COMCEC Financial Outlook 2018
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STABILITY GFDD.SI.02
GFDD.SI.03
GFDD.SI.05
Bank non-performing loans to gross loans (%)
Bank capital to total assets (%)
Bank regulatory capital to risk-weighted assets (%)
Source: World Bank 2018
These four characteristics of financial institutions and markets are used to capture the features
of financial systems and to provide the 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 essential
to come up with a 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.
1.1 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 prosperity and poverty reduction. As the financial institutions and
markets are deepened, financial services have been diversified and sophisticated for financial
consumers.
Financial depth captures the size of the 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 the 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 the private sector, but also a 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.8
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
8 World Bank,