Financial Outlook of the OIC Member Countries 2017
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These four characteristics of financial institutions and markets are used to capture the features
of financial systems and to provide empirical shape of the financial development in the OIC
countries. While a quite number of indicators are produced to measure the performances of
financial institutions and markets, the data limitation especially for the low-income and lower-
middle income group of the OIC countries have led to employ a few benchmarks to assess the
financial markets. The World Bank databases have been used to analyze the recent
developments in the financial markets in this outlook. Data availability and accuracy is very
important to come up with meaningful analysis in the financial sector. For the OIC countries,
lack of accurate and sufficient data for low income group countries of the OIC is the main
challenge while gathering data. Detailed information along with the explanations of each
financial indicator is given in the Appendix for each OIC member state.
2.1 FINANCIAL DEPTH
A reasonable level of financial depth is one of the crucial fundamentals for well-functioning
financial markets and institutions in order to reach the desired role of finance in an economy
to lead economic growth and poverty reduction. As the financial institutions and markets are
deepened, financial services have been diversified and sophisticated for the financial
consumers.
Financial depth captures the size of financial sector relative to the economy. It is the size of
banks, other financial institutions, and financial markets in a country compared to a measure
of economic output. The most commonly used variable to measure the depth of the markets
and institutions in this regard is private credit relative to gross domestic product (GDP). The
private credit excludes credit issued to governments, government agencies, and public
enterprises. It also excludes credit issued by central banks. An alternative to private credit to
GDP is total banking assets to GDP, a variable that is also included in the Global Financial
Development Database. It could be accepted as a more comprehensive measure of size,
because it includes not only credit to private sector, but also credit to government as well as
bank assets other than credit. However, it is available for a smaller number of economies and
has been used less extensively in the literature on financial development.25
In order to measure the depth, private credit by deposit money banks to GDP, deposit money
banks' assets to GDP, stock market capitalization to GDP, and stock market total value traded
are used.
Private credit by deposit money banks refers to the financial resources provided to the
private sector by domestic money banks as a share of GDP. Domestic money banks comprise
commercial banks and other financial institutions that accept transferable deposits, such as
demand deposits.26
Since the role of the private sector in economic growth has been increasing all over the world,
this indicator provides a useful measure on how the financial markets and institutions are
used and affect the economy in terms of size. Recent empirical research has shown that
25 World Bank,
26 Private credit by deposit money banks and other financial institutions to GDP, calculated using the following deflation
method: {(0.5)*[Ft/P_et + Ft-1/P_et-1]}/[GDPt/P_at] where F is credit to the private sector, P_e is end-of period CPI, and P_a is
average annual CPI. Raw data are from the electronic version of the IMF’s International Financial Statistics. Private credit by
deposit money banks (IFS line 22d and FOSAOP); GDP in local currency (IFS line NGDP); end-of period CPI (IFS line PCPI); and
average annual CPI is calculated using the monthly CPI values (IFS line PCPI).