The authorities also appear more willing tolerate some defaults in the bond market, which has grown rapidly as a source of funding in the past couple of years. This will help improve the allocation of credit overtime, but this funding channel remains vulnerable to the possibility of a sharp reassessment of risks by lenders.
So far, there are no outward signs of distress in the banking system, despite falling profit growth and rising non-performing loans (Graph 10). But the structure of the financial system continues to evolve rapidly, raising concerns about the robustness of the funding position of some of the faster-growing segments of the industry, particularly smaller banks and nonbank financial intermediaries.