COMCEC Financial Outlook 2018
15
In this part of the study, bank regulatory capital to risk-weighted assets, bank capital to total
assets ratio and banks non-performing loans to total gross loans variables are used to measure
financial stability of financial institutions in the OIC Member States.
Bank regulatory capital to risk-weighted assets refers to the capital adequacy of deposit
takers. It is a ratio of total regulatory capital to its assets held, weighted according to the risk of
those assets. This ratio is used as an important indicator to measure the robustness of the
financial institutions during financial shocks. International financial regulatory institutions, for
example, the Bank for International Settlement (BIS), recommend financial institutions banks to
hold an adequate amount of capital to protect from systemic risks.
As shown in the following figure, OIC-UMIG and OIC-HIG have the highest scores over the
selected period compared to the other income groups and the World average. This can be
explained by the robustness and strong asset structure of the banking system for these groups.
Figure 10: Bank Regulatory Capital to Risk-Weighted Assets (%)
Source: Authors’ calculation from the World Bank Database
Among the OIC income groups, OIC-LIG and OIC-LMIG have the lowest scores in regulatory
capital to risk-weighted assets which realized as 17 and 17.2 percent respectively. Compared to
the other groups and the world average, these results make these countries more vulnerable to
financial stress.
Another indicator used to measure the stability of the financial intermediaries is the ratio of
bank capital and reserves to total assets . Capital and reserves include funds contributed by
owners, retained earnings, general and special reserves, provisions, and valuation adjustments.
Capital includes tier 1 capital (paid-up shares and common stock), which is a common feature
in all countries' banking systems, and total regulatory capital, which includes several specified
types of subordinated debt instruments that need not be repaid if the funds are required to
maintain minimum capital levels (these comprise tier 2 and tier 3 capital). Total assets include
all nonfinancial and financial assets. Average of the OIC-HIG countries shows better performance
than any other OIC groups and the World average.
0
5
10
15
20
25
OIC-LIG OIC-LMIG OIC-UMIG OIC-HIG OIC-Average World Average
2012 2013 2014 2015 2016