FSIs for conventional and Islamic finance conference held

Confab jointly organized by AMF, IFSB and IMF focus 0n soundness indicators

KUALA LUMPUR/ABU DHABI/ WASHINGTON, April 13: A joint conference themed “Soundness Indicators for Conventional and Islamic Finance” was successfully organised by the Arab Monetary Fund (AMF), the Islamic Financial Services Board (IFSB), and the International Monetary Fund (IMF) on March 1-2, 2017 in Abu Dhabi, UAE.

The Conference opened with remarks by H.E. Dr Abdulrahman A. Al Hamidy, Director General Chairman of the Board, AMF, Saif Hadef Al Shamsi, Assistant Governor, Central Bank of the United Arab Emirates (CBUAE), Jaseem Ahmed, SecretaryGeneral, IFSB and Gabriel Quiros, Deputy Director, Statistics Department, IMF. The Conference, participation of which was principally focused on the Arab-speaking countries, brought together over 60 mid-to-senior level officials from international/regional institutions and the regulatory and supervisory authorities (RSAs) in member jurisdictions of the IMF, the IFSB, and the AMF. The Conference agenda centred on the global statistical databases established by the IMF and the IFSB, namely, the Financial Soundness Indicators (FSIs) and the Prudential and Structural Islamic Financial Indicators (PSIFIs) respectively, to strengthen financial sector surveillance and address data gaps identified as a result of the global financial crisis.

In his opening remarks, H.E. Dr Abdulrahman A. Al Hamidy noted the IMF and IFSB’s efforts in the development of soundness indicators, which reflect the strengths and weaknesses of a country’s financial system, and can evolve to be tools for prudential oversight and act as early warning tools in detecting a potential financial crisis. In highlighting the importance of areas for collaboration to the delegates, Dr Al Hamidy emphasised that “there is a need for Arab countries to give more attention to soundness indicators for the non-banking financial sectors, which will help better supervision and monitoring of these institutions”. He further noted that “overcoming challenges requires concerted efforts and continuous cooperation, utilising capabilities and benefitting from all available expertise to develop the financial sector in the Arab region and to strengthen its soundness and stability.”

Jaseem Ahmed, Secretary-General of the IFSB, noted that “the performance of the Islamic financial system cannot be isolated from developments in conventional finance and the global economy”, and thus the vulnerabilities to external economic, financial and monetary shocks … bring large risks with them which must be identified, made transparent, and managed at both the micro and macro levels”. In this context, he shared with the delegates the IFSB’s accomplishments in establishing the Prudential and Structural Islamic Finance Indicators (PSIFIs) programme which offers a well-developed global database on Islamic banking that supports macroprudential oversight, promotes effective monitoring of resilience and stability of Islamic financial system and enhances comparability within and between jurisdictions. He also highlighted the importance of “mutual assistance and collaboration to mutual stability and resilience” noting that “such collaboration is essential in a highly connected financial system in which shocks and developments are transmitted and amplified rapidly.”

Conference

Gabriel Quiros noted that the conference is an evidence of the continued cooperation among the three institutions and will facilitate the work on the IMF’s FSIs and the IFSB’s PSIFIs. Noting that the soundness of the financial system is not an end in itself but a means to achieving sustainable inclusive growth, he stated that the financial crisis indicated that in a global financial system that is so interlinked, the propagation of major disturbances in a national or regional market can expand globally very quickly. In this context, he noted the importance of multilateral institutions in ensuring financial and economic stability, and the importance of data for evidenced-based policy making, in which FSIs and PSIFIs can play an important role. He further noted that the IMF has increased its focus on Islamic finance due to its increasing relevance, and for bilateral surveillance in the form of Article IV reports, where this enhanced focus requires a better understanding of Islamic finance as well as more data on Islamic finance to understand the possibilities as well as the financial stability challenges it poses.

The Keynote Address by Professor Mohamed Azmi Omar, Director General of the Islamic Research and Training Institute of the Islamic Development Bank Group, emphasised “the importance to understand the nature of financial instability and the types of turbulence, which might pose particular systemic dangers, further highlighting the need to capture specificities of Islamic financial institutions in the soundness indicators as well as going beyond the analysis of financial condition to also capture the benefits (maslahah) from the existence of Islamic financial institutions”. In this regard, he noted the need to establish “Soundness Indicators that captures banks’ social benefit distributed to society and ... the preservation of the five necessities of MaqÇid al-Shar¥ah”.

The first session of the Conference, themed, IMF’s Financial Soundness Indicators and Surveillance was chaired by Dr Ayman Al Alfi, Senior Economist and Head of Financial Stability, Saudi Arabian Monetary Authority. The speakers for this session were Artak Harutyunyan, Deputy Division Chief, Financial Institutions Division, Statistics Department, IMF, Alain Bernard, CBUAE, Mohammed Amaireh, Central Bank of Jordan, and Halim al Jadi, Bank al Maghrib. This session provided an update on the IMF’s FSIs work and agenda for the revision of the FSIs Compilation Guide along with the revised list of FSIs, as well as insights shared by speakers from Jordan and Morocco on the usage of FSIs in macroprudential analysis, systemic risk assessment and macro stress testing frameworks. The speakers noted the need to improve the coverage of indicators for non-bank financial institutions, as well as for households and corporate sectors. The discussion also drew attention to the issues of interconnectedness of institutions in the financial sector and risks of contagion. There was also a suggestion to introduce more forward looking indicators in the list of soundness indicators.

