it is possible to draw some broad conclusions. 24. the key point is, i think, for banks to realize that, even if they are stateowned, they are ultimately responsible for their own destiny. the commercial banking law of the people ’ s republic of china sums up the point well in its article 4. to quote an english translation : “ a commercial bank operates independently, takes up responsibility for all risks that it may encounter and for its own profits and losses it may bear, and exercises self - regulating mechanisms on the management principle of economic efficiency, safety and liquidity. ” 25. what this means is that the board of directors and senior management of banks have the main responsibility to ensure that effective systems of internal governance are in place to plan for the future, to identify and manage the risks to which they are exposed and to control the operations of the bank on a day - to - day basis. i believe that this point is appreciated around the region - from our contacts with fellow supervisors, we know that in many banking systems there is a heightened awareness of the importance of sound risk management. but the difficulty is in turning this into actual changes in behaviour, which requires great efforts to be devoted to the training of staff, for example in credit skills, as well as more fundamental changes in culture in some banks. 26. this change in culture may require some banks to wean themselves off property lending which is sometimes seen as an easy option, given that it is based on collateral and on expectations of ever - rising property values. this can prove to be a fallacy, as the japanese example shows only too well. banks need therefore to develop a broadly - based lending business where the borrower ’ s ability to repay is the first consideration and collateral is there as the second line of defence. more generally, it will usually be sensible for banks to try to diversify their business into areas which offer the ability to earn fee income and thus reduce their dependence on the interest - rate cycle. i hasten to add, however, that this should only be done if the necessary systems and controls are in place. 27. in some cases, the changes required by banks to meet the challenges of a more competitive environment may be too great for them to meet on their own. mergers may be required to produce fewer and stronger banks, and i am aware that in some countries this process is being given official encouragement. 28. this points to the fact that the regulators also have their part to play in

all know the ways we have stepped up our supervisory efforts in this area, to ensure credit underwriting standards and risk management. as with property lending, the basic principle is “ prevention is better than cure ”. to take one example, we are collecting granular data from banks more frequently, to help identify emerging risks. as with mortgage caps, this might not please everyone – but it serves the wider public interest. 18. more generally, we have been implementing basel iii. it goes without saying that hong kong, as a major financial centre, will comply with international regulatory standards. implementing basel iii has been complex, and it has involved extensive consultation exercises. as with much of our work, your feedback and cooperation have been invaluable in this process. 19. despite all our precautions, we can never totally rule out the possibility that an institution might have a crisis. i think it is true to say that hong kong is as well - prepared, if not better, than any centre in asia. one reason is the financial institutions ( resolution ) ordinance, which came into effect in 2017. this is not something most of the community thinks about. but i am confident that we have the tools to handle a bank failure in a way that best serves the overall interests of stakeholders, including the taxpayer. 20. our regulatory work has not hindered banks from exploring new opportunities and adapting to change. during the last 10 years, we have seen the volume and complexity of offshore renminbi business increase significantly. we have also embraced – as a regulator and as an organization – the need to address climate and environmental risk through green and sustainable banking, responsible investment and capacity building in green finance. and then there is the fast - changing use of technology – which i will mention later. 21. so overall, i am pleased to say that our banking sector today is safe and resilient – probably more so than at any time in hong kong ’ s history. among the buffers hong kong banks have built up are a capital adequacy ratio of above 20 %, and a liquidity coverage ratio of above 150 % – well above international standards. the classified loan ratio is just 0. 56 %. 2 / 5 bis central bankers'speeches 22. at the same time, with a return on equity of 13 % last year, the hong kong banking industry is also among the most profitable in asia. capacity 23. next, i would like to look at the capacity of the industry – skills and