to lower the probability that banks will have to liquidate their portfolio securities before maturity. overall, the banking system is in a sufficiently good position. last year, all the main balance sheet ratios were at satisfactory levels as a whole and in many cases they have improved. the share of non - performing loans has remained stable, at low levels and in line with the european average. profitability, long compressed by low interest rates and high credit losses, has risen significantly, benefiting from the increase in net interest income. the capital position has also slightly improved. yet uncertainty about the economic outlook warrants caution. we expect the cyclical slowdown and tighter credit standards to cause credit quality to deteriorate, which would have an impact on loan loss provisions, still low at the moment. adjusting the interest rates paid to customers will cause funding costs to increase. the shift towards more expensive sources of funding as the third series of targeted longer - term refinancing operations gradually reach maturity, and as banks are required to comply with resolution requirements, is also expected to contribute to this increase. the stability of the italian banking system is the result of an intense decade - long process of cleaning up balance sheets, improving efficiency, and strengthening corporate governance and internal controls. it is a result that many observers, including authoritative ones, had doubted could be achieved. it was not, however, without its challenges. more than a few times, prompt intervention has made it possible to overcome fragilities through mergers with other intermediaries, changes in ownership structures, comprehensive reviews and transformations of business models. in other cases, some of which were due to malfeasance, resolution or liquidation with purchase and assumption transactions was unavoidable ( such cases accounted for 3 per cent of total system assets ). despite the restrictions imposed by the european regulatory framework, which i have discussed in the past, financial stability was never at risk. depositors were protected. where necessary, public resources were used, the total amount of which has nonetheless been particularly low by international standards ( figure 9 ). this does not mean that there are no weak or vulnerable banks. compared with larger banks, the ratios for the less significant institutions are not always the governor ’ s concluding remarks annual report 2022 banca d ’ italia as good. there are many reasons for this, from the limitations that may result from the small size, to corporate governance systems that are sometimes not up to the task. to address these weaknesses, important reforms were

move out of controls and micro - regulation. as already mentioned, banks are special in emerging markets since they take a leading role in development of other financial intermediaries and of financial markets, apart from having a large recourse to public deposits. no doubt, there is nothing like an ‘ optimal ’ level of governance for one to be satisfied with. the objective should be to continuously strive for excellence. the rbi has, on its part, made significant efforts to improve governance practices in banks, drawing upon international best practices. it is heartening to note that corporate governance presently finds explicit mention in the annual reports of several banks. the improved corporate governance practice would also provide an opportunity to accord greater freedom to the banks ’ boards and move away from micro regulation to macro management. banks in india are custodians of depositors ’ monies, monies of the millions of depositors who are seeking safe avenues for their hard earned savings, and hence, banks must accept and perform an effective fiduciary role. in this light, improvement in policy - framework, regulatory regime, market - perceptions, and indeed, popular sentiments relating to governance in banks need to be on the top of the agenda to serve our society ’ s needs and realities while being in harmony with the global perspective. thank you.