in october 2020 as banks pegged their treasury activities on liquidity positions. based on the survey, the bsp supervised financial institutions will maintain their strategy as the duration of their investments was reduced to maximize portfolio returns. the top universal and commercial banks did not introduce major changes in the composition of their portfolios as they assess liquidity risk. exposures are mostly concentrated in highly - liquid and investment grade instruments. as a natural consequence, profitability slides. banking operations were affected by the covid - 19 pandemic as the ( annualized ) net profit of the banking system shrank by 15. 8 percent year - on - year for the semester - ended september 2020. we however expect that other operating expenses will likely be reduced due to lower business volume and capital expenditures and non - essential expenses will be deferred. 4 / 7 bis central bankers'speeches based on the bsp supervised financial institutions ’ survey, the full year target for net interest income, other fees, operating expenses will drop while provisioning will increase. to mitigate the adverse impact of the pandemic on profitability, banks plan to impose cost - cutting measures ( e. g. deferred capital spending and freeze hiring of non - critical positions ), intensify loan collection activities, be stringent in loan monitoring, exercise prudence in loan releases, reduce cost of funds and boost marketing campaigns for new loans and deposits. the universal and commercial banks also intend to reduce their exposures to vulnerable sectors and to increase ancillary or fee - based business while thrift banks, and rural and cooperative banks want to fast track digitization initiatives to reduce operating expenses. moving on, banks remain well - capitalized. the capital adequacy ratio of the universal and commercial bank industry hovers at 15 – 16 %, well - above the minimum thresholds set by the bsp at 10. 0 percent and the bank for international settlements at 8. 0 percent. meanwhile, the banking system maintained sufficient buffers to meet liquidity and funding requirements. moving forward, the bsp will prioritize the following supervisory areas to ensure the soundness, stability, resilience and inclusivity of the banking system amid the ongoing health crisis. this slide shows the key supervisory areas that we are looking into – ● involvement of the board and management ; ● asset quality ; ● liquidity ; ● profitability ; ● capital adequacy ; and ● banking operations. we also fully support the

but inference is often non - robust across various identification schemes. and real - time identification remains central banks ’ holy grail. as a consequence, central bankers are given little guidance by theory in their daily endeavour to filter out noisy data. the task of policy - makers is further complicated if they suspect that customary cyclical movements are compounded by an ongoing change in the deep structure of the economy. for one thing, structural change amplifies the identification problem. it is difficult to ascertain whether the dynamic force that we see appearing on the screen is going to be reversed and eventually vanish, or will become ingrained in the underlying economic mechanism for many years to come. but more importantly, in case a structural change is truly under way, macroeconomic relationships derived from empirical regularities and historical averages are bound to lose significance. a new set of relationships would need to be estimated and tested. but serious diagnostics for structural stability rarely give definitive answers. and re - estimation requires sufficiently extended spans of data that simply do not yet exist. structural change on a global scale the past decade, on both sides of the atlantic, has not been kind to policymakers ’ aspiration to a comfortably stable set of structural relations usable for policy analysis. at a minimum, the second half of the 1990s and the early years of this century have sent us stark reminders that the economic structure does not hold still for long. our recent experience in coping with economic change has provided more than one stress test of the macroeconomic models that are in use in our institutions. i shall mention three examples. on this side of the atlantic, the policy debate has primarily focused on technological innovation, the spread of information technology, and globalisation. many distinguished analysts have identified in the combination of these three dynamic factors the main structural force behind the reduction in economic frictions and the narrowing of the ability of any single market player to influence prices and dictate market conditions domestically. this course of events has increased competition. through a better allocation of resources, heightened competition has advanced the standards of living in more than one country, notably the us. however, the same phenomenon has also reduced policymakers ’ confidence in what seemed to be well - tested economic relations. for example, it has loosened the association between output growth and inflation, and between these two variables and employment. and many us observers were left wondering whether the intense capital deepening of the last few years - and the associated measured growth in productivity - may have shifted substantially the relationship