For many small and medium-sized banks close relationships with their home territory are a source of stability, which has a beneficial effect on the local economy. However, a misguided interpretation of these relationships can distort the disbursement of credit, thereby jeopardizing the soundness of banks’ balance sheets and the efficient allocation of resources.
Cases of this kind become more likely during prolonged recessions, such as the one we have passed through. We are working to persuade banks to strengthen their operational, organizational and corporate governance safeguards in order to prevent credit relationships with customers from degenerating and to take remedial action when they do.