Pillar 9: Financial system

What does it capture? The depth, namely the availability of credit, equity, debt, insurance and other financial products, and the stability, namely, the mitigation of excessive risk-taking and opportunistic behavior of the financial system.

Why does it matter? A developed financial sector fosters productivity in mainly three ways: pooling savings into productive investments; improving the allocation of capital to the most promising investments through monitoring borrowers, reducing information asymmetries; and providing an efficient payment system. At the same time, appropriate regulation of financial institutions is needed to avoid financial crises that may cause long-lasting negative effects on investments and productivity

 

9.01 Domestic credit to private sector

The total value of financial resources provided to the private sector, expressed as a percentage of GDP. | 2014–2016 moving average

This indicator is computed as the sum of loans, purchases of non-equity securities, trade credits and other accounts receivable that establish a claim for repayment provided by financial corporations to firms and households.

Source: The World Bank Group.

 

9.02 Financing of SMEs

Response to the survey question “In your country, to what extent can small- and medium-sized enterprises (SMEs) access finance they need for their business operations through the financial sector?” [1 = not at all; 7 = to a great extent] | 2017– 2018 weighted average or most recent period available

Source: World Economic Forum, Executive Opinion Survey. For more details, refer to Appendix B of this report.

 

9.03 Venture capital availability

Response to the survey question “In your country, how easy is it for start-up entrepreneurs with innovative but risky projects to obtain equity funding?” [1 = extremely difficult; 7 = extremely easy] | 2017–2018 weighted average or most recent period available

Source: World Economic Forum, Executive Opinion Survey. For more details, refer to Appendix B of this report.

 

9.04 Market capitalization

The total value of listed domestic companies, expressed as a percentage of GDP. | 2014–2016 moving average

Calculated as the share price of all listed domestic companies multiplied by the number of their outstanding shares. Investment funds, unit trusts and companies whose only business goal is to hold shares of other listed companies are excluded. Data are endof-year values.

Source: World Federation of Exchanges.

 

9.05 Insurance premiums

Life and non-life insurance premium volumes, expressed as a percentage of GDP. | 2013–2015 moving average

Computed as the sum of life and non-life insurance premium volume divided by GDP. The premium volume is the insurer’s direct premiums earned (if property/casualty) or received (if life/ health) during the previous calendar year.

 Source: The World Bank Group.

 

9.06 Soundness of banks

Response to the survey question “In your country, how do you assess the soundness of banks?” [1 = extremely low banks may require recapitalization; 7 = extremely high banks are generally healthy with sound balance sheets] | 2017–2018 weighted average or most recent period available

Source: World Economic Forum, Executive Opinion Survey. For more details, refer to Appendix B of this report.

 

9.07 Non-performing loans

The ratio of the value of nonperforming loans divided by the total value of the loan portfolio of all banks operating in a country. | 2016

 

Defaulting loans are payments of interest and principal past due by 90 days or more.  The loan amount recorded as nonperforming includes the gross value of the loan as recorded on the balance sheet, not just the amount that is overdue.

Source: International Monetary Fund (IMF).

 

9.08 Credit gap

Measures the difference between the credit-to-GDP ratio and its long-term trend. | 2016

Computed as the difference between the latest “Domestic credit to private sector (as a percentage of GDP)” and its trend. Following the methodology from Bank of International Settlements, the trend value is calculated by applying a Hodrick– Prescott filter to the 15-year time series of the “Domestic credit to private sector (% of GDP)” indicator. More details about the methodology can be found at https://www.bis.org/publ/qtrpdf/r_ qt1403g.htm.

Source: World Economic Forum; calculations based on The World Bank Group data.

 

9.09 Banks’ regulatory capital ratio

Banks’ regulatory capital ratio. | 2013–2015 moving average

This indicator measures the capital adequacy of deposit takers. It is a ratio of total banks’ regulatory capital (shareholders’ equity, disclosed and undisclosed reserves, revaluation reserves, general provisions and other instruments) to total banks’ assets, weighted according to the risk of these assets. A log transformation is applied to the raw score before it is normalized to a 0 to 100 scale.

Source: The World Bank Group.