market price risks to be taken into account pursuant to the Solvency Regulation (by the end of 2006 pursuant to Principle I).)
I002	Regulatory Tier 1 capital to risk-weighted assets	This indicator measures the ratio of regulatory core (tier 1) capital to all weighted risk positions pursuant to the Solvency Regulation (by the end of 2006: Principle I). It is calculated using single-institution data and, from 2008 on, consolidated reports of waiver-groups from credit institutions subject to reporting requirements pursuant to sections 10 and 10a of the German Banking Act, whereby the regulatory tier 1 capital is set in relation to the sum of the respective weighted risk positions. Deviations from the IMF methodology arise with regard to the national definition of risk weights (by end of 2006 of Tier 1 capital) as well as the basis of consolidation, which covers the institution as a whole (including foreign branches) but, on a non-consolidated basis, excludes foreign subsidiaries. (The weighted risk positions are the risk-weighted assets and the market price risks to be taken into account pursuant to the Solvency Regulation (by the end of 2006 pursuant to Principle I).)
I003	Nonperforming loans net of provisions to capital	It should be noted that there is no one definition of "non-performing loans" (NPL) in Germany. For IMF purposes, the risk classification of loans pursuant to the Auditor's Report Regulation (Prüfungsberichtsverordnung) is therefore used. Up until the end of 2008, the indicator was calculated by setting loans requiring individual value adjustments on a net basis (less risk provisions) in relation to the institutions' balance sheet capital. The following were included: customer loans (accounts receivable and bill-based loans pursuant to section 15 of the Regulation on the Accounting of Banks and Financial Services Institutions (Verordnung über die Rechnungslegung der Kreditinstitute und Finanzdienstleistungsinstitute) as well as liability loans pursuant to section 26 of the Regulation on the Accounting of Banks and Financial Services Institutions) requiring individual value adjustments after deducting value adjustments. Since the Auditor's Report Regulation was amended in 2009, NPL also include overdue loans for which no individual value adjustments need be made yet. Moreover, the definition of loans as well as risk provisions has, since the amendment of the Auditor's Report Regulation, been based on the extended definition of exposures and loans pursuant to the prudential definition in section 19 of the German Banking Act (Kreditwesengesetz). The extended definition of exposures and loans now also includes securities, participating interests and off-balance sheet transactions. Risk provisions also include those for interbank loans. Other deviations from the IMF methodology can be attributed to national accounting regulations and the consolidated group, which comprises the overall institution (incl foreign branches) but not foreign subsidiaries.
I004	Non-performing loans to total gross loans	Up until the end of 2008, the indicator set customer loans requiring individual value adjustments in relation to the institutions’ total gross customer loans. It was determined by setting non-performing loans – which, according to the national definition, were calculated on the basis of customer loans requiring individual value adjustments (accounts receivable and bill-based loans pursuant to section 15 of the Regulation on the Accounting of Banks and Financial Services Institutions as well as liability loans pursuant to section 26 of the Regulation on the Accounting of Banks and Financial Services Institutions) – in relation to the total customer credit volume. Since the Auditor's Report Regulation was amended in 2009, the definition of NPL also includes overdue loans (excl individual value adjustments made). In addition, the definition of customer credit volume has, since the amendment of the Auditor's Report Regulation, been based on an extended definition of exposures and loans pursuant to the prudential definition in section 19 of the German Banking Act (incl securities, participating interests and off-balance sheet transactions) vis-à-vis non-banks. Claims against credit institutions are not included. Other deviations from the IMF methodology can be attributed to national accounting regulations and the consolidated group, which comprises the overall institution (incl foreign branches) but not foreign subsidiaries.
I005	Sectoral distribution of loans to total loans	This indicator provides information on the distribution of loans across domestic and foreign sectors. The data are taken from the monthly balance sheet statistics of monetary financial institutions (MFIs) in Germany. Deviations from the IMF methodology arise owing to national accounting rules and the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included.
I006	Return on assets	The total return on assets is used to assess profitability in relation to total capital within an accounting period for purposes of comparison. The indicator is calculated as the ratio of profit for the financial year before tax to the average balance sheet total of domestic MFIs. The profit for the financial year is based on a secondary statistical evaluation of the banks’ profit and loss accounts (annual accounts data); the average balance sheet total is calculated on the basis of the banks’ monthly balance sheet statistics. Deviations from the IMF methodology arise owing to the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries.
