Government Finance Division IMF Statistics Department The views expressed herein are those of the author and should not be attributed to the IMF, its Executive

Government Finance DivisionIMF Statistics Department

The views expressed herein are those of the author and should not be attributed to the IMF, its Executive Board, or its Management.

Workshop on the Implementation of the 2008 SNA in EECCA Countries and Linkages with BPM6 and GFSM 2014

Istanbul (May 6–8, 2015)

Florina Tanase, Deputy Division Chief, IMF Statistics Department

The Importance of Balance Sheet Information


2

Overview

Why Balance Sheets Matter?

Balance Sheet Analysis in IMF Surveillance

Data Sources and Data Gaps for the Balance Sheet Analysis

Looking Forward


3

Why Balance Sheets Matter?

“National balance sheet analysis, examining vulnerabilities in all sectors individually and in aggregate, could have made a difference to preventing the global financial crisis.“

Sir Paul Tucker, Former BOE Deputy Governor, from the 2014 Triennial Surveillance Review (TSR) External Study on Risks and Spillovers.


4

Balance Sheet Analysis in IMF Surveillance (1/10)

Economic and financial surveillance: one of the most important roles of the IMF; it focuses on identifying risks and policies to mitigate them

Keeping surveillance relevant: triennial surveillance reviews (TSRs) with the most recent completed in September 2014

2014 TSR priorities:• Deepen analysis of risks and spillovers• Increase attention to national balance sheets and cross-border

positions• Further develop the balance sheet approach (BSA) based on

granular national and external balance sheets


5


Key recommendation of the 2014 TSR: strengthen analysis of national balance sheets

“The Fund has overhauled its surveillance to make it more risk based and better reflect global interconnections… The goal now is to take this work to the next level, by focusing more on how risks spread across countries and how, in turn, spillovers can transmit across sectors.”


6


Why develop balance sheet analysis? TSR proposes expanding balance sheet analysis in surveillance

for:• Indicators of balance sheet vulnerability (i.e., FX mismatches)• Scenario analysis tracing transmission of shocks across sectors• Assess consistency of growth outlook and balance sheet condition

Exploit data improvements using BSA matrix as surveillance tool• Start with basic sector disaggregation possible with IMF data and

expand Allows analysis of linkages across sectors, not just one sector at

a time


7


The IMF use of balance sheets in surveillance evolved over time:• Pre-Asian crisis: balance sheets with focus on public and

external debt• Asian crisis led to development of the balance sheet matrix

covering entire economy—balance sheet approach (BSA)• Global crisis highlighted gaps in balance sheet analysis related

to (i) increased financial complexity and (ii) inadequate surveillance of cross-border links between balance sheets

Focus of the BSA:• Stocks of assets and liabilities• System of interlinked sectoral balance sheets



(Example 1: FX shock-corporates borrow in FX)

Government Financial Sector Other Non- External TOTAL

(incl. Central Bank) Financial Sectors

A L A L A L A L A L

Government

In domestic currency

ST

LT

In foreign currency

ST

LT

Financial Sector

(incl. Central Bank)


ST

LT

In foreign currency

ST

LT

Other Non-

Financial Sectors


ST

LT

In foreign currency

ST

LT

External


ST

LT

In foreign currency

ST

LT

TOTAL


In foreign currency

Issu

er

of

the L

iab

ilit

y (

Deb

tor

Secto

r)Holder of the Liability (Creditor Sector)

Increase in NPLs

Depreciation of the

domestic currency

Reduced lending

Corporate bankruptcy



(Example 2: liquidity shock)



A L A L A L A L A L

Government


ST

LT

In foreign currency

ST

LT

Financial Sector



ST

LT

In foreign currency

ST

LT

Other Non-

Financial Sectors


ST

LT

In foreign currency

ST

LT

External


ST

LT

In foreign currency

ST

LT

TOTAL


In foreign currency

Issu

er

of

the L

iab

ilit

y (

Deb

tor

Secto


Unable to rollover external debt

Loss of liquidity

Fire Sale of

Assets

Default on loans and

bonds

Rise in NPLs losses on assets

Reduced le

nding



(Example 3: contingent liabilities materialize)



A L A L A L A L A L

Government


ST

LT

In foreign currency

ST

LT

Financial Sector



ST

LT

In foreign currency

ST

LT

Other Non-

Financial Sectors


ST

LT

In foreign currency

ST

LT

External


ST

LT

In foreign currency

ST

LT

TOTAL


In foreign currency

Issu

er

of

the L

iab

ilit

y (

Deb

tor

Secto


Reduced

lending

Rise in interestrates

Banks' exposure to sovereign

Feedback loop to

government

Rise in debt from

contingent liability


11


BSA allows analysis of key risks, as it generates indicators of • Currency mismatches • Maturity mismatches and liquidity risks• Capital structure mismatches (leverage)• Solvency or credit risks

