Methodological explanatory notes

The core financial soundness indicators are compiled in accordance with the IMF methodology (http://www.imf.org/external/pubs/ft/fsi/guide/2006/index.htm). When constructing these indicators, the Czech National Bank tried to comply with this methodology as much as possible. In some cases, however, this was not possible due to differences in the main assumptions or the unavailability of sufficiently detailed data in the reports submitted by banks to the Czech National Bank.

The main differences compared with the IMF methodology at the level of general assumptions are the following:

  • non-compliance with the requirement to publish indicators for the consolidated sector: the Czech National Bank does not have the necessary materials to calculate all the indicators on the same consolidated basis, so the indicators have been split into two tables, the first of which contains indicators for the consolidated sector and the second unconsolidated data,
  • the definition of consolidation: unlike in the IMF methodology, branches of foreign banks are included; savings banks and credit unions are not included; however, their effect on the data for the credit institutions sector as a whole is negligible; for financial holdings in which non-bank members of the group carry on significant cross-border activities, individual-level data for banks that are part of the financial holding are included in the consolidated banking sector,
  • different procedures for posting some items; for example, profit is not net of accrued interest on non-performing loans and discontinued operations; on the other hand, it does include the impact of extraordinary income/expenses

Since 2019 Q1, the CNB has been using a new mapping based on an EBA Guidance Note in which the FSIs are mapped to the ITS on Supervisory Reporting (EU Implementing Regulation No. 680/2014 in accordance with EU Regulation No. 575/2013). Any differences relevant to individual indicators are listed in the basic description of the indicators.

Basic description of the indicators

I001 Regulatory capital to risk-weighted assets

  • This is the ratio of total regulatory capital to total risk exposures pursuant to the directly applicable Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (hereinafter "CRR"), i.e. corresponding to the Basel 3 rules.
  • The calculation of the indicator is fully compliant with the IMF methodology.
  • In the Czech context, this indicator fully corresponds to the total capital ratio.

I002 Regulatory Tier 1 capital to risk-weighted assets

  • This is the ratio of regulatory Tier 1 capital to total risk exposures pursuant to CRR, i.e. corresponding to the Basel 3 rules.
  • The calculation of the indicator is fully compliant with the IMF methodology.
  • In the Czech context, this indicator fully corresponds to the Tier 1 capital ratio.

I003 Non-performing loans net of provisions to total regulatory capital

  • This is the ratio of non-performing loans to credit institutions and customers (net of provisions) to total regulatory capital.
  • Up to 2017 Q4, non-performing loans comprise substandard, doubtful and loss loans as defined by Decree No. 163/2014 Coll., on the performance of the activity of banks, credit unions and investment firms, in the wording effective as of 31 December 2017.
  • From 2018 Q1, non-performing loans are defined by Commission Implementing Regulation (EU) No. 680/2014, laying down implementing technical standards with regard to supervisory reporting of institutions according to Regulation (EU) No. 575/2013 of the European Parliament and of the Council, as amended (template F 18.00).
  • The calculation of this indicator is not fully compliant with the IMF methodology, as non-performing loans do not include loans to central banks. Given their zero value, they have No. impact on the value of the indicator.
  • This indicator is not commonly used in the Czech context.

I004 Non-performing loans to total gross loans

  • This is the ratio of non-performing loans to credit institutions and customers (gross of provisions) to total loans.
  • Up to 2017 Q4, non-performing loans comprise substandard, doubtful and loss loans as defined by Decree No. 163/2014 Coll., on the performance of the activity of banks, credit unions and investment firms, in the wording effective as of 31 December 2017.
  • From 2018 Q1, non-performing loans are defined by Commission Implementing Regulation (EU) No. 680/2014, laying down implementing technical standards with regard to supervisory reporting of institutions according to Regulation (EU) No. 575/2013 of the European Parliament and of the Council, as amended (template F 18.00).
  • The calculation of this indicator is not fully compliant with the IMF methodology, as non-performing loans do not include loans to central banks because of monetary instruments used by the central bank that significantly increase the amount of performing loans and hence have a significant impact on the value of the indicator.
  • In the Czech context, this indicator corresponds to the ratio of non-performing loans to total loans.

I005 Sectoral distribution of loans to total loans

  • This is the breakdown of loans to credit institutions and customers gross of provisions. The sectors include banks, the central bank, general government, other financial corporations (insurance companies, pension funds, investment firms and investment funds), non-financial corporations and other domestic sectors (households and non-profit institutions serving households).
  • Up to 2018 Q4, the calculation of the indicator is not fully compliant with the IMF methodology, as it is based on the monetary methodology and therefore does not include accruals, i.e. in this case it does not include accrued (not yet due) interest on loans and potentially also interest that is due but not yet paid; however, the impact on the value of the indicator is not significant.
  • From 2019 Q1, the calculation of the indicator is based on the EBA mapping, which is compliant with the IMF methodology.
  • This indicator is broken down in various ways in the Czech context.

