At the same time, increasing interest from international investors to diversify a greater proportion of their portfolios to Asian assets has created business opportunities for fund managers based in Asia, including Singapore. The local banks too registered good financial performance last year. Altogether, their profit grew by over 40%. Their return on equity also improved by 2-3% points compared to the year before. At the same time, the local banks have also shown improved financial health. Asset quality has improved further. Classified loans represented 1.6% of total loans in 2006 compared to 2.2% in 2005. The local  BIS Review 74/2007  1  banks remain well capitalized, meeting MAS’ regulatory requirements and in comparison with peer banks internationally. Taken together, these developments bode well for Singapore’s efforts to develop itself as an international financial center. Barring any unforeseen shocks, 2007 looks to be another good year for the financial services sector. Navigating the risks ahead That said I would be remiss if I did not point out some of the risks on the horizon. For now, the global environment appears benign with rosy prospects for growth worldwide. Nevertheless, various uncertainties could quickly unsettle this. For one, it is unclear how the mounting global imbalances between the East Asian countries and the developed countries will resolve. A sharp and abrupt adjustment would affect the global economy. It also remains unclear how long the golden era of good growth coupled with low inflation will continue. Already, fears of inflation have resurfaced.
However, as we look forward to the opportunities before us, we must be aware of the risks that lie ahead. As benign as the environment may seem, banks must not become complacent. Banks should be prepared for whatever surprises lie ahead. At the same time, banks must also safeguard their reputations. More can be done and we look forward to seeing ABS working with industry in bringing about good and fair consumer outcomes. On this note, let me wish everyone a good year ahead and a pleasant evening. Thank you. BIS Review 74/2007  3