Time will shed more light on the true effects of developments abroad on Chile’s external position and the evolution of domestic balances. For now, it is important that we take the opportunities we have to preserve and enhance the soundness of our economy, but bearing in mind that there are risks and that they are significant. Thank you. 8  BIS central bankers’ speeches  Figure 1 Real exchange rate (*) (index, 1986=100) 120  120  110  110  100  100  90  90  80  80  70  70 88  90 92 RER  94 96 98 00 02 1997-2011 average  04 06 08 10 12 1992-2011 average  (*) August figure includes information up to 30 August 2012. Source: Central Bank of Chile. Figure 2 Nominal exchange rate (index, December 2010=100) 110  110  105  105  100  100  95  95  90  90  85  85  Dec. 10  Jun.11 Chile  Australia  Dec.11 N. Zealand  Jun.12 Canada  Source: Bloomberg.
Euro area banks’ CET1 capital ratios remain at a solid level of about 14%, whereas profitability has stabilised on the back of the strengthening recovery. Some weak banks have been successfully resolved with the impact on the rest of the euro area banking sector being well contained. Notwithstanding these positive developments, important challenges remain, including the still subdued profitability, structural challenges in some parts of the euro area banking sector, such as the presence of excess capacity and cost inefficiencies, as well as – in a few countries – the persistently high stock of non-performing loans (NPLs). On aggregate, however, further progress has been made with respect to resolving NPLs, and a comprehensive action plan to deal with legacy asset quality issues was adopted by the Council of the European Union and is now being followed up by EU and national authorities. The ECB has published guidance to banks on NPLs and a draft addendum, currently subject to public consultation. With respect to financial stability, we observe that at the current stage the euro area’s position in the financial cycle is consistent with the ongoing economic recovery. There are no indications of widespread asset price misalignments and credit developments remain modest. Nevertheless, relatively buoyant real estate dynamics and high household debt levels in some countries warrant careful monitoring. We expect the national macroprudential authorities in the euro area to remain vigilant and ready to use the macroprudential policy instruments at their disposal to counteract the any emerging risks when necessary.