COMCEC Financial Outlook 2018
15
Figure 9: Bank Return on Equity (%, after tax)
Source: Authors’ calculation from the World Bank Database
As a result, in terms of the efficiency characteristic, the OIC average has performed slightly better
than the world average for the selected indicators over the period between 2012 and 2016. It
has been noted that the averages of the high and upper-middle-income group countries
performed better than the world average which highlights the level of development of the
financial markets and institutions in these countries. As for this characteristic, the low-income
segments of the countries should be targeted to increase financial efficiency in order to support
further economic development.
1.4 Financial Stability
The importance of financial stability is highlighted by the World Bank as following: ‘A stable
financial system is capable of efficiently allocating resources, assessing and managing financial
risks, maintaining employment levels close to the economy’s natural rate, and eliminating
relative price movements of real or financial assets that will affect monetary stability or
employment levels. A financial system is in a range of stability when it dissipates financial
imbalances that arise endogenously or as a result of significant adverse and unforeseen events.
In case of instability, the systemwill absorb the shocks primarily via self-correctivemechanisms,
preventing adverse events fromhaving a disruptive effect on the real economy or other financial
systems. Financial stability is paramount for economic growth, as most transactions in the real
economy are made through the financial system’18.
Financial stability is an essential feature of a well-functioning financial sector. The recent rapid
growth of the financial sector should be accompanied by proper risk management and
regulation in order to refrain from systemic risks that can be a severe threat to global financial
stability. In this framework, the system has created various mechanisms to measure systemic
risk, stress tests, and other tools for financial stability. As the global financial markets have been
integrated over the recent decades, the importance of financial stability has been increased since
it is closely connected with macroeconomic stability, economic growth, employment, etc.
18
15,7
13,8
8,6
11,4
12,6
0
2
4
6
8
10
12
14
16
18
OIC-LIG OIC-LMIG OIC-UMIG OIC-HIG OIC-Average World Average
2012 2013 2014 2015 2016