I007	Return on equity	The return on equity captures the rate of remuneration of equity capital within an accounting period. The indicator is calculated as the ratio of profit for the financial year before tax to the average equity capital of domestic MFIs. The profit for the year is based on a secondary statistical evaluation of the banks’ profit and loss accounts (annual accounts data); average equity capital is calculated on the basis of the banks’ monthly balance sheet statistics. Deviations from the IMF methodology arise owing to national accounting rules and the basis of consolidation, which includes only domestic MFIs.
I008	Interest margin to gross income	This indicator is a measure of the share of net interest received in gross income. It is based on a secondary statistical evaluation of banks’ profit and loss accounts (annual accounts data). Deviations from the IMF methodology arise owing to the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries.
I009	Non-interest expenses to gross income	This indicator is a measure of the share of non-interest expenses in gross income. It is calculated on the basis of a secondary statistical evaluation of the profit and loss accounts (annual accounts data) of domestic MFIs. Deviations from the IMF methodology arise owing to the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries.
I010	Liquid assets to total assets (liquid asset ratio)	This indicator is calculated as the share of prudentially defined liquid assets in the institutions’ total assets on the basis of reports from credit institutions subject to reporting requirements under the Liquidity Regulation (by the end of 2006: Principle II (liquidity requirement)) pursuant to section 11 of the German Banking Act. To this end, the sum total of all liquid assets according to the Liquidity Regulation (by the end of 2006 Principle II) with a residual maturity of three months or less is set in relation to the total assets of credit institutions according to the monthly balance sheet statistics. Deviations from the IMF methodology arise owing to the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries.
I011	Liquid assets to short-term liabilities	This indicator is calculated by comparing the liquid assets with the institutions’ short-term liabilities as prudentially defined: the reports of credit institutions subject to reporting requirements under the Liquidity Regulation (by the end of 2006: under Principle II) pursuant to section 11 of the German Banking Act are used as a basis for this. To this end, all liquid assets are set in relation to liabilities with a residual maturity of three months or less. Deviations from the IMF methodology arise owing to the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries.
I012	Net open position in foreign exchange to capital	This indicator is calculated by measuring the ratio of prudentially defined open foreign exchange positions to the institutions’ regulatory capital. The individual institutions’ reports and, from 2008 on, consolidated reports of waiver-groups under the Solvency Regulation are used as a basis for this. The credit institutions’ currency-related net overall position is set in relation to their regulatory capital. Deviations from the IMF methodology arise owing to limited institutional coverage with regard to the regulatory reporting obligations, the definition of regulatory capital, the identifiability of the net positions of risk models as well as the basis of consolidation, which covers the institution as a whole (including foreign branches) but, on a non-consolidated basis, excludes foreign subsidiaries.

Encouraged set of indicators

Table: Overview of the implementation of the various indicators in Germany

Deposit takers
The following encouraged set of indicators permits an insight into the deposit-takers’ financial situation beyond the core set.
I013	Capital to assets ratio	This indicator provides information on the extent to which the institutions’ assets are covered by capital. The data are taken from the monthly balance sheet statistics of MFIs in Germany. Deviations from the IMF methodology arise owing to national accounting rules and the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included.
I014	Large exposures to capital	This indicator shows the ratio of the large exposures incurred by the institutions to the institutions’ regulatory capital. It is calculated on the basis of individual institutions’ reports and, from 2008 on, consolidated reports of waiver-groups on large exposures pursuant to sections 13, 13a and 13b of the German Banking Act as well as on regulatory capital pursuant to sections 10 and 10a of the German Banking Act. To this end, the volume of all large exposures is compared with the credit institutions’ regulatory capital. Deviations from the IMF methodology arise owing to the national definition of the concept for large exposures, the definition of regulatory capital and the basis of consolidation, which covers the institution as a whole (including foreign branches) but, on a non-consolidated basis, excludes foreign subsidiaries.
I015	Geographical distribution of loans to total loans	This indicator is intended to enable a rough assessment of the credit risk which German MFIs incur through their lending activities abroad. The data are taken from the monthly balance sheet statistics of MFIs in Germany. Deviations from the IMF methodology arise owing to the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included.
I016	Gross asset position in financial derivatives to capital	This indicator provides a rough assessment of the replacement risk of derivative contracts with a positive market value. The basic data are collected as part of the half-yearly OTC derivatives statistics of the Bank for International Settlements (BIS). Deviations from the IMF methodology arise with regard to the group of institutions, as only the key institutions in this segment are surveyed (on a voluntary basis); they cover most of the market.
I017	Gross liability position in financial derivatives to capital	This indicator provides a rough assessment of the potential loss arising from derivative contracts with a negative market value. The basic data are collected as part of the half-yearly OTC derivatives statistics of the BIS. Deviations from the IMF methodology arise with regard to the group of institutions, as only the key institutions in this segment are surveyed (on a voluntary basis); they cover most of the market.