I006 Return on assets

  • This is the ratio of profit after the inclusion of extraordinary profit/loss and after tax to average assets.
  • The calculation of the indicator is not fully compliant with the IMF methodology, as profit is not net of accrued interest on non-performing loans and discontinued operations; on the other hand, it does include the impact of extraordinary income/expenses; however, the effect of accrued interest and discontinued operations on the value of the indicator is usually insignificant.
  • In the Czech context, this indicator corresponds to the return on average assets (ROAA).

I007 Return on equity

  • This is the ratio of profit after the inclusion of extraordinary profit/loss and after tax to the regulatory average Tier 1 capital pursuant to CRR, i.e. corresponding to the Basel 3 rules.
  • The calculation of the indicator is not fully compliant with the IMF methodology, as profit is not net of accrued interest on non-performing loans and discontinued operations; on the other hand, it does include the impact of extraordinary income/expenses; however, the effect of accrued interest and discontinued operations on the value of the indicator is usually insignificant.
  • In the Czech context, this indicator corresponds to the return on average Tier 1 equity (ROAE).

I008 Interest margin to gross income

  • This is the ratio of interest profit (excluding gains/losses on hedging derivatives) to gross income; gross income comprises net interest income, fee and commission income, gains/losses on financial instruments, dividend income, gains/losses on derecognition of assets, disposal of assets and so on, negative goodwill and other operating income.
  • The calculation of the indicator is not fully compliant with the IMF methodology, as neither item is net of accrued interest on non-performing loans and discontinued operations; on the other hand, gross income does include the impact of extraordinary income; however, the effect on the value of the indicator is usually insignificant.
  • In the Czech context, the ratio of interest profit excluding gains/losses on hedging derivatives to total assets is calculated.

I009 Non-interest expenses to gross income

  • This is the ratio of non-interest expenses, i.e. staff expenses, administrative expenses, fee and commission expenses and other operating expenses, to gross income; gross income comprises net interest income, fee and commission income, gains/losses on financial instruments, dividend income, gains/losses on derecognition of assets, disposal of assets and so on, negative goodwill and other operating income.
  • The calculation of the indicator is not fully compliant with the IMF methodology, as the items are not net of accrued interest on non-performing loans and discontinued operations; on the other hand, the impact of extraordinary income and expenses is included; however, the impact on the value of the indicator is not significant; extraordinary income and expenses are rare, but a significant impact cannot be ruled out (this value cannot be obtained separately from the current reports, so other operating expenses and gross income cannot be corrected for its impact).
  • The indicator in this methodology is not commonly used in the Czech context.

I010 Liquid assets to total assets

  • This is the ratio of liquid assets, i.e. assets that are readily available to cover liabilities, to total assets.
  • Up to 2018 Q4, liquid assets comprise only cash, claims payable on demand and liquid securities; the calculation is not fully compliant with the IMF methodology, as only claims payable on demand are included (according to the IMF, claims payable within three months should be included); the indicator was monitored on a consolidated basis.
  • From 2019 Q1, the supervisory definition of liquid assets is used (report C72); the calculation of the indicator is based on the EBA mapping, which is compliant with the IMF methodology; the indicator is available on an unconsolidated basis.
  • In the Czech context, up to 2014 Q2 this indicator corresponds to the ratio of quick assets to total assets, where, however, quick assets do not include claims on customers payable on demand.

I011 Liquid assets to short-term liabilities

  • This is the ratio of liquid assets, i.e. assets that are readily available to cover liabilities, to short-term liabilities.
  • Up to 2018 Q4, liquid assets comprise only cash, claims payable on demand and liquid securities; short-term liabilities are liabilities payable on demand; the calculation is not fully compliant with the IMF methodology, as only claims and liabilities payable on demand are included (according to the IMF, claims payable within three months should be included); the indicator was monitored on a consolidated basis.
  • From 2019 Q1, the supervisory definition of liquid assets/short-term liabilities is used (report C72/C61); the calculation of the indicator is based on the EBA mapping, which is compliant with the IMF methodology; the indicator is available on an unconsolidated basis.
  • This indicator is not commonly used in the Czech context.

I012 Net open position in foreign exchange to capital

  • This is the ratio of the net position in foreign exchange (i.e. the net currency position in foreign currencies) to Tier 1 regulatory capital pursuant to CRR, i.e. corresponding to the Basel 3 rules.
  • The calculation of the indicator is compliant with the IMF methodology.
  • Since 2019 Q1, this indicator has not been monitored (due to the switch to the FINREP single reporting framework, which does not contain data on foreign-currency-denominated loans).
  • This indicator is not commonly used in the Czech context.

I013 Capital to assets

  • This is the ratio of Tier 1 capital pursuant to CRR, i.e. corresponding to the Basel 3 rules, to total assets.
  • The calculation of the indicator is fully compliant with the IMF methodology.
  • This indicator is not commonly used in the Czech context.

I015 Geographical distribution of loans to total loans

  • This is the breakdown of loans to credit institutions and customers gross of provisions by regional group. The composition of the regional groups is given on the IMF website (http://www.imf.org/external/pubs/ft/weo/2005/02/data/groups.htm).
  • This indicator is only available on an unconsolidated basis.
  • The calculation of the indicator is not fully compliant with the IMF methodology, as claims on central banks and non-current assets classified as held for sale are not included; however, the impact on the value of the indicator is not significant.
  • This indicator in this breakdown is not used in the Czech context.

