EAC Statistics E-Learning Resources · Financial Soundness Indicators
EAC Statistics E-Learning Resources
A plain-language course on the East African Community's Financial Soundness Indicators — the measures of how healthy, stable and strong the financial system is. Across five modules it covers all five sectors: deposit takers, insurance, pension and money market funds, real estate, non-financial corporations and households.
This online material defines FSIs in plain language, highlights why each ratio matters, and shows their relevance to everyday financial and economic realities. It follows the EAC FSIs and covers the core and additional indicators for deposit takers (largely aligned with the Basel Standards), insurance corporations, pension funds, money market funds, the real estate markets, non-financial corporations and households. Compilers are encouraged to refer to the EAC FSIs Compilation Guidelines to ensure accuracy and consistency in preparation and reporting.
Capital adequacy, asset quality, earnings, liquidity and sensitivity to market risk — plus the additional and EAC-specific FSIs.
Life and non-life insurers — size, solvency, profitability, and the EAC-specific claims, reserve and liquidity indicators.
Funding adequacy, dependency, efficiency and investment exposure for pension funds, and the size, sector and maturity of money market funds.
Property price indices and lending, business indebtedness and coverage, and household borrowing and repayment.
Every indicator explained as what it means and why it matters, with diagrams and knowledge checks throughout.
A shuffled final assessment drawn from a large question bank, with a downloadable certificate on success.
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FSI · work through the modules, then take the final assessment
Work through the five modules in order. Each opens with its objectives, develops the indicators with definitions, ratio tables, diagrams and knowledge checks, and closes with a summary. A final assessment draws on all five modules; pass it to earn your certificate.
What Financial Soundness Indicators are, the EAC's five sectors, and the first two FSI categories for banks.
The remaining Deposit Takers categories: how banks earn, stay liquid, manage currency risk, and the deeper additional indicators.
Life and non-life insurers — their size, solvency, profitability, and the EAC-specific claims and reserve indicators.
The long-term savers and short-term investment funds — their size, liquidity, funding adequacy and investment exposures.
The remaining sectors — property prices and lending, business indebtedness, and household borrowing — and how their risks reach lenders.
A shuffled set drawn from a large question bank — pass to earn your EAC certificate.
What Financial Soundness Indicators are, the EAC's five sectors, and the first two FSI categories for banks.
Financial Soundness Indicators (FSIs) are numbers or measures that help show how healthy, stable and strong a country's financial system is. The financial system is made up of Deposit Takers (banks) and Other Financial Corporations such as insurance corporations and pension funds. This module introduces FSIs and the EAC's five sectors, then opens the largest sector — Deposit Takers — covering the capital-adequacy and asset-quality ratios that show whether banks hold enough of their own funds and how well their loans are repaid.
Financial Soundness Indicators (FSIs) are numbers or measures that help show how healthy, stable and strong a country's financial system is. The financial system is made up of Deposit Takers (banks) and Other Financial Corporations (OFCs) such as insurance corporations and pension funds.
Governments, central banks, investors and international organizations use FSIs to keep track of the financial system and take action when problems arise.
The East African Community (EAC) FSIs are computed for five main sectors: Deposit Takers (DTs); Other Financial Corporations (OFCs) — money market funds, pensions and insurance; Households (HHs); Non-Financial Corporations (NFCs); and the Real Estate Markets (REMs).
This material defines FSIs in plain language and shows their relevance to everyday financial and economic realities. Compilers of FSIs are encouraged to refer to the EAC FSIs Compilation Guidelines to ensure accuracy and consistency in preparing and reporting these indicators.
The DTs category refers to all financial institutions that take or accept deposits, including commercial banks; deposit-taking SACCOs; credit institutions in Uganda; microfinance institutions in Burundi; microfinance deposit-taking institutions in Uganda, Rwanda, Tanzania and Kenya; community banks in Tanzania; and Umurenge SACCOs in Rwanda.
The DT FSIs are split into five categories — capital adequacy, asset quality, earnings, liquidity, and sensitivity to market risk. These cover the core FSIs, and additional FSIs further assist in analysing the safety and soundness of DTs.
The FSIs for DTs are largely prepared in line with the Basel Standards issued by the Basel Committee on Banking Supervision (BCBS). These standards provide guidelines on capital, liquidity and leverage, ensuring that DTs are financially sound and able to manage risks effectively. Aligning FSIs with the Basel Standards helps promote consistency, reliability and international comparability of financial data.
