Singapore banks also came under pressure from allegations that some banks may have been involved in financing corporations responsible for the forest fires. These allegations caused the public to question business practices of banks and damaged banks’ reputation to such a level that banks in Singapore promptly worked together on an industry guideline, committing to the public that they would develop policies and processes to limit negative externalities of their financing activities, especially in industries with elevated social and public risks such as agriculture and forestry. The third incident I want to highlight comes from the Thai financial sector. Over the past few years, heightened competition in the real estate sector along with rising property prices, had led to aggressive sales and promotional campaigns by property developers, attracting real as well as speculative buyers. Seeing opportunities in the sector, some banks significantly relaxed their lending standards for mortgage loans. Data revealed that as high as 25 percent of new mortgage and related loans originated in 2018 had loan-to-value ratio above 100 percent. Moreover, numbers of homebuyers were getting mortgage credit lines in amounts much higher than the underlying property purchasing values, essentially gaining the extra “cash-back” from their borrowing activities. This created perverse incentives for individuals to buy homes merely to earn the cash-back, for use on general spending.
It is therefore important that financial institutions understand changing clients’ business practices and public expectations to be able to fully assess their exposure to risks. It is also to be noted that as intermediary of public money, financial institutions have the important role of meeting public expectations to maintain the credibility and trust of the financial system. 5/7  Ladies and gentlemen, I would like to reiterate that financial institutions cannot underestimate the risks that come from various aspects of ESG, as these risks can impair the long-run sustainability of the financial institutions themselves. To manage and reduce these risks, it is important that financial institutions internalize sustainability considerations and properly price in potential risks into different aspects of their operations. This starts with commitment by directors, top management, and senior executives to create a culture that embraces sustainability. This could be achieved through the setting of long-term and strategic priorities to address sustainability issues; establishing new layer of internal control to limit negative externalities of related activities; and expanding the scope of risk assessment and internal audit to account for potential risks from ESG-related issues. For Thailand, it is encouraging to see many financial institutions beginning to incorporate sustainability practices and internalize ESG risks. Some financial institutions have explored different ways to assess and limit ESG impacts; some have improved disclosure practices; and some have adopted global sustainability standards. A few of our financial institutions have also been included in the Dow Jones Sustainability Indices.