COMCEC Financial Outlook 2018
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exchanges in the OIC countries, it is understandable to have smaller shares in OIC states
compared to the world averages.
As a result, in terms of financial efficiency, the OIC averages for the selected indicators have been
found around the world averages over the selected years. As mentioned earlier, there is a close
correlation between economic development, income level, and financial access. Therefore, the
findings of the indicators under this characteristic clearly signs that as the economies develop
financial access increases in parallel. The high and upper middle-income groups of OIC countries
have performed much better than the other groups. In this regard, the policies towards
promoting financial access should focus on the low-income group countries as well as on the
groups of financially deprived segments of other group countries.
1.3 Financial Efficiency
The structure and operation of the financial system have undergone remarkable changes in the
past couple of decades due to the significant improvements in technology, product innovation,
and integration in the global financial system, competition in financial services, and policy,
regulatory and trade reforms. These developments have led to a dynamic and sophisticated
global financial markets and fostered economic growth; at the same time, however, specific
problems and issues have plagued the financial system. 16 In this regard, among other
characteristics, the efficiency of the financial intermediaries and markets have emerged as an
essential tool to understand the financial system.
As for intermediaries, efficiency is primarily constructed to measure the cost of intermediating
credit. Efficiency measures for institutions include indicators such as overhead costs to total
assets, net interest margin, lending-deposits spread, non-interest income to total income, and
cost to income ratio, return on assets and return on equity, etc. Regarding financial markets,
efficiency measures focus less on directly measuring the cost of transactions and more on
measuring transactions. A primary measure of efficiency in the stock market is the turnover
ratio. The logic of using this variable is that the higher the turnover (the more liquidity), the
more efficient the market17.
In this report, the following measures for institutions and markets are used to understand and
compare the efficiency of the financial system among the countries and country groups.
Bank lending deposit spread refers to the difference between the lending rate and deposit
rate. The lending rate is the rate charged by banks on loans to the private sector and deposit
interest rate is the rate offered by commercial banks on three-month deposits.
16 Policy Framework for Effective and Efficient Financial Regulation, OECD 2010
17 Cihak, M., Demirgüç-Kunt, A. “Benchmarking Financial Systems Around The World 2012, World Bank”