I018	Trading and foreign exchange gains and losses to gross income	This indicator is a measure of the share of net income or expenditure on own account dealings in gross income. It is based on a secondary statistical evaluation of the banks’ profit and loss accounts (annual accounts data). Deviations from the IMF methodology arise owing to the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries.
I019	Personnel expenses to non-interest expenses	This indicator provides information about staff costs in relation to non-interest expenses. It is calculated on the basis of a secondary statistical evaluation of the profit and loss accounts (annual accounts data) of domestic MFIs. Deviations from the IMF methodology arise owing to the basis of consolidation, which covers the institution as a whole (including foreign branches) but excludes foreign subsidiaries.
I020	Spread between reference lending and deposit rates	The spread between lending and deposit rates serves as a rough proxy for assessing the profitability and competitiveness of domestic MFIs. The indicator is calculated on the basis of the harmonised MFI interest rate statistics from a sample of MFIs. It is derived according to the IMF methodology from the difference between the weighted averages of deposit and lending rates. Deviations from the IMF methodology arise owing to the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included.
I021	Spread between highest and lowest interbank rates	This indicator sheds light on the risk premium in the interbank money market. The indicator is based on the asking rates for interbank money with a one-week maturity. The spread is the difference between the highest and the lowest interest rates posted by different banks. Only banks resident in Germany are taken into consideration. (Sources: European Banking Federation, own calculations)
I022	Customer deposits to total (non-interbank) loans	This indicator is a measure of liquidity. It is based on data taken from the monthly balance sheet statistics of MFIs in Germany. Deviations from the IMF methodology arise owing to national accounting rules and the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included.
I023	Foreign-currency-denominated loans to total loans	This indicator measures the share of foreign currency loans in total loans. It is based on data taken from the monthly balance sheet statistics of MFIs in Germany. Deviations from the IMF methodology arise owing to the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included.
I024	Foreign-currency-denominated liabilities to total liabilities	This indicator measures the share of foreign currency liabilities in total liabilities. It is based on data taken from the monthly balance sheet statistics of MFIs in Germany. Deviations from the IMF methodology arise owing to national accounting rules and the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included.
I025	Net open position in equities to capital	This indicator shows the ratio of the open equity positions (net) to the institutions’ regulatory capital. It is calculated on the basis of individual institutions’ reports and, from 2008 on, consolidated reports of waiver-groups. The credit institutions’ equity-price-related net overall position is set in relation to their regulatory capital. Deviations from the IMF methodology arise owing to limited institutional coverage with regard to the reporting obligations, the national definition of regulatory capital, the identifiability of the net positions of risk models as well as the basis of consolidation, which covers the institution as a whole (including foreign branches) but, on a non-consolidated basis, excludes foreign subsidiaries.
Other financial corporations
Other financial corporations are linked to deposit-takers in many different ways and can likewise be of systemic relevance to financial system stability. However, the data available for other financial corporations are somewhat less comprehensive than those for the banking sector. The following ratios which – in relating to investment funds, insurance corporations and financial services institutions pursuant to section 1 (1a) numbers 1-4 of the German Banking Act as well as pension funds – cover most of this sector, capture their position concisely.
I026	Assets to total financial system assets	This indicator provides information about the relative importance of the other financial corporations sector within the financial system. It is based on data from the financial accounts, which draw on various primary sources such as banking statistics, capital market statistics, securities deposit statistics and balance of payments statistics. Deviations from the IMF methodology arise owing to national accounting rules and – to a lesser extent – the consolidation of the sectoral financial assets.
I027	Assets to GDP	This indicator provides information about the importance of the other financial corporations sector with regard to the economic output of the whole economy. The numerator for this indicator is calculated on the basis of the financial accounts, which draw on various primary sources such as banking statistics, capital market statistics, securities deposit statistics and balance of payments statistics. The denominator is computed by the Federal Statistical Office and is derived from the national accounts. Deviations from the IMF methodology arise owing to national accounting rules and – to a lesser extent – the consolidation of the sectoral financial assets. (Sources: Statistisches Bundesamt, own calculations)
Non-financial corporations sector
Non-financial corporations are the financial sector’s key (credit) customers. If the situation in the non-financial corporations sector deteriorates, this leads to a decline in the non-financial corporations’ creditworthiness and debt repayment capability which, in turn, may have a direct effect on the financial institutions’ situation. The data available for non-financial corporations are, all in all, somewhat less comprehensive than those for the financial sectors, which is why various data sources must be consulted. The following indicators provide information about the sector’s resilience to shocks.
