##es en la supervision macroprudencial ”. cemla - lxxxix meeting of central bank governors of latin america and spain. 13 – 14 may 2010. buenos aires. argentina. as can be noted, the bolivian financial system has sound capital, adequate asset quality and profitability ratios, as well as good ratios of deposits and loans in local currency relative to foreign currency – which is something i would like to highlight. the bolivian case is still the one of a highly dollarized economy. financial dollarization, i. e., deposits and loans in foreign currency, used to be around 90 % of total deposits and loans. as a result of close coordination among the central bank, mefp and asfi, the ratios of loans and deposits in domestic currency over total loans and deposits are, for the first time in several decades, a little higher than 50 % for loans and close to 50 % for deposits. banks ’ foreign currency liabilities are less than 3 % of total liabilities due to low involvement in international financial markets, as explained before. in bolivia we view financial regulation as important. the prudential regulation measures taken by the central bank of bolivia have improved in recent years and have been closely coordinated internally ( monetary and exchange rate policies ) and with the mefp and asfi. the challenge ahead is to give this coordination a more formal framework. what are the decisions we should make to arrive at coordinated results and decisions? on the one hand, our experience is based upon a sound macroeconomic policy : current account and fiscal surplus, price and foreign exchange stability. on the other, microprudential analysis is performed with emphasis on individual entities, while we also perform macroprudential analysis, for example, our financial stability report, which includes an analysis of stress tests. the following chart uses an approach presented by the governor of the central bank of argentina at the conference “ jornadas financieras y bancarias 2010 ”. it is based upon the following variables : current account, financial regulation, exchange rate flexibility, monetary policy, fiscal policy and net foreign asset accumulation. as can be seen, before the crisis, emphasis was on monetary policy and exchange rate flexibility. the exchange rate was endogenous and little progress was made in capital account and financial regulation ; net foreign asset accumulation and fiscal policy were not that important before the crisis. bolivia, before the crisis, had a broader scope on these issues. exchange rate stability and net foreign asset

nonperforming and legacy loans. in parallel the financial deepening process triggered by financial liberalization reinforced and was supported by the rising economic growth and activity. 5. financial liberalization process in pakistan has been remarkable. it not only resulted in privatization of large public sector banks but the process of privatization was effectively conducted offering new management in most cases relatively cleaner bank where the key issues of npl resolution and rationalization of work force were dealt with upfront or ongoing flexibility is awarded through special schemes to deal with the outstanding issues. augmenting the private sector involvement, the entry requirements for new private banks were relaxed but made more stringent both in terms of capital requirements and fit and proper criteria for both management and board of directors. 6. accompanying financial liberalization process was a strong effort on the part of central bank to bring the prudential regulatory and supervisory framework for banks at par with the bis standards. pakistan is fully / largely compliance with the 28 of the 30 basel core principles for effective banking supervision and the remaining 2 principles relate to consolidated supervision, and are under consideration for future compliance. 7. growth in banking sector and its profitability is unprecedented. banking assets rose three - fold over the last 5 years and industry size is reaching rs4 trillion. the banking sector ’ s assets to gdp ratio grew from 47. 2 % in cy00 to 55. 6 % in cy05 since the growth in banking assets outpaced the nominal gdp ; these trends are in sharp contrast from the declining trend in banks ’ assets to gdp ratio during the second half of the 1990s. supported by privatization and consolidation, assets of the banking sector have shifted from public to private sector and there is a decline in asset concentration within the banking sector. this changing structure had far - reaching implications for the banking sector profitability. 8. return on banking assets before taxes have grown to 2. 6 % ( 1. 8 % after tax ) relative to 0. 2 % in cy00 and return on equity has been 25. 4 %. improvement in profitability has been supported by high economic activity but it is important to recognize that sustained economic growth, rather than sporadic improvement in real gdp, helps the financial institutions to earn higher profits. in quantitative terms, one percent rise in the real gdp growth tends to improve the profitability by 113 basis points. in addition, low interest rates and inflation for most of the period in the last four years also supported the financial sector profitability, as one percentage point increase