International Workshop on Consumption and Full Accounting of

International Workshop on Consumption and Full Accounting of Household Sector 26 -28 March 2012 FISIM Estimation and Allocation in Korea Yung Taek, Jung Director National Accounts Division

< Content of Presentation > Ⅰ. Overview of Financial Industry in Korea Ⅱ. Calculation of FISIM Ⅲ. Allocation of FISIM Ⅳ. Way Forward 2

Ⅰ. Overview of Financial industry in Korea Share of the Financial industry in Korea (In percent of GVA) The financial sector includes the finance and the insurance industries; real estate, renting and business activities are not included. Source : The Bank of Korea 3

Ⅰ. Overview of Financial industry in Korea Financial corporations are grouped into the following sub-sectors (Classification): Ø Central bank Ø Other depositary corporations; Ø Other financial intermediaries; Ø Life insurance corporations; Ø Non-life insurance corporations; Ø Financial auxiliaries 4

Ⅰ. Overview of Financial industry in Korea Financial services (Output) Ø Financial services directly measured (include insurance) Ø Financial intermediation services indirectly measured (FISIM) Ø Services for which fees or commissions are explicitly charged 5

Ⅱ. Calculation of FISIM Financial intermediation services indirectly measured (FISIM), as a share of Korea’s GDP from 2005 to 2010 period, had been fairly stable at 4. 3~4. 6 percent. FISIM as Percentage of GDP (In trillion won, %) 2005 2006 2007 2008 2009 2010 GDP 865. 2 908. 7 975. 0 1, 026. 5 1, 065. 0 1, 173. 3 FISIM 37. 6 39. 6 41. 9 47. 4 46. 2 52. 1 4. 3 4. 4 4. 3 4. 6 4. 3 4. 4 FISIM/GDP(%) 6

Ⅱ. Calculation of FISIM producing sub-sectors Ø Other depository corporations (S. 122) Ø Other financial intermediaries (S. 123) Ø Financial auxiliaries (S. 124) Total loans and deposits of FISIM-producing FIs (2010) (unit; trillion won, %) Total loans Total deposits S. 122 2, 163 ( 83. 6) 2, 215 ( 84. 0) S. 123 411 (15. 9) 423 ( 16. 0) S. 124 11 ( 0. 4) 0 ( 0. 0) Total 2, 586 (100. 0) 2, 638 (100. 0) 7

Ⅱ. Calculation of FISIM Financial instruments generating FISIM Ø Loans Ø Deposits Ø Securities other than shares (bonds owned and issued by Fis) Total loans and deposits of FIs (2010) (%) Total loans (1+2) 100. 0 Total deposits (1+2) 100. 0 1. Loans 59. 6 1. Deposits 63. 6 2. Bonds owned 40. 4 2. Bonds issued 36. 4 8

Ⅱ. Calculation of FISIM Reasons to include bonds Liability side Ø Financial bonds are issued to capture funds for longterm loans for industry Ø Beneficiary certificates substitutes of time deposits Asset side Ø It can be assumed that funds are provided to the issuers of bonds, when the FIs own the bonds 9

Ⅱ. Calculation of FISIM = FISIM on Loans + FISIM on Deposits FISIM on Loans = L x (r. L - r*) FISIM on Deposits = D x (r* - r. D) Where, L: stocks on loans, D: stocks on deposits r. L: interest rates on loans, r*: reference rate, r. D: interest of rates on deposits 10

Ⅱ. Calculation of FISIM Reference rate Ø Definition of reference rate (93 SNA) - Pure cost of borrowing funds - Risk free rate Ø Use of reference rate - Single rate for local currency transactions - Other rates for other currencies Ø Three different reference rates by users (S. 122, S. 123, S. 124) assumed totally segmented markets 11

Ⅱ. Calculation of FISIM Current method calculating the reference rate Ø A type of mid-point rate Ø The reference rate selected in Korea is; Average rate of total loans and total deposits Ø It is calculated according to the following formula : 12

Ⅱ. Calculation of FISIM Price and Volume Ø FISIM volume is derived from deflating stocks of loans and deposits using some broad-based price index (general price index) Ø Candidates of general price index : GDP deflator, final demand deflator, CPI, PPI, etc Ø Korea use the PPI for a general price index 13

Ⅲ. Allocation of FISIM By institutional sectors u Institutional sectors allocated Ø Non-financial corporations Ø Financial corporations Ø General government Ø Household Ø The rest of the world u Data Source: Flow of Funds statistics Ø Stock of financial assets and liabilities Ø Loans and deposits 14

Ⅲ. Allocation of FISIM By industry u FISIM on Loans by industry Ø Loans of FIs by industry statistics u FISIM on Deposits by industry Ø Less reliable statistics u Output + Loans by industry 15

Ⅳ. Way forward u Implementing 2008 SNA u Broad international consensus that aspects of the international recommendations on FISIM should be clarified u The ISWGNA Task Force on FISIM met twice during 2011 to discuss the following issues: Ø Risk management Ø Liquidity transformation Ø FISIM in international trade Ø Price and volume 16

Ⅳ. Way forward u The ISWGNA Task Force has tentatively concluded: Ø Term premium should be included in FISIM, with a single reference rate used Ø Credit default risk should be excluded from FISIM Ø FISIM should be calculated by at least two groups of currencies (national and foreign currency) Ø The deflation method and in particular the price index approach preferred http: //unstats. un. org/unsd/nationalaccount/ramtg. asp 17

Ⅳ. Way forward u The Bank of Korea has tested the single weighted average rate method using short-term and long-term market interest rates in 2011 u Exports and imports of FISIM will be investigated u CPI would be used for the general price index to deflate nominal FISIM 18

Thank you! Q&A