I028	Total debt to equity	This indicator provides information about the extent of debt financing in relation to equity capital (valued at market rates). It is calculated on the basis of the financial accounts, which mainly draw on the counterparty data of various primary statistical sources, such as banking statistics. Deviations from the IMF methodology arise owing to national accounting rules and the consolidation of sectoral equity capital and debt.
I029	Return on equity	This indicator measures the efficiency and profitability of the non-financial corporations sector. It is generated using both the national and the financial accounts. Deviations from the IMF methodology arise owing to national accounting rules, the definition and consolidation of corporate profits, and sectoral equity capital (valued at market rates). (Sources: Statistisches Bundesamt, own calculations)
I030	Earnings to interest and principal expenses (Debt service coverage)	This indicator measures the ability to make regular debt service payments from the cash flow. It is generated on the basis of the national accounts. Deviations from the IMF methodology arise owing to national accounting rules, the definition and consolidation of the aggregates, and the principal repayments not covered by the indicator. (Sources: Statistisches Bundesamt, own calculations)
I031	Net foreign exchange exposure to equity	This indicator is not compiled.
I032	Number of applications for protection from creditors	This indicator provides information about bankruptcy developments. It is based on the Federal Statistical Office’s insolvency statistics. The indicator is significantly influenced by national insolvency legislation. (Sources: Statistisches Bundesamt)
Households
Households affect the situation in the financial sector both directly and indirectly: directly through their decision to invest their savings or to take out loans, and indirectly through their consumption behaviour which, in turn, has an impact on the financial sector through the non-financial corporations sector.
I033	Household debt to GDP	This indicator provides information about the level of indebtedness in relation to the economic output of the whole economy. The numerator for this indicator is calculated on the basis of the financial accounts, which draw on the counterparty data of various primary statistics, such as banking statistics. The denominator is computed by the Federal Statistical Office and is derived from the national accounts. Minor deviations from the IMF methodology arise through the posting of interest accrued. (Sources: Statistisches Bundesamt, own calculations)
I034	Household debt service and principal payments to income	This indicator measures households’ ability to service their debts. It is generated on the basis of the financial and the national accounts. Deviations from the IMF methodology arise owing to the principal repayments not covered by the indicator. (Sources: Statistisches Bundesamt, own calculations)
Market liquidity
Capital transactions can be settled smoothly only if there is a sufficiently high degree of market liquidity, ie only as long as it is constantly possible to find a buyer or seller for all financial products without greatly impinging on the market price.
I035	Average bid-ask spread in the securities market	This indicator sheds light on the liquidity situation in the securities market in question. It is calculated separately for a Federal bond (Bund) and a representative corporate bond with comparable maturities. The spread is the difference between the highest bid rate and the lowest asking rate provided by market participants at a given point in time. (Sources: Bloomberg, own calculations)
I036	Average daily turnover ratio in the securities market	This indicator gives the daily turnover rate in outstanding securities in the market. It is based on data from the Deutsche Bundesbank’s capital market statistics as well as from Deutsche Börse AG, and is calculated as the ratio of turnover to the volume of listed Federal securities outstanding, both in euro.
Real estate markets
The cyclical developments in the real estate markets are highly correlated with the financial sector’s lending behaviour. A real estate boom is often preceded or accompanied by a sharp rise in lending to the private sector. By contrast, a downturn in the real estate market is frequently flanked by a marked decline in lending. Moreover, financial crises in the past have often been preceded by a strong downturn in the real estate market.
I037	Residential real estate prices	This indicator measures developments in residential property prices. It is based on data provided by bulwiengesa AG for 127 towns and cities. They are largely based on expert assessments to determine the value of typical properties in the categories of new and existing owner-occupied apartments, terraced houses as well as re-occupied single-family detached homes.
I038	Commercial real estate prices	This indicator measures price developments for office property and retail property. It is based on data provided by bulwiengesa AG for 127 towns and cities.
I039	Residential real estate loans to total loans	This indicator measures the share of housing loans granted by German MFIs in the overall volume of loans. It is based on data taken from the quarterly borrowers statistics of MFIs in Germany. Deviations from the IMF methodology arise owing to the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included.
I040	Commercial real estate loans to total loans	This indicator measures the share of commercial real estate loans granted by German MFIs in the overall volume of loans. It is based on data taken from the quarterly borrowers statistics of MFIs in Germany. Deviations from the IMF methodology arise owing to the basis of consolidation, as the business conducted by German institutions’ foreign branches and subsidiaries is excluded whereas the business conducted by foreign institutions’ branches in Germany is included.