management standards, and aligning corporate governance with international best practices. through the years, we have built a banking system that is resilient, robust and responsive. congratulations to everyone. i believe these achievements warrant a round of applause. navigating the future with progressive and proactive financial sector reforms truly, there is reason for celebration. but, from experience - and i dare say, out of habit - we shall not rest on our laurels. we are ever mindful of the need to improve to level up. last 19 january, during the reception for the banking community, i said that market development and efficiency is a theme that will underlie our reform agenda. i said you should expect this. continuity + +. in my message that evening, i underlined the importance for financial markets to discover prices efficiently and for selfcorrection mechanisms to be encouraged. we have started to deliver. a total of 200 bps reduction in reserve requirements ratio ( rrr ) this year is consistent with our strategy of the phased and gradual reduction of rrr from 20 percent to single - digit level over a six - year period. at the same time, we were able to neutralize the liquidity impact through our open market and fx operations. indeed, reducing the rrr to single digit by the end of my term is attainable without compromising effective monetary control. we are ready to resume this initiative next year just as inflation returns to target based on our forecast. we remain firm in our pursuit of structural reforms so that the banking industry remains guided even as you develop your long term strategic plans. as challenges evolve globally and domestically, we continue to improve our open market 2 / 4 bis central bankers'speeches operations and expand our policy toolkit. we are currently studying and conducting consultation with the industry for operational refinements meant to further strengthen our ability to guide shortterm market interest rates to move closely with the bsp policy rate and strengthen the transmission of monetary policy to the rest of the economy. we are tying this closely to the broader capital market reforms especially in developing the domestic debt market. another integral part of our policy toolkit is the flexibility of the exchange rate. deepening the fx market is therefore another key priority agenda. our ambitious fx reforms have three core elements : ( 1 ) fx liberalization ; ( 2 ) stronger oversight over non - bank financial institutions ; clearer governance arrangements towards a more organized fx trading market. with these efforts, we hope to encourage fx flows from

’ worth of import of goods and services. domestic liquidity continues to expand to meet the needs of the economy even as we have demonstrated our resolve to tighten monetary policy whenever the situation calls for it. in the face of rising threats to the inflation target, we hiked policy rates last may and june. we are ready to follow - through to secure our inflation target. the bsp remains firmly committed to its primary mandate of price stability. we stand steadfast and undaunted by the headwinds. rising global rates. trade wars. geopolitical risks. we face unpredictable currents. distributed ledger. artificial intelligence. cyber - threats. we rely on the navigational skills we have honed over the years to manage the constant challenge. commitment to financial stability 1 / 4 bis central bankers'speeches coming to the bsp ’ s mandate of promoting financial stability, our friends from the industry know that the strong banking system we have proudly nurtured is a product of decades of hard work, commitment to reforms, and decisiveness. total assets of the banking system increased by 12. 2 percent year - on - year ( yoy ) as of end - may 2018. the expansion was funded by the 12. 5 percent growth in deposits mostly deployed to lending activities. loans were broad - based across various borrower and industry types. the banking system is healthy and profitable. overall profitability is buoyed by the increase in core income from lending activities. with staunch commitment and consistent dedication, capitalization of the overall banking system is now above the regulatory thresholds. banks continue to adhere to sound credit underwriting standards as shown by the very satisfactory quality of the banking system ’ s loan portfolio. moreover, banks are well prepared to bear credit losses as they have set up adequate provisions for possible defaults. they maintain an npl coverage ratio of over 100 percent. moving forward, we expect further expansion of the banking system, sound asset quality, adequate liquidity and rising capital buffers. the trajectory for profit growth will continue, driven mainly by strong growth outlook, upbeat lending activities, product innovations, and more costefficient and technology - enabled operations. as the main provider of credit to key production sectors, the banking system is key to the philippine growth story. on behalf of the monetary board and the bangko sentral ng pilipinas, i personally commend you — leaders of the banking industry for being our staunch partners as we pursue meaningful reforms : raising risk