Implementation of the Latest International Guidelines on the Compilation of Financial Intermediation Services Statistics in National Accounts of Hong Kong
The Census and Statistics Department today (August 16) released the results of an exercise to implement the latest international guidelines on the compilation of financial intermediation services statistics in national accounts of Hong Kong. As a result, national accounts statistics, including Gross Domestic Product (GDP), Gross National Product (GNP) and Balance of Payments (BoP) statistics, were revised.
2. The latest guidelines enable national accounts statistics to reflect in a better way the economic contribution of banks in facilitating the channeling of funds from units with surplus funds (e.g. depositors) to units with demand for funds (e.g. borrowers). In particular, financial intermediation services consumed by households (e.g. the services to facilitate withdrawing and transferring money through automatic teller machines, the services to assess the credit worthiness of personal loans) and non-residents can now be estimated indirectly and included in national accounts statistics.
The latest international guidelines
3. Financial intermediation services refer to the channeling of funds from units with surplus funds (e.g. depositors) to units with demand for funds (e.g. borrowers). These services are usually provided by banks. In the process, banks provide risk management, liquidity provision and convenience services. For example, to borrowers, banks mobilize funds to provide credit facilities at the convenience of borrowers and bear the default risk. To depositors, banks establish branch offices and automatic teller machines to facilitate deposit, withdrawal and transfer of funds at the convenience of the depositors.
4. In providing these financial intermediation services, banks do not collect explicit service charges from depositors and borrowers. Instead, they charge indirectly by lending at higher interest rates and borrowing at lower interest rates. Given the special nature of indirect charges on the financial intermediation services provided by banks, both banks and their customers (e.g. households, real estate developers) do not know the market value of the financial intermediation services consumed. Therefore, in national accounts compilation, it is necessary to develop a method to estimate the market value of financial intermediation services consumed by various users, including households, non-residents and business establishments.
5. Under the latest international guidelines, the market value of financial intermediation services consumed by various users can be indirectly estimated and included in national accounts statistics, using the concept of "reference rate of interest". The reference rate of interest is a risk-free interest rate and does not include any financial intermediation services. The interbank rates are suitable proxies of reference rate.
6. Using the concept of "reference rate of interest", the values of the financial intermediation services consumed by different types of depositors and borrowers (e.g. households, business establishments, non-residents) can be estimated based on (a) the stock of deposits and loans of various depositors/borrowers; and (b) the differences between the actual rates of interest and the reference rate.
The effects on national accounts statistics of Hong Kong
Gross Domestic Product (GDP) statistics
7. Stemming from the implementation of the latest guidelines, the entire series of GDP figures are revised upwards. In order to maintain comparability of the data series, backdating of historical series was made for GDP and its affected components. In recent years from 2002 to 2004, the upward revisions to the level of GDP are around 2% (Table 1 (text version of table 1)). Of this, about 1.5% points are attributable to upward revision to private consumption expenditure and 0.5% point is attributable to upward revision to net exports of services.
8. The upward revision to the level of private consumption expenditure is due to the inclusion of value of financial intermediation services consumed by households when they make deposits at banks and obtain loans (e.g. personal loans, credit card advances) from banks.
9. The upward revision to the level of net exports of services is due to the inclusion of value of financial intermediation services provided by resident banks to non-residents, e.g. loans to non-residents by resident banks, and deposits from non-residents. The substantial value of net exports of financial intermediation services reflects the role of Hong Kong in facilitating the channeling of funds within the region.
10. As the upward revisions to the level of GDP are broadly similar from one year to another, the revisions to the GDP rates of change in real terms are small (generally within +/- 0.2% point) (Table 2 (text version of table 2)).
11. There are downward revisions to the value added shares of the economic sectors in GDP at factor cost. This is because under the latest guidelines, financial intermediation services consumed by the economic sectors can now be estimated indirectly and deducted from the respective gross output figures. The import/export trade sector and real estate sector registered larger downward revisions because of the relatively large amount of loans for financing import/export trades and real estate development projects (Table 3 (text version of table 3)).
Gross National Product (GNP) statistics
12. Similarly, for GNP figures, the whole series are revised upwards. In the recent years, the level of GNP is revised upwards by around 1.5%. As the upward revisions to the level of GNP are broadly similar from one year to another, there are small revisions (generally within +/- 0.3% point) to the year-on-year rates of change in GNP in nominal and real terms. (Table 4 (text version of table 4))
13. A government spokesman said that according to established practice, government would undertake technical exercise to enhance the quality of GDP statistics once every few years, by aligning the compilation methods of Hong Kong with the standards given in latest international guidelines.
14. "Economies including France, Germany and the USA which also have an important financial services sector have implemented the international guidelines on financial intermediation services. Others like the UK and Luxembourg have plans to do so in the coming few months," the spokesman continued. "Implementing the guidelines will lead to upward revisions to the GDP of the economies concerned. Hence, it is necessary for Hong Kong to follow suit and implement the same guidelines, so as to ensure that GDP statistics of Hong Kong are comparable to those of economies with an important financial services sector."
15. The complete series of revised national accounts statistics can be downloaded at the website of the Department. Data users can download an article for understanding more on the latest international guidelines on financial intermediation services and the effects on various national accounts statistics. For a detailed discussion on the concept, rationale and methodology of the international guidelines, data users can refer to the pamphlet entitled "Understanding the Financial Intermediation Services in Gross Domestic Product Compilation", which is also available at the same website.
Ends/Tuesday, August 16, 2005