Getting Finance in South Asia 2009: Indicators and Analysis of the Commercial Banking Sector by Kiatchai Sophastienphong

Part I

Analysis

1

Introduction

Background
Banks play an important role in the economic development process by mobilizing
and allocating funds toward productive investments, reducing informational costs,
and providing better access to assets and markets through their intermediation
process. While the ensuing productivity increases lead to economic development, it
is equally important to achieve financial inclusion, because it contributes directly
to the income-generating capacity of the underprivileged. Thus, supporting the de-

velopment and strengthening of the financial sectors would reduce risk and vul-

nerability for the poorest and enable them to participate in and benefit from the
growth process. 
Four years ago, the World Bank launched a regional initiative in South Asia to
develop standardized indicators to measure the performance and soundness of the
financial sector—the Financial Performance and Soundness Indicators (FPSI), now
commonly known as the Getting Finance Indicators. Phases I and II of this initia-

tive developed and compiled micro indicators to analyze the banking sector devel-

opment in five South Asian countries—Bangladesh, India, Nepal, Pakistan, and Sri
Lanka—assessing the sector’s performance against the country’s prudential regula-

tions and against its peers in South Asia. In addition, phase II provided a compre-

hensive set of micro indicators for nonbank financial institutions (NBFIs) compa-

rable to those for commercial banks (see World Bank 2005b). In phase III, the
Getting Finance Indicators covered two additional dimensions of banking sector
robustness (access to finance and corporate governance) along with the more tradi-

tional measures of financial stability and performance and efficiency. The phase III
study used fewer micro indicators in each category than the earlier studies; how-

ever, it also provided a time-series analysis, a cluster analysis, and country sound-

ness rankings based on the indicators (see World Bank 2006d).
In the fourth edition, to provide a more holistic perspective of Getting Finance
in South Asia, and to improve our understanding of the financial systems in the re-

gion, two additional dimensions—capital market development, and market con-

centration and competitiveness—are included. Another important addition is the
compilation of benchmark indicators for selected high-income Organisation for
Economic Co-operation and Development (OECD) member and nonmember
countries and a comparator group of Asian countries. These benchmarks provide

Getting Finance in South Asia 2009: Indicators and Analysis of the Commercial Banking Sector by Kiatchai Sophastienphong