The Capital Adequacy Ratios (CARs) are key measures of a DT's strength and stability. They measure how much of the DT's own money (capital) is held compared to the money lent or invested (risky assets), showing whether a DT has enough of its own funds to cover potential losses and keep depositors' money safe.
| FSI | What it means | Why it matters |
|---|---|---|
| Common Equity Tier 1 (CET1) Capital to Risk-Weighted Assets | Measures the proportion of a DT's high-quality capital to its risk-weighted assets. Risk-weighted assets are the total assets of a bank adjusted to reflect their risk levels — riskier assets such as unsecured loans carry higher weights, while safer assets such as government securities carry lower or zero weights. | Reflects the DT's capacity to absorb losses using its strongest form of capital while continuing to operate and meet its obligations. A higher ratio indicates greater financial strength; low CET1 may signal vulnerability and trigger regulatory attention. The EAC minimum regulatory CET1 ratio is 8.5 percent. |
| Tier 1 Capital to Risk-Weighted Assets | Tier 1 capital is the sum of Common Equity Tier 1 and Additional Tier 1 components — the core cushion to absorb losses. Additional Tier 1 capital is money raised through instruments that can convert into capital in tough times (e.g. preference shares or convertible bonds). | Measures the ability to absorb potential losses from investments. A higher ratio means a stronger cushion; a lower ratio means the DT cannot absorb unexpected losses, may face limits on growth, and needs to raise capital — and may face supervisory actions such as limits on lending and restrictions on dividends and bonuses. The EAC minimum Tier 1 ratio is 10 percent. |
| Regulatory Capital to Risk-Weighted Assets | Measures total regulatory capital relative to risk-weighted assets. Total regulatory capital is Tier 1 plus Tier 2 capital. Tier 2 is the lowest, least permanent form (e.g. subordinated debt) and helps absorb losses during the wind-up of a DT. | Reflects the DT's ability to absorb losses. A higher ratio indicates strong capital adequacy and greater resilience to shocks, which enhances stakeholder confidence and financial stability. The EAC minimum regulatory capital ratio is 12 percent. |
| Tier 1 Capital to Assets | Measures the proportion of a DT's Tier 1 capital to its total assets. Total assets is everything the DT owns or controls — loans, investments and other on-balance-sheet items. | Shows how well Tier 1 capital can support the overall asset base. A higher ratio indicates the DT is better positioned to absorb unexpected losses and maintain stability in times of stress. |
| Leverage Ratio | Measures the proportion of a DT's Tier 1 capital to its total exposures — both on-balance-sheet assets (largely loans) and off-balance-sheet items. Off-balance-sheet items are commitments that do not appear as assets or liabilities, e.g. letters of credit (a promise to pay if a customer cannot) and guarantees (a promise to cover another's debt if they cannot pay). | A safeguard against rapid asset growth without corresponding capital injection. A higher leverage ratio means the DT funds more of its assets and off-balance-sheet items with its own funds rather than borrowed money, which reduces vulnerability to financial shocks. |
| Nonperforming Loans (NPLs) net of provisions to capital | Measures the potential threat to a DT's capital from loans not paid for 90 days (NPLs), after accounting for provisions (funds set aside to cover potential losses from these loans). | Shows the extent to which capital is vulnerable to losses from NPLs not covered by provisions. A high ratio means a significant portion of NPLs is unprotected and could erode capital if losses materialise; a lower ratio reflects strong capital coverage of NPLs. |
Asset quality refers to how much of a DT's loans are likely to be repaid on time and how much may turn into losses if borrowers fail to pay.
| FSI | What it means | Why it matters |
|---|---|---|
| Nonperforming Loans (NPLs) to Total Gross Loans | Measures the proportion of a DT's total loans that have not been repaid for 90 days (NPLs). | Indicates the DT's vulnerability to loans that have not been repaid. A high ratio suggests the DT might be approving too many loans to borrowers who cannot pay them back, which may lead to losses; lower ratios generally reflect better repayment. |
| Provisions to Nonperforming Loans (NPLs) | Shows the extent to which a DT has set aside funds (provisions) to cover potential losses from its NPLs. Provisions are funds set aside to cover potential losses from NPLs. | Indicates the DT's preparedness to absorb losses from NPLs. A higher ratio suggests the DT has adequately set aside funds to cover potential losses; a low ratio may imply insufficient coverage, exposing the DT to a reduction in capital if more loans go unpaid. |
| Loan Concentration by Economic Activity | Measures how a DT's loans are spread across different sectors and highlights the risk that arises when lending to only a few economic sectors (such as agriculture, real estate, etc.). | Indicates risks faced when lending predominantly to a few sectors. High concentration can lead to significant losses if those sectors underperform, while a diversified loan portfolio helps spread risk and stabilise earnings. |
The remaining Deposit Takers categories: how banks earn, stay liquid, manage currency risk, and the deeper additional indicators.
