12 Targeted supervisory action helped banks to draw up ambitious reduction plans and governance structures for the disposal of NPLs.13 And more uniform supervisory standards and stricter classifications make it less likely that new NPLs will emerge.14 But while NPLs are washing out as the economy strengthens, supported by our accommodative monetary policy, the NPL ratios of euro area banks are still higher than those of US banks.
This results in small but persistent discrepancies in the exchange rate and interest rates in the Shanghai market and offshore markets such as Hong Kong, which are not fully arbitraged away. This is not only economically inefficient but also poses certain exchange and interest rate risks for financial market participants, and in turn complicates the use of the renminbi in international finance.