regard, as government spending remains restrained even with higher revenues generated from the revised and the expanded value added taxes. to summarize, ladies and gentlemen, we have better macroeconomic fundamentals as inflation continues to decelerate, the peso remains strong against the us dollar, and our fiscal position continues to improve, with actual surpluses posted in four months so far this year. as the government adheres to the implementation of its economic reform program, we should see more positive developments, moving forward. the financial sector reform agenda similarly, our financial reform agenda has been generating positive results. in particular, the resources of the philippine banking system reached record high levels as banks continued to register modest growth in deposits and capital accounts. this is significant … as banks account for more than 95 % of the assets of the philippine financial system. in as much as our economy depends practically on the banking sector for its financial needs, it is imperative that banks are kept sound, healthy and responsive to the needs of its customers. for your information, the bangko sentral supervises 41 operating universal and commercial banks with 4, 277 branches, 84 thrift banks with 1, 209 branches, and 754 rural and cooperative banks with 1, 305 branches. these figures are as of june 30, 2006. with the series of mergers and consolidations that are taking place as banks seek to comply with more stringent capitalization requirements under basel 2 and international accounting standards, we should see fewer, but stronger banks in the coming years. the bsp remains steadfast in its efforts to help clean up banks'balance sheets to stimulate lending activity. so far, we have seen the non - performing loan ( npl ) ratio of universal and commercial banks drop from a high of 17. 4 % in 2001 …. to 8. 5 % in december 2005 …. and further to 7. 43 % last september. aggregate capitalization of the banking sector using the new and more stringent risk - based framework indicates that the banking industry's capital adequacy ratio ( car ) continues to exceed the statutory level set by the bsp at 10 % and the global standard of 8 % set by the bank for international settlements. parallel to this positive development, outstanding loans of commercial and universal banks increased by 6. 1 % year - on - year in september to p1. 597 trillion, the highest growth rate since may 2005. while these may be modest compared to levels reached in the previous years and by

must also ensure that there is just enough money in circulation to meet the requirements of the country. the amount of money in circulation must not be too low that it could lead to higher interest rates and slower economic growth. on the other hand, money supply must not be too high that it will be inflationary and reduce the purchasing power of the peso. this is a complex and challenging balancing act. as mentioned before, it is imperative that the banking sector remains sound and healthy as it provides the funding requirements of the economy, using essentially money entrusted to it by the people. in fact, funding for more than 70 % of the resources of the banking system come from deposits which, as of june 2006, had reached p3. 2 trillion. ensuring the stability of our payments and settlements system is equally important. as the bank of banks, the bangko sentral serves as an effective clearing house for high value inter - bank transactions as it holds cash balances of the banks. for this purpose, the bangko sentral operates a real - time gross settlement system which we call the philippine payments and settlements system or philpass which processes about 2, 000 transactions with a total value of about 300 billion pesos …. daily. this is therefore a vital service as it minimizes settlement risks for high value transactions that may adversely affect the stability of the financial system. i hope that you will continue to support bangko sentral's policies and programs ; in the same manner, you can depend on our support …. if there is convergence on what our respective institutions want to accomplish. indeed, with appropriate programs of cooperation and complementation, the government and the private sectors can unleash the synergy which could sustain growth and development of our economy ; jobs and income for the man on the street ; as well as peace and prosperity for our country. let us therefore work together to sustain our growth momentum and continue to implement our reform agenda. remember, in the face of increasing global competition and millions of filipinos who remain mired in poverty, we either innovate …. or stagnate. let us choose to innovate … together. maraming salamat sa inyong lahat.