June 18, 2012
Credit to the private sector has almost doubled since 2003, rising from 24% of GDP to 47%. Relatively high levels of consumer loan delinquencies in the context of strong income growth and solid labour markets have raised concerns among some analysts.
While NPLs would certainly climb higher in the event of prolonged economic weakness, systemic (as opposed to individual credit) risk remains low. The capital adequacy ratio is very high. The system’s dependence on wholesale funding is highish, but manageable overall, not least because banks typically carry large amounts of liquid assets in the form of government debt securities. The banking sector’s reliance on foreign funding (as a share of total liabilities) is quite low. Very high reserve requirements provide the authorities with an important crisis-management tool. Banks’ liabilities and assets are largely denominated in local currency and local foreign-currency lending is prohibited (unlike in Eastern Europe, for instance), while banks face strict limitations in terms of the FX risk they are allowed to run.
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