4 Provisions had already increased by € billion between June 2019 and June 2020. 5 As a result of its merger with Bankia, in March 2021 CaixaBank recorded positive extraordinary results of € million € million in negative goodwill less € million in extraordinary expenses). 5  increase in profit in the first quarter was essentially explained by a significant reduction in provisioning, which stood at pre-pandemic levels. Fourth, the unfavourable profitability performance in 2020 did not translate into a worsening of the sector’s solvency. Quite the contrary: capital ratios increased. The reasons for this are: i) the aforementioned negative extraordinary factors on profitability affected balance sheet items that have no bearing on prudential solvency (for instance, goodwill); and ii) the authorities implemented various measures to shore up institutions’ CET1 ratio, most notably the European Union’s regulatory reform (“quick fix”) and, again, the public guarantee programme and the recommendation against paying dividends. Despite their heterogeneous initial solvency positions, banks performed favourably across the board in 2020. Moreover, as at December 2020, accounting capital and reserves constituted the main components of Spanish banks’ prudential capital, while deductions for goodwill lost relevance as compared with previous years owing to a significant share of this having been amortised. More recently, in 2021 Q1, Spanish banks’ solvency ratios held stable relative to December 2020. Short and medium-term risks In my view, this positive sector performance must not obscure some of the short, medium and long-term risks that still exist.

In 2009, i.e., during the height of the global financial crisis, Bank Negara continued to focus on developing and consolidating a comprehensive set of standards on corporate governance and risk management practices. These standards encompass overarching principles on risk governance with more specific guidance on the management of market, credit, liquidity, operational and insurance risks. Further efforts of Bank Negara include organizing the Financial Industry Conference on risk management. This Conference has encouraged further dialogue on key risk challenges facing the financial institutions and how financial institutions can further enhance their resilience to these challenges. A major milestone was the enactment of the new Central Bank of Malaysia Act 2009. This Act, which came into force on 25 November 2009, has further strengthened the ability of Bank Negara to undertake surveillance and prompt resolution to avert risks to financial stability. The existing Financial Sector Master Plan is currently in the final phase of its implementation. The measures under the Plan, which were undertaken during the past decade, have contributed towards achieving a more efficient, effective, stable and resilient financial sector. This has in turn resulted in more developed financial markets, broader and better product offerings, as well as higher levels of insurance and Takaful penetration. This trend of liberalization is expected to continue, whilst the banking and insurance sectors could possibly see further consolidation, convergence, and competition within the region.