This module completes the Deposit Takers picture. Earnings ratios show how well a DT performs and whether it can grow and absorb losses; liquidity ratios show how quickly a DT can access cash to meet obligations; the sensitivity ratio shows exposure to currency movements; and the additional and EAC-specific FSIs give a deeper view of vulnerabilities, including digital lending and cross-border exposures unique to the region.
Earnings are the profits a DT generates from operations such as lending, investments and other financial services. They show how well a DT is performing and whether it can grow and provide returns to its owners. Strong, consistent earnings let a DT build capital, support future growth, and absorb unexpected losses.
| FSI | What it means | Why it matters |
|---|---|---|
| Return on Assets (ROA) | The profit or income earned from the assets owned or controlled, and investments made, by the DT. | Indicates overall profitability and operational efficiency — how well the DT uses its resources (loans, investments and other assets) to generate profits. A high ROA indicates sound performance and effective management; a low ROA may signal inefficiency or poor asset utilisation. |
| Return on Equity (ROE) | The profit or income earned from the DT's own funds (capital). | Indicates how efficiently the DT uses its own funds to generate profits. A higher ROE indicates strong performance, effective use of owners' funds and management efficiency, which builds investor confidence and supports the ability to attract additional capital. |
| Interest Margin to Gross Income | The proportion of a DT's total income (gross income) that comes from the difference between interest earned on assets (loans and investments) and interest paid on liabilities (deposits and borrowings). Gross income includes both interest income and all other income such as fees and commissions. | Indicates the extent to which a DT relies on its core lending and investment activities for income. A higher ratio suggests that interest-related operations (largely from loans advanced) are the main driver of profitability. |
| Noninterest Expenses to Gross Income | The proportion of a DT's total income that goes to operating costs (noninterest expense) only. Noninterest expenses include salaries, rent, utilities, technology and administrative expenses; gross income is total income from both interest and noninterest sources. | Indicates operational efficiency. A high ratio may signal inefficiencies or high costs that erode profitability; a lower ratio indicates better cost management, so the DT retains more of its income as profit. |
Liquidity refers to how quickly and easily a DT can access cash or convert assets into cash to keep operations running smoothly. It also indicates a DT's ability to meet its financial obligations — paying short-term debt, settling interbank loans, and allowing customers to withdraw their savings — without facing difficulties or significant losses.
| FSI | What it means | Why it matters |
|---|---|---|
| Liquid Assets to Total Assets | The share of a DT's total assets (liquid assets) that can be quickly and easily turned into cash without losing much value. Liquid assets include cash, balances with the central bank, and easily tradable securities (such as treasury bills/bonds). | Indicates how much of a bank's assets can be quickly used to cover its cash needs, such as customers' deposit withdrawals. A higher ratio means the DT is more liquid and can meet commitments due within a short period. |
| Liquid Assets to Short-Term Liabilities | Whether a DT has enough easily accessible funds to cover its short-term (maturing within three months) commitments, such as customer withdrawals and payments to other banks. | Shows whether the DT has enough ready cash to pay what it owes within 90 days. A higher ratio means more liquidity; a lower ratio may signal potential liquidity problems. |
| Liquidity Coverage Ratio (LCR) | A DT's ability to meet an urgent demand for cash in a 30-day period. | Shows whether a DT has enough cash for its short-term (30-day) commitments. A higher LCR means the DT is better positioned to handle sudden withdrawals or payments. The EAC minimum regulatory LCR is 100 percent. |
| Net Stable Funding Ratio (NSFR) | A DT's ability to meet a demand for cash over a one-year period. | Shows whether a DT has enough cash for its long-term (over one year) commitments. A higher NSFR means the DT is better positioned to keep operating even if market conditions become difficult. The EAC minimum regulatory NSFR is 100 percent. |
Sensitivity to market-risk ratios measure the vulnerability of a DT to changes in currency values.
| FSI | What it means | Why it matters |
|---|---|---|
| Net open position in foreign exchange to capital | The proportion of regulatory capital to the difference between what DTs own (assets) and what they owe (liabilities) in foreign currency. | Indicates how much DTs could be affected by changes in the value of foreign currency. A high ratio indicates a DT is vulnerable to changes in the value of foreign currency; a low ratio indicates it is less vulnerable. |
Additional FSIs are extra measures that give a more complete picture of vulnerabilities. While the core FSIs focus on capital, liquidity, asset quality and sensitivity to market risk, the additional FSIs add depth — there are twelve of them for Deposit Takers.
