even the smallest institutions, to rely increasingly on intermediary sources, such as deposit brokers, the internet, and other automated service providers, to raise funding to support asset growth and meet loan demand. deposits gathered from such sources, even those not explicitly “ brokered, ” can be less stable than traditional core deposits, since the depositors typically lack any other customer relationship with the institution and could shift funds to a different bank or investment in search of a higher return. in addition, many regional and community banks today rely more heavily than in the past on wholesale borrowings from financial intermediaries, including other commercial banks and securities firms, to supply portions of their funding mix. indeed, regional and community banks have relied increasingly on the liability side of the balance sheet for funds management. most observers, for example, have been unaware of how successful community and regional bankers have been at directly raising uninsured deposits in their local markets when loan demands have exceeded core deposit growth. in the latter half of the past decade, the uninsured deposits at these banks grew more rapidly than those at larger banks. to be sure, large time deposits cost more than insured deposits, but community banks have maintained their profits and returns on equity. the creativity that community banks have shown in supplementing their core deposits - - deposits that have grown less rapidly as attractive substitutes became available for their customers - - has once again surprised those that believe smaller banks can no longer compete in modern financial markets. such ingenuity in funding supplements their creativity in maintaining and increasing their loan base in the competition with their larger rivals. this ingenuity also increases the need for closer management of funding at the same time that regional and community banks ’ investment portfolios have become more complex, with holdings of instruments that are in some cases longer - dated or have more options, than traditional bank investments. even in terms of the capital base, the widespread use of trust - preferred securities has introduced additional complexity to regional and community bank holding company balance sheets. the expanded use and acceptance of asset - backed securities have also enabled regional and community banks to take advantage of what we, only a few years ago, considered, to be “ large bank ” opportunities to originate and sell large volumes of mortgages and other consumer loans, either directly to purchasing intermediaries or indirectly through a securitization vehicle. to be sure, the sale and securitization of assets give rise to varying types and degrees of risk to the originating institution

depreciation. finally, recently, the dollar has strengthened against the major currencies as a result of expectations that america will be the first among the industrialized countries to raise interest rates. financial sector the latest quarterly data available is for september 2014 and this indicates that the banking system is financially very sound and well capitalized. asset quality has improved. the nonperforming loan ratio has declined from 6. 2 percent of the loans in march 2014 to 5. 3 percent of the loans in september 2014. banks ’ profitability has reduced partly as a result of loan provisioning and a slight drop in the net interest margin. the banks ’ total regulatory capital position remains very strong at 22. 5 percent of risk weighted assets as at end of september 2014 which is almost double the statutory minimum of 12 percent. the banking systems ’ bis central bankers ’ speeches average return on assets and equity declined to 2. 2 percent and 13. 1 percent respectively in the year to september 2014 from 3. 1 percent and 18. 8 percent in the previous 12 months. private sector credit with regard to private sector credit growth, since the start of 2014, private sector credit has recovered with annual growth increasing to 13 percent as of end of september 2014. the building and construction sector, trade and household loans continued to account for the bulk of the ps credit. the three sectors together ( building and construction sector, trade and household ) accounted for over 55 % of banking systems ’ outstanding credit to the private sector since february 2014. annual growth of ps credit during 2014 / 15 is projected at 15 percent. bis central bankers ’ speeches