amando m tetangco, jr : assessment of the thrift banking system keynote address by mr amando m tetangco, jr, governor of the central bank of the philippines, at the annual national convention of the chamber of thrift banks, baguio city, 17 march 2006. * * * good morning! i send my warmest greetings and congratulations to the membership of the chamber of thrift banks ( ctb ) on the occasion of your national convention, the high point of the annual celebration of the thrift banking week. you have chosen the theme of responding to the challenges ahead. as both banking supervisor and monetary authority, we welcome your cooperative and constructive approach to the many issues confronting the banking system. indeed, we continue to face many challenges ahead even as we have also made considerable progress. assessment of the thrift banking system as i survey the thrift banking system today, i believe it has proven its resilience in the face of all the many challenges. in 2005, total resources of the industry grew by a very respectable 13. 3 percent. deposit level also continued to post double - digit growth of 16. 8 percent, indicating strong confidence in the industry. meanwhile, the industry remained adequately capitalized with capital adequacy ratio ( car ) averaging at 16. 8 percent as of end - june 2005. this is well above the prescribed minimum ratio of 10 percent and more than double the international benchmark of 8 percent. non - performing loans ( npl ) ratio favorably declined to 8. 9 percent as of end - december 2005 from 11. 0 percent last year and from a peak of 13. 4 percent at end - september 2002. likewise, npa ratio went down to 12. 5 percent from 15. 9 percent last year. the industry ’ s strengthening balance sheet also reflected a steady increase in the loss provisioning for bad assets. the industry posted a better npa coverage ratio of 23. 4 percent at end - december 2005 from 17. 2 percent the previous year. however, this is still much lower than the 42. 1 percent total npa coverage ratio in universal / commercial banks. the whole banking industry should actually be striving for at least 50 percent coverage. and the best way to do that is to rapidly get rid of your remaining non - performing assets that continue to impose a drag on your performance. indeed, your profitability remained marginal with return on equity and return on assets ratios at just 0. 2 percent

others as a consequence of the fresh outbreaks of the disease. in this context, the euro area outlook remains highly uncertain and the risks to the area tilted to the downside. at the same time, there are already signs that the pandemic may give rise to certain structural changes, although the full extent of these is, for the time being, difficult to know. in this context, for me the key for economic policies is to strike the right balance between supporting the recovery and spurring economic adjustment to the structural changes that will emerge after the pandemic. this means first maintaining support measures and avoiding cliff - effects. indeed, after the pandemic many euro area countries will be facing the highest level of public debt in many decades. and facing this challenge will require a gradual fiscal consolidation programme once the economy moves back onto a sound growth path. in the short run, however, the damage caused by the premature withdrawal of support measures would exceed the possible cost of maintaining them until the recovery shows signs of sufficient strength. notwithstanding, given the significant heterogeneity of the effects of this crisis, in particular in this recovery phase, support measures should be much more focused now and their timing adjusted to the duration of the crisis. in addition, we have to adjust the specific instruments used. in particular, the crisis has already generated an increase in the level of indebtedness of many firms. thus, it would make sense to assess the possibility of actions to support firms that do not involve an increase in financial obligations, such as, for example, by means of direct assistance or, in some cases through temporary capital injections. furthermore, for companies that have difficulty meeting their financial obligations, streamlined debt restructuring procedures need to be available to avoid such difficulties leading to the disappearance of heavily indebted firms whose business model is nonetheless viable. and, in parallel, for firms with non - viable business models, an orderly market exit should be available, since this would result in a more efficient allocation of resources. apart from these short - term actions, an ambitious structural reform agenda is urgently needed, to increase the economy ’ s potential growth, which was already low before this crisis. and this is also true for european policies. in this case, for example, it is crucial that the european fund be converted into a permanent, common fiscal stabilisation instrument for the euro area. this would allow a joint fiscal response to macroeconomic shocks and provide a larger supply of safe european assets,