Efficiency demands of us to pinpoint specific sources of risks and, where possible, choose targeted measures over generic alternatives. In certain circumstances, specific tools such as adjusted riskweights, borrower-based measures or sectoral systemic risk buffers are better alternatives to a generic tool which affects all segments of credit indiscriminately, hindering the funding of the economy's productive capacity, which is much needed for the economy to keep growing. Lastly macroprudential policy demands from banks a higher level of diversification and productive investment. As past Financial Stability Reports indicate banks' loan portfolios are highly concentrated towards real estate. This is a structural characteristic which is very well documented, so is the fact that mortgages are the prime drivers behind this concentration. Macroprudential policy has a role to play here to address systemic concentration risks. But, apart from policy prescription, the importance of portfolio diversification cannot be underestimated. Similarly, banks have a crucial role to play in financing the productive capacity of our economy and therefore they must ensure that this capacity is not crowded out. We are in the midst of a historical global transition to sustainable economic models including digital transformation. This time could therefore offer a unique opportunity for our banks to also finance this vital transition and in so doing diversify their portfolios. We are still in the early stages on the sustainability path, but we cannot afford to be late or in catching up mode if we want to ensure a more equitable and sustainable society.

For the past three decades, Islamic finance in Malaysia has undergone a journey that is marked with various significant milestones. I would like to highlight three major achievements of the industry in term of its development since inception. Firstly, Islamic finance in the country has become a key segment in the financial system. What was once a novelty is now mainstream. This is a consequence of continuous initiatives to build a solid foundation, focusing on infrastructural, institutional and capacity building measures, as well as robust regulatory and supervisory framework. These measures are the cornerstones of Islamic finance industry’s growth. From less than four Islamic banks and takaful players before year 2000, there are now 27 players that offer over 100 financial products beyond the basic financial offerings. The industry is characterised by increasing competitiveness and innovation. The recently launched Investment Account Platform (IAP) is the latest initiative where the industry has cooperated to further enhance the offerings of Islamic banks. The IAP provides an online marketplace to match potential investors with viable ventures. Islamic banking assets have also grown beyond the targeted 20% as originally intended in Bank Negara Malaysia’s Financial Sector Masterplan. It now stands at more than a quarter (27%) of the total banking system. Islamic finance also provides financing to all segments of society irrespective of beliefs, race and gender. There is also greater acceptance of takaful with its increased penetration rate to 14.8% of the population.