| FSI | What it means | Why it matters |
|---|---|---|
| 1. Large Exposures to Capital | How vulnerable a DT is to a single borrower or group of related borrowers. | Shows the amount lent to one borrower or group of related borrowers compared to total capital. If too much is lent to a few borrowers and one cannot pay, the DT could lose a lot. |
| 2. Geographical Distribution of Loans to Total Gross Loans | How much of a DT's lending is spread across different countries or regions. | Indicates whether a DT lends mostly in one country/region. Spreading loans across areas reduces risk; if one area has economic problems or political chaos, concentrated lending could cause losses. |
| 3. Gross Asset Position in Financial Derivatives to Capital | How much a DT owns through financial contracts whose value derives from an underlying asset (e.g. interest or exchange rates) compared to its own funds. | Indicates vulnerability from contracts with positive movements in the underlying. If contracts are large relative to own funds, the DT is more exposed to sudden rate changes, even if profitable today. |
| 4. Gross Liability Position in Financial Derivatives to Capital | How much a DT owes through financial contracts whose value derives from an underlying asset (e.g. interest or exchange rates) compared to its own funds. | Indicates vulnerability from contracts with negative movements in the underlying (interest or exchange rates). |
| 5. Trading Income to Total Income | The proportion of total income from buying and selling income-generating assets (e.g. currency and securities trading such as treasury bills/bonds). | Indicates reliance on trading income. A higher ratio means the DT depends more on trading than on interest from loans. |
| 6. Personnel Expenses to Noninterest Expenses | The proportion of a DT's total operating cost that goes to paying staff. | Indicates how much the DT spends on employees and helps track staff costs as a share of overall operating cost. |
| 7. Spread between Reference Lending Rates and Deposit Rates | The difference between what the DT charges on loans and what it pays on deposits. | Indicates income earned from lending compared with how much is paid to attract customer deposits. |
| 8. Spread between Highest and Lowest Interbank Loans | The difference between the highest and lowest interest rates DTs charge each other. | Indicates risks from lending between DTs. A wide gap may show stress or lack of trust in the banking system. |
| 9. Customer Deposits to Total (non-interbank) Loans | The share of total loans made from only customer deposits. | Shows how much lending is supported by customer deposits. |
| 10. Foreign-currency-Denominated Loans to Total Loans | The proportion of a DT's total lending that is not in local currency. | Indicates how vulnerable a DT is to a change in the value of foreign currencies. |
| 11. Foreign-currency-Denominated Liabilities to Total Liabilities | The proportion of what the DT owes that is in foreign currency. | Indicates how vulnerable a DT is to a change in the value of foreign currencies. |
| 12. Credit Growth to the Private Sector | The rate of change in a DT's lending to households and private businesses. | Indicates the growth of loans to households and businesses. Increasing growth can stimulate economic activity, but rapid growth may indicate risky lending. |
EAC additional FSIs are unique measures developed to capture specific risks and characteristics of the EAC financial systems — the region's interconnected financial landscape of cross-border banking, trade and investment, and the rapidly growing digital-lending space. There are thirteen of them for Deposit Takers.
