management practices is needed. all in all, my message to the banks is this : be careful, don't release your provisions too soon, and strengthen your guards. the business model of a castle was for the lord to tax the peasants in his estate, in exchange for protection. but if harvests were bad, that reduced the lord's ability to levy taxes. his income fell, and he had to look for other sources to cover costs. that basically describes the challenge low interest rates pose to bank profitability. for some time the impact on banks of falling interest rates seems to have been ambiguous. on the one hand banks'interest margins have been compressed. on the other hand, lower rates may simultaneously have had a positive effect by supporting banks'lending volumes and trading book valuations. but evidence shows that since 2020, the already slim bank interest margins have been squeezed further. lending growth has not been able to compensate that, and this resulted in a drop in net interest income. for european banks, the decline was 5 % yearon - year in 2020. 2 / 4 bis - central bankers'speeches banks will likely have to operate in a low interest rate environment for some time to come. one important way for banks to tackle the challenge of lower interest rate margins is to enhance cost efficiency and to refocus their business models towards noninterest income. encouragingly, several banks have recently taken the route of doing just that. we have seen banks strengthen their position in the fee and commission income - generating business. for instance, by acquiring asset management, custody or securities services business lines, or by merging their businesses with competitors. by doing so, banks further diversify their business and increase the scale of their operations, which is a very important condition for success in these areas. think of what the lord of a castle would do if his tax income dropped. he would start raising tolls on passing ships, look to conquer other lands, perhaps compete for the hand of the king's daughter. so my message here is : don't wait for interest rates to return to higher levels but look for other ways to create value. the biggest challenge castles had to face was the invention of gun powder. the arrival of gunpowder shifted the function of castles. their role evolved from a purely defensive one to a more residential one. other defensive structures came up, like forts. they were more suitable for firing off canons themselves, thus adopting the new technology. so too the arrival of

with this rationalisation, the business community will have a more streamlined access to banking services to fulfil their wider range of requirements. comprehensive changes to the organisational structure of the development financial institutions have also been undertaken to provide a clearer scope and focus to service the needs of targeted sectors. at the same time, measures were also instituted to expand the role of the credit guarantee agency to further facilitate the development of the small and medium enterprises, a critical component of the nation's economy. on the regulatory front, a series of enhancements to the risk management regulatory framework has been introduced with the aim of promoting a more robust and comprehensive risk management practices within banking institutions. in addition, significant effort has also been put in place to prepare the industry towards the implementation of basel ii, which is targeted for january 2008 for the standardised approach and january 2010 for the irb approach. the industry has responded well with various improvement measures that have been instituted, and investments made to enhance their systems and approaches to elevate their capability to manage risk exposures. this will contribute towards enhancing further overall financial stability, and towards the development of new products with better pricing of the financial services. the islamic banking and takaful industries have been among the most dynamic in the sector. in terms of assets, the annual growth rate of islamic banking and takaful averaged 19 percent and 25 percent respectively. in 2005, profitability of islamic banking surpassed the rm1 billion mark for the first time, while its assets breached the rm100 billion threshold. as of end - march, the islamic banking assets accounted for almost 12 % of the total assets of the entire banking system. the takaful industry's assets stood at about 6 % of the industry total. the islamic banking industry has begun to maximise the competitive advantages of the islamic banking concept of profit and risk sharing. we are seeing this concept more keenly being exploited in profit and risk sharing ventures, and islamic fund and wealth management which are emerging as rewarding banking activities. developing a pool of the required skills and talent, and putting in place of proper risk management systems and good corporate governance practices becomes vital to sustain the growth momentum of the industry. as we move towards the final phase of the master plan and into a more competitive landscape, we require robust financial institutions that are resilient, effective, efficient and well placed to serve the nation, and thus support sustainable economic growth and transformation. in the area of islamic banking and finance, our aim