The second session, themed Soundness Indicators for the Islamic Financial Services Industry (IFSI) was chaired by Harun Kapetanovic, Economic Advisor, Department of Economic Development, Government of Dubai. Distinguished speakers include Zahid ur Rehman Khokher, Assistant

Models pose with Samsung Electronics’ Galaxy S8 and S8+ smartphones during a media day in Seoul, South Korea, on April 13. The Galaxy S8 and S8+ smartphones will be released in the domestic market on April 21. (AP)

Secretary-General, IFSB, Dr Hamim Syahrum Ahmad Mokhtar, Deputy Director, Islamic Banking and Takaful Department, Bank Negara Malaysia and Elmoaiz Ibrahim Abdalla Ahmed, Head, Financial Analysis Unit, Banking Supervision Department, Central Bank of Sudan. The session focused on the importance of capturing better data sets in the IFSI, updates on the IFSB’s work on the PSIFIs with highlights on its progress and achievements and future work ahead in the next phase. Speakers from Sudan and Malaysia shared their experiences in their data compilation exercise for PSIFIs, where they also expressed the need to look at additional soundness indicators to address the specificities of the takÇful sector, and linking the soundness indicators with the ultimate objectives of Islamic finance.

Chaired

Gabriel Quiros chaired the third session on Countries’ Experiences and Challenges in Compiling FSIs and PSIFIs. Naseer Ahmed, Additional Director, Statistics & Data Ware House Department, State Bank of Pakistan and Ms. Maizatul Najibah Binti Haji Mohammad, Senior Manager, Autoriti Monetari Brunei Darussalam shared their countries experiences in compiling PSIFIs data and its challenges, for example, data availability. Naseer proposed some potential areas for further progress including the compilation of residential and commercial real estate indices, compilation of data for money market mutual funds, as well as standardisation and refinement to the annualisation method. Other areas noted for future work include the development of indicators for non-financial corporations, further elaboration and development of metadata, and measures for strengthening data quality including providing training for compilers of PSIFIs. Ms. Najibah also highlighted some important points for overcoming current data compilation challenges, notably the need for harmonising the soundness indicators to ensure consistency and uniformity in reporting PSIFIs and FSIs.

The fourth session themed, ‘Use of FSIs and PSIFIs’ was chaired by Dr Riyad Abu Shehadeh, Governor’s Assistant for Financial Stability Affairs, Palestine Monetary Authority. The speakers for this session were Ms Inutu Lukonga, Financial Sector Expert, Regional Studies Division, Middle Eastern Central Asia Department, IMF and Md. Salim Al Mamun, Member of the Secretariat, Technical & Research, IFSB. The session noted that while significant progress has been made in developing PSIFIs to address the data limitations in Islamic finance, some important gaps still remain. In this respect, Ms Lukonga highlighted the need for soundness indicators to be augmented with separate consolidated balance sheet and income statement data for Islamic banks and more granular data on the funding and asset structure. Mamun also mentioned the importance of soundness indicators in macroprudential surveillance, particularly for financial stability analysis and stress testing as well as for effective regulation and supervision, enabling the tracking of implementation of prudential standards and improving consistency of compliance.

Concentration and Distribution Measures (CDM) was the fifth session of the Conference. The chairperson for this session was Dr Mohamed Abusnina, Executive Manager, Financial Stability Department, Central Bank of Jordan with speakers including Abdurrahman Cetin, Head, Department of Enforcement, Banking Regulation and Supervision Authority, Turkey and Agus Firmansyah, Senior Economist, Financial Institutions Division, Statistics Department, IMF, and Dr Russell Krueger, Consultant of the IFSB. Cetin’s presentation provided insight on the application of CDMs for analysis of efficiency and other aspects of financial stability in a country and for comparison between Islamic and conventional banks in countries that have dual banking systems. Agus highlighted the need for having disaggregated data to complement the FSIs and he provided an overview of the IMF’s pilot project on CDMs. Regarding the way forward for CDMs, he noted that while CDM data have analytical value, there is a need to ascertain that costs/ efforts are justified to compile and report them in a relevant framework. This was followed by a discussion by Dr Russel on the need for augmenting the FSIs and possibly PSIFIs with relevant CDMs to capture tail risks, concentrations, variations in distributions, and the volatility of indicators over time that may not be captured by simple averages. More specifically, he discussed the potential for application of CDMs in identifying domestic-systemically important banks. Overall, the session highlighted the importance of concentration and distribution measures, particularly where institutional data is not available.

Panel

The final session was a panel discussion on Global Soundness Indicators: Future Direction, chaired by Jaseem Ahmed. Panelists were Stefano Borgioli, Principal Economist Statistician and Expert, Monetary and Financial Statistics Division, Directorate General Statistics, European Central Bank, Artak Harutyunyan, Dr Khalid Bin Abdulaziz Al Janahi, General Advisor, Dubai Islamic Economy Development Centre and Dr Russell Krueger. The session highlighted and reiterated some of the key messages from the Conference including the need for collaboration and coordination between multilateral institutions and the need for harmonisation of methodologies between soundness indicators for conventional and Islamic indicators, and reaffirmed that the projects are moving in the right direction with respect to the current work being undertaken. Discussion on the future agenda for soundness indicators included areas for further expansion of data coverage, particularly in terms of addressing priority areas and data gaps; enhancing the current indicators and compilation methodologies, and the future role of soundness indicators in surveillance and stability analysis, country surveillance by the IMF and World Bank, and conducting macro stress testing.

The closing remarks were delivered by Yisr Barnieh, Chief of Financial Markets Division at the AMF and Gabriel Quiros. The closing remarks addressed the main topics that have been tackled during the two days, and stressed that further work is needed to enhance the reporting of FSIs and PSIFIs by Arab countries. They confirmed the collaboration between the international partners through an active working programme to strengthen the financial sector surveillance and address data gaps in Arab Countries. They expressed willingness and interest to help Arab countries through technical assistance and capacity building programmes.