Bank supervisors will have to insist on much more rigorous standards of loan classification and bad debt provisioning. They will also have to insist on greater transparency in financial accounts, so that problems can be identified before they grow to life-threatening proportions. Of course, at the root of balance sheet weaknesses are poor lending decisions.
Not all of these can be prevented by better banking supervision. Improved information on borrower conditions is clearly a first step. A comparison by lenders of the return prospects of large local projects with return requirements prevailing internationally is another. Other sources of excesses can certainly be tackled. Some of these arise from what has come to be called “insider” or “connected” lending.