| FSI | What it means | Why it matters |
|---|---|---|
| 1. Core Capital to Total Deposits | The proportion of a DT's core capital (Tier 1) relative to its total deposits. | Reflects capacity to protect customers' deposits while operating. A higher ratio indicates greater strength and capacity to protect deposits; low core capital may signal vulnerability and trigger regulatory attention. |
| 2. Digital Loans to Gross Loans | The proportion of total loans issued through digital platforms (internet and mobile banking). | Indicates vulnerability to risks from online lending, where loans are approved quickly with limited customer information, reducing the chance of repayment. |
| 3. Digital NPLs to Digital Loans by DTs | The proportion of a DT's digital loans that have not been repaid. | Indicates vulnerability to unpaid digital loans. A high ratio suggests too many digital loans to borrowers who cannot repay; lower ratios reflect better performance. |
| 4. Digital Loans (non-DTs) to Gross Loans | The proportion of total loans issued by financial institutions not allowed to take deposits (non-DTs). | Indicates loan penetration by non-DTs compared with DTs. A high ratio suggests non-DTs are increasing their penetration relative to DTs. |
| 5. Total Expenses to Gross Income | The proportion of total income that goes to both operating costs (salaries, rent, utilities, technology, administration) and interest costs (mainly interest paid on deposits and borrowings). | Indicates how well a DT manages costs relative to income. A higher ratio can signal difficulties as expenses consume earnings; a lower ratio means more income is retained. |
| 6. Cost of Funding to Earning Assets | The proportion of what the DT pays on deposits and borrowings relative to income-generating assets (loans, deposits with other DTs and securities). | Represents the cost incurred to acquire the funds invested in income-generating assets. A higher ratio means the DT spends a lot to acquire its earning assets; a lower ratio means it spends less. |
| 7. Cost to Deposits (Cost of Deposits) | Fees and interest paid to attract and maintain customer deposits. | Indicates the amount the DT pays customers for their deposits. A higher ratio means the DT spends a lot attracting deposits; a lower ratio means it spends less. |
| 8. Average Lending Rate on Digital Loans | The cost of borrowing money through digital platforms charged by DTs. | Indicates the average interest rate a DT charges for loans given out through digital platforms. |
| 9. Net Interest Margin to Earning Assets | The proportion of income from the difference between interest earned on assets (loans and investments) and interest paid on liabilities (deposits and borrowings), relative to income-generating assets. | Indicates how well a DT generates income from its loans, deposits with other DTs and investment in securities. |
| 10. Effective Interest on Loans | Fees and interest paid on loans issued. | Indicates the total cost of lending by the DT on the borrower. |
| 11. Loans to Deposits Ratio | How much of a DT's deposits are used for lending. | Indicates whether the DT relies more on deposits to lend than on other sources. |
| 12. Liquid Assets to Customer Deposits | The extent to which available liquid assets (quickly turned into cash without losing much value) can meet deposit withdrawals. Liquid assets include cash, balances with the central bank, and easily tradable securities. | Indicates how much of a DT's liquid assets can be quickly used to meet deposit withdrawals. |
| 13. Foreign-Currency-Denominated Assets to Total Assets | The proportion of a DT's total assets that are not in local currency. | Indicates how vulnerable a DT is to a change in the value of foreign currencies. |
Life and non-life insurers — their size, solvency, profitability, and the EAC-specific claims and reserve indicators.
FSIs for Insurance Companies (ICs) assess the financial health and stability of an insurer — whether it can meet its obligations to the insured. ICs are categorised into Life Insurance Companies (LICs), offering long-term cover such as life and pensions, and Non-Life (General) Insurance Companies (NLICs), offering short-term cover such as health, motor and property. This difference shapes the FSIs used to monitor each business.
FSIs for Insurance Companies (ICs) help regulators, investors and management understand whether an insurer can meet its obligations to the insured.
Life Insurance Companies (LICs) offer long-term services such as life cover and pensions, where obligations stretch into the future. Non-Life (General) Insurance Companies (NLICs) offer short-term services such as health, motor and property insurance, where claims are usually settled within a year. This difference influences the type of FSIs used to monitor each business.
| FSI | What it means | Why it matters |
|---|---|---|
| ICs Assets to Total Financial System Assets | The proportion of assets held by ICs (both LIC and NLIC) relative to the total assets of the financial system. | Indicates the size of ICs in the financial system relative to DTs and other OFCs. A higher ratio shows an increasing share of ICs, making them a key sector. |
| ICs Assets to GDP | The size of ICs relative to the overall economy. | Shows the size of ICs in the economy. A higher ratio shows an increasing share and uptake of insurance products, where the increase is driven by premiums collected. |
| Shareholders' Equity to Invested Assets (LIC and NLIC) | The proportion of ICs' invested assets (securities, shares in other companies, deposits in DTs and real estate) financed with their own funds (shareholders' funds). | A safeguard against excessive asset growth without corresponding capital injection; also shows ability to absorb losses. A higher ratio indicates adequate own funds to absorb unexpected losses and cover unexpected claims. |
| Shareholders' Equity to Invested Assets (LIC) | As above, for life insurance companies — own funds relative to invested assets. | A safeguard against excessive asset growth without capital injection; indicates the LIC's ability to absorb losses. A higher ratio indicates adequate own funds. |
| Shareholders' Equity to Invested Assets (NLIC) | As above, for non-life insurance companies — own funds relative to invested assets. | A safeguard against excessive asset growth without capital injection; indicates the NLIC's ability to absorb losses. A higher ratio indicates adequate own funds. |
| Combined Ratio (NLIC) | Whether an NLIC is making a profit or a loss from its core business of selling insurance products. | Indicates whether the NLIC is profitable in its core business and managing other operating expenses efficiently. NLICs are encouraged to maintain a ratio below 100 percent. |
| Return on Assets (life insurance) | The profit or income earned from all assets owned or controlled by the LIC. | Indicates the LIC's overall profitability and operational efficiency. A high ROA indicates sound performance and effective management; a low ROA may signal inefficiency or poor asset utilisation. |
| Return on Investments (LIC and NLIC) | The profit or income earned from only the income-generating assets owned or controlled by the IC. | Indicates how well the IC uses its income-generating resources to make profits. A high ROI indicates sound performance; a low ROI may signal inefficiency or poor asset utilisation. |
| Return on Equity (LIC and NLIC) | The profit or income earned from the IC's own funds (capital). | Indicates how efficiently the IC uses its own funds to generate profits. A higher ROE indicates better use of own funds, building investor confidence and the ability to attract additional funds. |
| Return on Equity (LIC) | As above, for life insurance companies. | Indicates how efficiently the LIC uses its own funds. A higher ROE builds investor confidence and supports the ability to attract funds. |
| Return on Equity (NLIC) | As above, for non-life insurance companies. | Indicates how efficiently the NLIC uses its own funds. A higher ROE builds investor confidence and supports the ability to attract funds. |
EAC additional FSIs for ICs give a deeper view of the insurance sector's stability beyond the core indicators, reflecting the region's unique nature. They focus on claims management, operating costs, reserve adequacy, liquidity, and the role of insurance in the economy.
| FSI | What it means | Why it matters |
|---|---|---|
| 1. Sum of Net Claims to Net Premiums (LIC and NLIC) | The proportion of the amount an IC pays to compensate insured entities for losses (claims) relative to the amount it receives from selling insurance products (premiums). | Indicates profitability and efficiency. A lower ratio indicates the IC receives enough funds to cover claims. |
| 2. Sum of Underwriting Expenses to Net Premiums (LIC and NLIC) | The proportion of the costs of attracting premiums relative to the premiums received. | Indicates efficiency. A lower ratio indicates the IC does not spend a lot on attracting customers. |
| 3. Retention Ratio (LIC and NLIC) | The proportion of premiums retained by an IC rather than passed on to reinsurance companies (companies that provide cover to insurers). | Indicates how much risk the IC keeps for itself versus passing on to reinsurance. |
| 4. Actuarial Provisions to Capital (LIC and NLIC) | The proportion of the IC's own funds set aside to cover potential losses when they occur. | Indicates preparedness to absorb losses. A higher ratio suggests the IC has adequately prepared for potential losses. |
| 5. Premium Receivable to Capital/Surplus (LIC and NLIC) | The proportion of insurance products yet to be paid for, as a percentage of the IC's own funds. | Indicates the IC's ability to withstand losses from non-payment of premiums. A lower ratio indicates a smaller amount of premiums yet to be paid. |
| 6. Penetration Ratio (LIC and NLIC) | The level of insurance coverage within an economy. | Indicates how developed the insurance sector is. In general, the higher the penetration ratio, the more developed the sector. |
| 7. Liquidity Ratio (NLIC) | Whether an NLIC has enough easily accessible funds to cover its short-term (12-month) commitments (claims). | Indicates whether the NLIC has enough ready cash to cover commitments within 12 months. A higher ratio means enough liquid resources to meet short-term commitments. |
The long-term savers and short-term investment funds — their size, liquidity, funding adequacy and investment exposures.
Pension Funds (PFs) are Other Financial Corporations that collect regular contributions from workers — with additional contributions from employers — during their working life, invest the money, and pay it out with interest to support workers after they retire. Money Market Funds (MMFs) collect money from the public and invest it in short-term, income-generating assets. This module covers the FSIs that monitor both.
Pension Funds (PFs) collect regular contributions (e.g. monthly) from workers, with additional contributions from their employers, during their working life. They invest the money and pay it out with interest to help workers support themselves after retirement.
| FSI | What it means | Why it matters |
|---|---|---|
| PF Assets to Total Financial System Assets | The proportion of assets in the financial system owned by the PFs. | Indicates the size of PFs in the financial system relative to DTs and other OFCs. A higher ratio shows an increasing share of PFs, making them a key sector. |
| PF Assets to GDP | The size of PFs in the overall economy (GDP measures the size of the economy). | Shows the size of PFs relative to the overall economy. A higher ratio shows an increasing share of PFs within the economy. |
| Liquidity Ratio | Whether the PF has enough easily accessible funds to cover its short-term (12-month) obligations (members' benefits). | Indicates whether the PF has enough readily available cash to pay benefits to retiring workers within a year. A higher ratio indicates sufficient readily available funds to cover short-term commitments. |
| Return on Assets (ROA) | The profit or income earned from the assets owned and investments made by the PF. | Indicates overall profitability and operational efficiency — how well the PF uses its resources (government securities, shares, DT deposits, real estate, and other assets) to generate profits. A high ROA indicates sound performance; a low ROA may signal inefficiency or poor asset utilisation. |
EAC additional FSIs for PFs give a deeper view of the pension sector's stability and reflect the region's characteristics, focusing on asset allocation, liquidity, funding adequacy, investment performance, and the role of PFs in long-term savings and growth.
| FSI | What it means | Why it matters |
|---|---|---|
| 1. Funding Ratio | The ability of a PF to make future pension payments using its available assets. | Indicates whether the PF's available assets (treasury bonds, DT deposits, shares or property) are enough to cover the benefits it intends to pay out in future to contributing workers. |
| 2. Dependency Ratio | How many retirees or pensioners the PF is paying benefits to, compared with the number of active members currently contributing. | Indicates whether the PF has enough active members to support payment of pensions to retirees. A high ratio implies the PF does not have enough active members to pay its retirees. |
| 3. Efficiency Ratio | How much the PF spends on operational costs (such as salaries, rent) to generate income. | PFs should aim to keep operational costs low without compromising the quality of service in generating income. Lower = minimal operational cost. |
| 4. Equity and Investment Fund Shares to Total Assets | The proportion of a PF's assets invested in equities and investment fund shares. Equities are shares the PF buys to own part of a company and grow in value through dividends; investment fund shares are units of ownership in a mutual fund (a pool of investments). | Indicates how much of the PF's assets could be affected by changes in the value of equities or fund shares. A higher ratio shows the PF is more exposed to changes in the value of these assets. |
| 5. Investment in Real Estate to Total Assets | The proportion of a PF's assets invested in real estate (land and permanent structures such as houses, offices and apartments) which can be rented out to generate income. | Indicates the PF's vulnerability to changes in the value of the real estate market. A higher ratio shows the PF is highly vulnerable to such changes. |
| 6. Total Benefits to Total Contributions | The proportion of members' contributions that goes to paying benefits (medical, disability and retirement). | Indicates the level of available contributions to pay members' benefits. A higher ratio shows the PF is paying more benefits, which could also signal a high life expectancy. |
| 7. Total Pension Benefits to Total Benefits | The proportion of retirement benefits (pension only) to total benefits. | Indicates whether a PF is performing its main role of paying benefits to retirees. A higher ratio indicates an ageing population and that many people are retiring. |
| 8. Cost to Contribution | The proportion of members' contributions spent on operational costs (staff salaries, transport, electricity, water and other administrative costs). | Indicates the proportion of contributions spent on operational costs rather than investments to grow retirement savings. A higher ratio shows the PF spends less on operational costs than on investments, which is a sign of operational efficiency. |
| FSI | What it means | Why it matters |
|---|---|---|
| 1. MMF Assets to Total Financial System Assets | The proportion of assets in the financial system owned by the MMFs. | Indicates the size of MMFs in the financial system relative to DTs and other OFCs. A higher ratio shows an increasing share of MMFs, making them a key sector. |
| 2. MMF Assets to GDP | The size of MMFs in the overall economy (GDP measures the size of the economy). | Shows the size of MMFs relative to the overall economy. A higher ratio shows an increasing share of MMFs within the economy. |
| 3. Sectoral Distribution of MMFs' Investments | How MMFs have invested across institutional sectors (deposits with DTs, shares in OFCs, central-government treasury bills, etc.), highlighting the risk of investing in only a few sectors. | Indicates vulnerability when MMFs invest predominantly in a few sectors. Concentration can cause significant losses if those sectors underperform; investing across more sectors reduces potential losses. |
| 4. Maturity Distribution of MMFs' Investments | How long the assets invested by the MMF (treasury bills, deposits with DTs) will take to be repaid (mature). | Indicates the MMFs' ability to quickly turn assets into cash to pay their investors. |
The remaining sectors — property prices and lending, business indebtedness, and household borrowing — and how their risks reach lenders.
The final three sectors round out the EAC FSIs. Real estate markets track property prices and real-estate lending — when prices fall, the collateral behind loans weakens. Non-financial corporations are businesses that produce goods and services; their indicators show how indebted they are and whether they can service that debt from income. Households track borrowing and the ability to repay. Together these sectors show how risks outside the financial system feed back to the deposit takers and other lenders that finance them.
Real estate refers to land and any buildings on it. The permanent structures include residential properties (houses and apartments where people live) and commercial properties (offices, shops, rental apartments, factories and warehouses used to generate income).
| FSI | What it means | Why it matters |
|---|---|---|
| Residential Property Price Index (RPPI) | The change in prices of apartments and houses purchased by households for their own use. | Indicates the vulnerability of DTs to rapid changes in the prices of apartments and houses purchased through borrowing for own use. Sharp drop in property prices may shrink collateral value creating a loan exposure. |
| Commercial Property Price Index (CPPI) | The change in prices of commercial properties (offices, shops, rental apartments, factories and warehouses). | Measures how vulnerable DTs are to rapid changes in the prices of commercial properties they have financed. Falling prices may reduce the value of collateral banks have on the loans advanced. |
| Residential Real Estate Loans to Total Loans | The proportion of all loans issued by DTs where the purpose is to buy, build or improve residential properties for own use. | Shows the vulnerability of DTs to loans issued for residential real estate. A higher ratio implies DTs are more vulnerable to a drop in the value of residential properties. |
| Commercial Real Estate Loans to Total Loans | The proportion of all loans issued by DTs where the purpose is to buy, build or improve commercial properties. | Shows the vulnerability of DTs to loans issued for commercial purposes. A higher ratio implies DTs are more vulnerable to a drop in the value of commercial properties. |
| FSI | What it means | Why it matters |
|---|---|---|
| Total Debt to Equity | How much NFCs have borrowed (domestic and external debt) compared to their own funds (capital). | Indicates how much NFCs have borrowed compared to their own funds. A high ratio means NFCs are heavily indebted, which raises vulnerability to an increase in lending rates. |
| External Debt to Equity | How much NFCs have borrowed from outside the country compared to their own funds (capital). | Indicates how much NFCs have borrowed from abroad compared to own funds. A high ratio implies heavy indebtedness to foreign entities, raising vulnerability to increases in lending and exchange rates. |
| Foreign-currency Debt to Equity | How much NFCs have borrowed in foreign currency compared to their own funds (capital). | Indicates how much NFCs have borrowed in other currencies compared to own funds. A high ratio implies heavy indebtedness in foreign currency, raising vulnerability to changes in exchange rates. |
| Total Debt to GDP | How much NFCs have borrowed (both foreign and local debt) relative to the size of the economy. | Indicates the vulnerability of NFCs to shocks that may affect their repayment capacity. |
| Return on Equity (ROE) | Profit earned from NFCs' own funds. | Indicates how efficiently NFCs use their own funds to generate profits. A higher ROE indicates strong performance, effective use of own funds and management efficiency, building investor confidence and the ability to attract additional capital. |
| Earnings to Interest and Principal Expense (Debt-Service Coverage) | NFCs' ability to repay their loans using their income. | Indicates how much of the NFC loans can be repaid using their income. A lower ratio implies that NFCs can't fully repay their liabilities from own income. |
| Interest Coverage Ratio | Ability to repay the interest on funds borrowed using their income. | Indicates how much of the NFCs' interest on borrowed funds can be repaid using their income. A lower ratio implies that NFCs cannot fully pay back the interest on borrowed funds using their own income. |
| FSI | What it means | Why it matters |
|---|---|---|
| 1. Return on Assets (ROA) | The profit or income earned from the assets owned or controlled and investments made by the NFCs. | Indicates the NFC's overall profitability in using its assets to generate income. A high ratio indicates sound performance and effective management; a low ROA may signal inefficiency or poor asset utilisation. |
| 2. Operational Cost to Gross Income | The proportion of NFCs' total income that goes to operational costs (transport, utilities, salaries, rent, etc.). | Indicates the level of operational efficiency. A high ratio may signal inefficiencies or high overheads that could erode profitability. |
| FSI | What it means | Why it matters |
|---|---|---|
| Household Debt to GDP | How much households have borrowed relative to the size of the economy. | Indicates the vulnerability of households to shocks that may affect their repayment capacity. |
| Household Debt Service and Principal Payments to Income | Households' ability to repay their loans using their income. | Indicates how much of household loans can be repaid using their income. A higher ratio implies households cannot fully pay back their loans using their own income. |
| Household Debt to Income | The proportion of funds borrowed by households compared to their income. | Indicates the vulnerability of DTs and OFCs to losses from households' failure to repay. A higher ratio implies households have borrowed a lot compared to their income (household indebtedness). |
This assessment has 46 questions in its bank; you will be asked a randomly selected 20. The question order and the answer options are shuffled on every attempt, so refreshing or retaking the assessment mixes in new questions. You need 75% to pass and earn your certificate.