I016 Gross asset position in financial derivatives to capital

  • This is the ratio of the positive fair value of derivatives held for trading and hedging derivatives at banks to Tier 1 regulatory pursuant to CRR, i.e. corresponding to the Basel 3 rules. For this calculation, the "gross" fair value is used, i.e. gross of the fair value of financial derivatives on the liabilities side.
  • The calculation of the indicator is fully compliant with the IMF methodology.
  • This indicator is not commonly used in the Czech context.

I017 Gross liability position in financial derivatives to capital

  • This is the ratio of the negative fair value of derivatives held for trading and hedging derivatives at banks to Tier 1 capital pursuant to CRR, i.e. corresponding to the Basel 3 rules. For this calculation the "gross" fair value is used, i.e. gross of the fair value of financial derivatives on the assets side.
  • The calculation of the indicator is fully compliant with the IMF methodology.
  • This indicator is not commonly used in the Czech context.

I018 Trading income to total income

  • This is the ratio of profit/loss on trading in financial instruments to gross income; gross income comprises net interest income, fee and commission income, gains/losses on financial instruments, dividend income, gains/losses on derecognition of assets, disposal of assets and so on, negative goodwill and other operating income.
  • The calculation of the indicator is not fully compliant with the IMF methodology, as the gross income items are not net of accrued interest on non-performing loans and discontinued operations; on the other hand, gross income does include the impact of extraordinary income; however, the effect on the value of the indicator is usually insignificant.
  • This indicator is not commonly used in the Czech context.

I019 Personnel expenses to non-interest expenses

  • This is the ratio of personnel expenses to non-interest expenses, i.e. staff expenses, administrative expenses, fee and commission expenses and other operating expenses (i.e. total administrative expenses).
  • The calculation of the indicator is not fully compliant with the IMF methodology, as the items are not net of discontinued operations; on the other hand, non-interest expenses do include the impact of extraordinary expenses; however, the effect on the value of the indicator is usually insignificant.
  • This indicator is not commonly used in the Czech context.

I020 Spread between reference lending and deposit rates

  • This is the spread between lending and deposit rates. The spread is calculated from the interest rate source statistics as the difference between the weighted average lending rate and the weighted average deposit rate.
  • The calculation of the indicator is compliant with the IMF methodology.
  • This indicator is not commonly used in the Czech context.

I021 Spread between highest and lowest interbank rates

  • This is the spread between the highest and lowest average overnight rates traded by individual banks on the domestic interbank deposit market calculated as the average for the calendar quarter.
  • The calculation of the indicator is fully compliant with the IMF methodology.
  • This indicator is commonly used in the Czech context.

I022 Customer deposits to total (non-interbank) loans

  • This is the ratio of customer deposits (excluding deposits of credit institutions) to total customer loans (excluding loans provided to credit institutions) gross of provisions.
  • The calculation of the indicator is not fully compliant with the IMF methodology, as non-current assets classified as held for sale are not included; however, the impact on the value of the indicator is not significant.
  • In the Czech context, this indicator is used in reverse form as coverage of loans by primary funds.

I023 Foreign-currency-denominated loans to total loans

  • This is the ratio of total foreign-currency-denominated claims on credit institutions and customers gross of provisions to total claims on banks and customers gross of provisions.
  • The calculation of the indicator is not fully compliant with the IMF methodology, as claims on central banks and non-current assets classified as held for sale are not included; however, the effect on the value of the indicator is usually insignificant.
  • Since 2014 Q3, this indicator has not been monitored (due to the switch to the FINREP single reporting framework, which does not contain data on foreign-currency-denominated loans).

I024 Foreign-currency-denominated liabilities to total liabilities

  • This is the ratio of total foreign-currency-denominated liabilities to credit institutions and customers to the sum of total liabilities to credit institutions and customers and the net fair value of derivatives (i.e. the difference between the negative and positive fair values of derivatives).
  • The calculation of the indicator is compliant with the IMF methodology.
  • This indicator is not commonly used in the Czech context; the ratio of foreign-currency-denominated liabilities and equity to total liabilities and equity is commonly used.
  • Since 2014 Q3, this indicator has not been monitored (due to the switch to the FINREP single reporting framework, which does not contain data on foreign-currency-denominated liabilities).

I025 Net open position in equities to capital

  • This is the ratio of the net open position in equities (i.e. exposure to the risk of changes in the prices of equities on the market) to Tier 1 capital pursuant to CRR, i.e. corresponding to the Basel 3 rules. The net open position is either positive (if it is long) or negative (if it is short).
  • The calculation of the indicator is compliant with the IMF methodology.
  • This indicator is not commonly used in the Czech context.
  • Since 2014 Q3, this indicator has not been monitored due to ambiguities in the calculation following the switch to the FINREP single reporting framework.

Updated on 30 September 2019