on the more specific issue of brexit, the direct exposure of the philippines to the uk is relatively limited. the bigger concern, however, is whether the other eu economies will follow the uk ’ s lead ; given that our trade exposure to the eu is larger at around 12pct. as for the trump election, we will need to see how his campaign rhetoric translates to actual policy. our eyes and ears are tuned to january 20, when he actually takes over the white house. the second risk comes from the us fed ’ s future policy rate actions. at its meeting in december 2016, when the fed raised its target rate for the first time for the year, the fed indicated that it would raise rates three more times in 2017. if the fed veers from this, volatility in both the global and domestic fx and fixed income markets could rise. a steeper than expected hike in us interest rates could lead to a faster rise in domestic commercial and government securities interest rates also, as well as stronger depreciation pressures on eme currencies, including the peso. such price movements may adversely affect the balance sheets of domestic corporates and banks, especially of those that have fx and floating - interest rate obligations. this adverse result would be magnified if the markets panic, overreact, and thus amplify the initial increases in interest rates and weakness of the peso. moreover, a tightening in domestic financial market conditions could also dampen domestic credit activities in the near - term. however, if the reason for fed tightness is that the underlying us economic growth has become stronger, then that may offset some of the near - term negative impact of the fed tightening and lead to over - all support for global growth in the medium - term. on the other hand, if the fed turns dovish ( i. e., fewer or no further hikes in 2017 ), then that could encourage “ risk on ” market behavior, stall domestic interest rate increases and dampen depreciation pressures in emerging markets. but such result is unlikely, as trumponomics, which is reported to focus on increased fiscal spending, is widely expected to be inflationary. third. in addition to these external risks, we also have risks emanating from the domestic front such as political noise and adverse weather disturbances. moreover, while the administration has committed to ramp infrastructure spending, they could be forced to cut back on this, should 2 / 4 bis central bankers '

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