fast pace. since december 31, 2002 till december 31, 2005, the balance sheet has recorded a growth of 64. 5 %, which in all respect is quite significant. deposits of the banking system registered unprecedented growth of 69 % since 2002. profits of the banking system scaled new heights. return on assets ( after tax ) increased to 1. 9 % in 2005 ( and further increased to 2. 1 % by sep 2006 ) from 0. 1 % in 2002. credit activities got a tremendous boost as banks responded zealously to meet the sharp rise in demand for credit. loan portfolio of the banking system got doubled in the last three years. unlike the past trends, the credit growth was fairly diversified. this led to substantial increase in the exposure of the banking system to new emerging sectors like consumer, agriculture and smes sectors. greater compliance with the corporate governance standards has helped keep npls to low levels and improve the management performance. as of december 2005, the key management performance indicators of the banking system confirm the impact of strengthened corporate governance and risk management practices within banks. for example : • intermediation cost has fallen to 2. 7 % as compared with 3. 4 % in 2000. • average earnings per share have increased to rs5. 7 from rs3. 2 in 2003. • deposits per employee rose to rs30. 2 million from rs14. 2 million in 2000. • assets per employee increased to rs39 million from rs19. 1 million in 2000. conclusion pakistan, like the rest of asia, is growing fast and the rise in per capita income, emergence of middle income group and relative wealth increases are together bringing with them new demands for retail banking industry. the transformation of pakistan ’ s banking sector, given the success in developing a stronger and robust system, offers some interesting perspectives and lessons for banking sector reform. the sector now faces interesting emerging challenges and risks that are not uncommon in financial systems in post reform period. going forward, pakistan ’ s financial sector strategy for next decade or so will aim at addressing the emerging challenges while laying the foundation for a deeper and efficient financial system which is competitive and financially inclusive. banks are now aggressive and recognize that having cleaned up their loan portfolios and balance sheets, they need to re - position themselves to take advantage of the boosting economy. over the next few years, commercial banks will have to focus on product innovations and diversifying their reach to infrastructure, housing, sme and microfinance industry while exploring and

authorities have experience with dry - runs and tests. i hope all of you will feel inclined to share lessons learned in the discussions of today. fout! onbekende naam voor documenteigenschap. the european context the second angle i want to highlight is the european context. the introduction of european resolution legislation in the wake of the financial crisis offers strong benefits. but it certainly also presents challenges. for example, is our decision - making process effective enough? aren ’ t we too bureaucratic to act swiftly when needed? achieving common policy outcomes can be complex and time - consuming. this is understandable and perhaps inevitable, given the different views and interests of members states. but have we made enough progress to enhance resolvability since the crisis? i believe there are still some remaining issues that need further action. for example, further efforts are needed to ensure adequate levels and quality of banks ’ loss absorbing capacity as well as to operationalise the resolution tools. you may have different views on this and i ’ d love to hear them. it would give us valuable food for thought. a second major challenge we face, is that there are still gaps in the european resolution regime itself. for instance, the absence of a more harmonised insolvency regime at the european level may hinder an effective and consistent approach across member states. within the european union, placing for example a french bank into insolvency proceedings can still be completely different than in case of an estonian bank. the principles may be the same, but the recovery and timeframes can differ. we would like to see more consistency throughout the eu in this respect. that said, in my view the benefits of a single resolution framework greatly outweigh these challenges. we now have a single framework that applies to all banks in the european union. this really strengthens the level playing field. and on top of that, it can contribute to more effective cross - border solutions. clearly the solution of fortis back in 2008 serves as a bad example here, when the problems and crisis response were ringfenced across benelux borders. the new regime ensures that resolution tools can be applied to bank which is active in multiple countries. ultimately, we are convinced that risks to the financial sector can be mitigated more effectively as part of a joint european effort. challenges the third angle concerns the challenges facing dnb as resolution authority. here, i want to highlight two challenges that you may well recognize