aftermath of the bursting of the bubble, and as a result, the world is facing an uneven pace of recovery. on the one hand, emerging economies are continuing their robust growth. on the other hand, due in part to the balance - sheet adjustment process following the bursting of the bubble in some countries, recovery in advanced economies is slow. central banks in advanced economies have introduced unconventional measures to implement extremely accommodative monetary policy. as advanced economies face the zero lower bound in interest rates and a weak transmission mechanism constrained by balance - sheet adjustment needs, monetary easing through the traditional interest rate or credit channel is not working to the extent normally expected. instead, in an integrated global financial system and with the divergent pace of economic growth, capital is rapidly fl owing into high growth emerging economies which do not face such constraints ( chart 12 ). the risk - taking channel is working more effectively at the global level. chart 13 correlations among emerging market equity and commodity indexes since the emerging economies are not hampered by the aftereffects of the bursting of the bubble, the stimulative effects of such capital inflows could be unexpectedly large. with short - term interest rates at very low levels in advanced economies, carry trade activity has picked up and correlation among emerging economy equity markets as well as between emerging equity markets and commodity markets is rising ( chart 13 ). if such capital flows lead to the development of bubbles and abrupt reversals in the future, the negative repercussions would not only be harmful for emerging economies, but also for the global economy. 5. challenges for policymakers in order to prevent the emergence of unsustainable global imbalances, policymakers need to dig down beyond changes in the current account balance to capture underlying imbalances. a key sea change that we are witnessing is that through rapid globalisation the identification of harmful imbalances and implementing rebalancing measures can no longer be a purely domestic process. bis central bankers ’ speeches in formulating macroeconomic policy, the traditional emphasis was to ensure domestic stability or to put one ’ s house in order. however, with the deepening of globalisation, the simple sum of each country ’ s policy action may not necessarily achieve an optimal outcome at the global level. policymakers in both advanced and emerging economies need to rethink the meaning of domestic stability. the direct impact of policy measures on the domestic economy does not provide a comprehensive view. it has become ever more important

end - april 2020. at the same time, banks showed strong liquidity position by ably servicing cash withdrawals and providing needed financing to the economy. the operational risks from possible disruptions in the delivery of financial services was also a concern duly mitigated by the comprehensive business continuity management ( bcm ) system that banks are required to have. finally, the financial consumers ’ shift to digital payments amidst the need to maintain physical hygiene intensified global cyber - and money - laundering - related risks. nevertheless, the bsp, in coordination with other regulators such as the anti - money laundering council, is prepared to conduct investigations and information awareness campaigns to address cyber threats and financial crimes. the volatility, uncertainty, complexity and ambiguity ( voca ) in the economy and financial system has intensified due to this once - in - a - generation crisis. this has further muddled the task of forecasting and budgeting amongst businesses and policy makers. however, we are confident of the banking system ’ s ability to emerge out of this crisis stronger and more resilient. this optimism is shared by the japan credit rating agency ( jcra ), which gave the country ’ s first ever ‘ a ’ credit rating amid global ratings downgrades. among other factors, jcra underscored the strength of the banking system for its ‘ a - ’ rating and stable outlook. non - performing loans ( npl ) is edging up but remain manageable. the adverse impact of the pandemic on borrowers is expected to exert pressure to the current quality of bank loan portfolio. however, we expect the impact to be manageable due to the banking system ’ s sound risk management systems and financial strength built over decades of strategic reforms implemented by the bsp. another factor is the relatively low leverage of the biggest recipients of the banks ’ loans – the corporate borrowers. in fact, the moderate level of private sector debt in the country is one of the reasons why the philippines retained the s & p global ratings ’ banking industry country risk assessment ( bicra ) of 5 ( with rating of 10 as extremely high risk ) in 2020. this rating is among the best in south east asia. stressed cars meeting regulatory standards. our simulation exercises reinforce the banking system and the banking groups ’ capability to weather assumed stressed scenarios with a postshock car of the system and banking groups easily hurdling the 10 percent regulatory minimum. this was achieved as the banking system and banking groups entered the pan