Bilateral linkages between sectors in the BSA illustrate how shocks might propagate across sectors, including the potential for feedback effects that may magnify their initial impact


12


Government Finance DivisionIMF Statistics DepartmentBalance Sheet Matrix (Expanded)

d

Government Central BankBanks (ODC)

Other Financial Corporation (OFC) Non Financial Sector

(Corp. + HH) External

A L A L A L A L A L A L

Government

Total


In foreign currency

Central Bank

Total


In foreign currency

Banks (ODC)

Total


In foreign currency

Other Financial Corp. (OFC)

Total


In foreign currency

Non Financial Sector

(Corp. + HH)

Total


In foreign currency

External

Total


In foreign currency

Holder of the Liability (Creditor Sector)

Issu

er

of

the L

iab

ilit

y (

Deb

tor

Secto

r)


14

Data Sources and Data Gaps for Balance Sheet Analysis (1/5)

A BSA matrix can be filled (much but not all) with data from various IMF datasets:

Standardized Report Forms (SRFs)

External sector statistics• International Investment Position (IIP)• Quarterly external debt statistics (QEDS)• Coordinated Portfolio Investment Survey (CPIS)• Coordinated Direct Investment Survey (CDIS)

Government finance statistics (GFS)

Public Sector Debt Statistics (PSDS)


Country Example

Government Central BankBanks (ODC)

Financial Sector(OFC)

Non Financial Sector (Corp. + HH) External TOTAL

A L A L A L A L A L A L A L

Government

Total


In foreign currency

Central Bank

Total


In foreign currency

Banks (ODC)

Total


In foreign currency

Non-Bank Financial (OFC)

Total


In foreign currency

Non Financial Sector

(Corporate + Household)

Total


In foreign currency

External

Total


In foreign currency

TOTAL


In foreign currency

Holder of the Liability (Creditor Sector)

Issu

er

of

the L

iab

ilit

y (

Deb

tor

Secto

r)

351 52

351 30

0 22

262 188

243 183

19 5

0 0

0 0

0 0

52 351

30 351

22 0

763 3 0 0 2 6 884 1,516

685 3 0 0 0 6 0 0 716 361

78 0 0 0 2 0 33 1,092 135 1,092

188 262 3 763

183 243 3 685

5 19 0 78

253 175 2,881 2,733 3,809 4,049

231 141 2,427 2,300 43 3 2,887 3,371

22 34 454 434 166 115 646 680

0 0 0 0 175 253 44 299 219 552

0 0 0 0 141 231 44 241 17 0 202 472

0 0 0 0 34 22 0 58 70 5 104 85

6 2 2,733 2,881 299 44

6 0 2,300 2,427 241 44

0 2 434 454 58 0

1,092 33 118 209 5 87

0 0 3 42 0 17

1,092 33 115 166 5 70

1,453 851 4,051 3,533 557 306

361 716 3,371 2,887 472 202

1,092 135 680 646 85 104

SRF - Based

1,124 7

67 1,155

484 115

1,703 383

383 1,703 1,660 3,377

3,377 1,660

2,154 1,617

915

1,617 2,154

GFS-Based

417 1,370

417 1,370 3,728 6,112

3,728 6,112

BS IdentityIIP-Based


16


Progress has been made through various initiatives:

Data Gaps Initiative with focus on priority areas identified by the crisis for G-20• Global Systemically Important Financial Institutions• International banking statistics, securities statistics, IIP, CPIS• Sectoral balance sheets

SDDS Plus • Includes all data sets relevant for sectoral balance sheets

IMF/STA technical assistance/training/outreach


17


Around thirty countries report all needed data• Biggest gap: data on nonbank financial institutions (OFCs)

The BSA matrix is still useful for surveillance when data are incomplete• In some emerging markets and low income countries, OFC balance

sheets are small and can be ignored• Gaps need to be identified and filled from national sources


18


Main data gaps for balance sheet analysis: Coverage• Nonbank financial institutions• Corporate sector• Household sector• Off-balance sheet data

Granularity• Breakdown by major currencies• Breakdown by remaining maturity• Bilateral counterpart information


19

Looking Forward (1/2)

Comprehensive reporting of data on IMF report forms is a key• Euro area collects but does not report OFC data as systems are

being adapted

Identify data gaps from policy needs with priorities being based on capacity of countries


20

Looking Forward (2/2) Augment BSA to analyze linkages within each sector (e.g.,

within financial sector—analyze links between banks and nonbanking financial institutions)

Construct Global Flow-of-Funds (GFF) analysis to show spillover channels between national balance sheets

• additional data are needed to construct of full GFF matrix

• a partial GFF matrix is also useful to analyze financial spillovers (e.g., IIP, international banking statistics, and CPIS data give cross country bilateral financial linkages)

Documents

Government Finance Division IMF Statistics Department The views expressed herein are those of the author and should not be attributed to the IMF, its Executive