still not much new lending going on - in hong kong domestic lending has fallen for ten months in a row. the main priority for many banks is therefore to limit the damage from loans already on the balance sheet. to be successful in this objective requires a number of factors to be in place at both the individual bank and sector levels. in individual banks, there must be an effective system of credit monitoring and loan classification to detect problem loans at an early stage and to enable corrective action to be taken as soon as possible. as i have already indicated, the shift from relationship banking and the unwillingness of borrowers to supply sufficient information have been hindering factors in hong kong in enabling banks to pick up early warning signals. once problems have been detected, it may be sufficient in the early stages to leave the handling of these with the account officers. but when the problems are too deeprooted, there will usually be advantage in transferring problem loans to a dedicated loan recovery unit where specialist expertise attention can be devoted either to restructure the loans or to take recovery action and liquidate any collateral. this is the theory, but it is easier said that done to find loan recovery specialists when many bankers in the region have not experienced a prolonged period of economic decline. outside experts, for example from the accounting firms, can help to fill some of the gap. but it is also essential that the banks build up their own resources and provide more training to their own staff on how to deal with problem loans. at the sector level, it is necessary to have an effective insolvency regime to ensure that nonviable companies can be wound up in an equitable manner before they have the chance to build up even further losses. however, liquidation should generally be a last resort and there should be an alternative to insolvency that allows distressed, but commercially viable, companies to survive as going concerns, thus preserving employment and productive capacity. this requires a framework that encourages negotiation and compromise between distressed borrowers and their creditors. the objective should be to agree a standstill on debt payments and a moratorium on legal proceedings to provide a breathing space during which negotiations on a debt restructuring can take place. in hong kong, the association of banks has issued non - statutory guidelines for the conduct of debt workouts. these are based on the so - called london approach to workouts that was developed by the bank of england. other countries in the region have also used this as a model for dealing with corporate restructuring

even if activity does move into a more subdued phase. • the overall picture of inflation is also complicated by the krona having been weak recently instead of appreciating as we assumed in october. moreover, the price of oil remains high. this may mean that the earlier tendency for import prices to counter what has otherwise been gradually growing domestic inflationary pressure may not apply to the same extent. in this respect, then, the outlook is more in line with the risk spectrum we outlined in the october report than with our main scenario there. the composite assessment of the various risks associated with wage formation, the exchange rate, the price of oil and the possibility of weaker activity is naturally a matter of judgement. in my opinion, however, inflation prospects in general are now somewhat more troublesome than before. there has clearly been a gradual increase in resource utilisation. the overall assessment of activity in the coming years implies that growth will continue to be above the level of 2. 0 to 2. 5 % that the riksbank considers to be sustainable in the longer run. that applies even if there is a slight slowdown in international activity. there are also the high price of oil, the weakening of the exchange rate and signs of some disturbing tendencies in wage formation. to some extent, therefore, the situation for monetary policy has changed. that is also why i began by saying that the time will soon come to raise the repo rate. not because i have dramatically revised my assessment of inflation prospects but rather because resource utilisation is still rising and a shift can be discerned in the risk spectrum. we will have to bear these things in mind so that the development of production and employment can remain stable.