Economic growth prospects are better, mainly thanks to the improved foreign demand and eased monetary conditions. Furthermore, payment in arrears to the private sector will begin this year, accounting for a considerable amount. We expect banks to assist in this regard for a smooth and effective process, and orient the cashed-in amount towards further lending to the economy. From this process, we expect the business restructuring to ease and their borrowing demand to grow. Likewise, the fiscal policy will gradually orient towards a steady consolidation process, which will create more room for lending to the private sector. The banking sector may serve as a catalyser to render the effect of such policies sustainable, and benefit maximally from them in the form of expanded activity, improved asset quality and enhanced income stability. As you know, last November the financial system was subjected to the IMF and WB appraisal. The banking industry was engaged in this process and I take the opportunity to thank you for this! Today, the IMF Executive Board is expected to approve the evaluation report. Overall, the financial system and its supervision infrastructure have managed to successfully weather the global financial crisis. In the meantime, risks facing it are analysed and assessed, and a series of actions that need to be taken are identified. For banks, the focus is on strengthening their human and technical resources to assess operational risks and undertake concrete actions to mitigate these risks. The need to improve asset quality and maintain financial soundness indicators is also a focal issue.
In addition, an economic or financial crisis often would prompt a rethink of our approach to policy-making and of relevance, a re-evaluation of the statistics we use as the basis for our decisions. In this regard, the recent Global Financial Crisis is no different. Allow me to highlight two lessons from the recent financial crisis. First, the crisis highlighted that our understanding of the financial system was insufficient. Financial innovation had resulted in a significant increase in financial intermediation taking place outside the regulated banking sector – what is today known as shadow banking. Excessive risk-taking and leverage, by both regulated and shadow financial institutions, had significantly increased the vulnerabilities in the financial system. Focus on the stability of BIS central bankers’ speeches  1  individual institutions alone was not sufficient. Instead, attention is required on the stability of the financial system as a whole. These underscore the importance of improving data coverage to keep pace with the constantly evolving economic and financial landscape. Second, the unprecedented scale and scope of the crisis demonstrated that the interplay between exposures in the regulated financial system, the unregulated shadow banking system and the real economy can have interrelated implications. Financial imbalances – in the form of excessive leverage and asset price bubbles – had built up amid stable inflation prior to the crisis. Consequently, the long drawn out process of deleveraging and balance sheet repair by financial institutions, households and governments have suppressed aggregate demand amid less effective expansionary policies.