BMI’s Commercial Banking Reports aim to derive insights from recently-published statistics that are available from central banks, other regulatory authorities and, occasionally, trade associations.
The reports seek to do this by looking at changes over the last year and by comparing the banking sectors of different countries. They also consider various aspects of the banking sector in relation to economic statistics that have been compiled by BMI. This is because the dynamics of banking sectors can provide indicators of risk that might otherwise not be obvious.
We look at four aspects of the commercial banking system for which we have written reports. These aspects are total assets, total loans and total deposits, and the banks’ portfolios of bonds and their capital accounts.
In each country, our figures normally include commercial banks and, if significant, other institutions that perform similar functions. Most notably, our figures include thrifts (roughly building societies) in the US, development banks in Brazil, foreign banking units in Bahrain and specialised banks in South Korea. Our figures do not include the balance sheet of the central bank of the country in question.
We incorporate the latest BMI projections for economic growth, and data for inflation, economic growth, the current-account and budget deficits.
In most countries, the central bank (or other regulator) publishes a figure for total assets that equals ‘total liabilities’ or, perhaps more accurately ‘total passives’. ‘Total liabilities’ or ‘total passives’ include capital items. In our reports, we refer to ‘total liabilities and capital’, which is the balance sheet item that corresponds to ‘total assets’.
The ‘total loans’ that we have sought to identify in each case represent the total lending by the commercial banks to the non-bank private sector. In some cases, the borrowers to whom the banks are lending will be outside the country. In some cases, our figures include loans to corporations or entities that are wholly- or partly-owned by the public sector. However, ‘total loans’ do not include lending to other banks and financial institutions, or to the central bank or to the government of the country in question.
We accept that we may need to fine tune how we quantify banks’ bond portfolios. In many countries, the central bank (or other regulator) quantifies holdings of securities that have been issued by the government (and/or, in some instances, by governments of other countries that have a related currency) or the central bank. This is the figure that we seek to identify in each case. Sometimes, the bond portfolios will be dominated by long-dated government bonds (with maturities in excess of five years). In other instances, the portfolios will be dominated by short-dated securities that are used by the central bank to give effect to monetary policy decisions.
Our analysis identifies ‘other assets’. These are the difference between total assets on one hand and the sum of total loans and the bond portfolio on the other. In some cases, the other assets represent a considerable portion of total assets: in others, they are insignificant. In reality, other assets typically include vault cash, deposits with the central bank, loans to other banks and financial institutions, investments in subsidiaries, office buildings and overseas assets.
‘Capital items’ include subscribed capital, retained earnings and subordinated debt that can be counted as capital.
Total deposits include deposits from the non-bank private sector. Sometimes, the depositors are non-resident. Sometimes the deposits are foreign-currency deposits. The deposits usually include deposits of corporations and other entities that are wholly- or partly-owned by the public sector. They generally do not include deposits of the government (which are typically held at the central bank) or deposits of other financial institutions.
Other liabilities are determined by subtracting total deposits and capital items from total liabilities and capital. The importance of other liabilities varies widely from country to country. In reality, other liabilities include foreign liabilities and liabilities to other banks and financial institutions.
Data on interest rates, exchange rates, macro-economic variables and population is sourced from the latest Country Risk reports published by BMI. In this way, we ensure that our projections are consistent with the house view on the overall economy.
In general, we will assume that total assets, liquid assets, holdings of securities, total loans, total deposits, and credits to various sectors of the economy etc. will grow over the next 12 months at a rate that is similar to that of the previous 12-24 months. In making projections for 24-36 months, we consider the following: