To us, the prudential objective for the industry is not only about banks being individually safe and sound; a clear lesson from the financial crisis of 2007–2009 is that the condition of the whole cannot be the simple sum of the respective parts. Moreover, the bigger picture is defined not just by the complexities of finance.
But we also have to look to the future. In an environment of weak growth, banks cannot afford large inflows of new NPLs while clinging to outdated business models. Supervision must ensure that sound underwriting standards and adequate provisions are in place, that changing business models are sustainable and that upcoming risks are addressed.