diversification possibilities and facilitate financing for productive activities at a lower cost. lastly, in the longer term, it will also be important that the banking sector provides an appropriate response to the risks posed by climate change. included here are physical risks, associated with the materialisation of an effective worsening of climate conditions ( e. g. more frequent and longer - lasting droughts, greater likelihood of fires ), and transition risks, linked to the adoption of new regulations and taxes and to the transformation of the production process, aimed specifically at mitigating climate change. intervention by fiscal and environmental authorities is key to achieving an orderly and predictable energy transition. but it is also important that the banking sector allows the financial risks present in the different stages of this process to be duly reflected. we financial supervisors must ensure that banks indeed correctly assess the risks, and promote the development of appropriate reporting standards and databases to measure them. conclusions in view of the pandemic ’ s unprecedented economic impact, the spanish banking sector has emerged as a mitigant of the shock and is called upon to play a key role in financing the recovery. this has been possible for two reasons. first, the sector's healthier starting position, following its restructuring, and the prudential regulations adopted after the global financial crisis. second, the essential role played by the public support measures in mitigating the impact of the crisis on borrowers ’ credit quality, thus preventing a financial crisis component that would have made it deeper and longer - lasting. that said, the crisis has had an adverse and heterogeneous impact on the sector ’ s profitability, although solvency and default rates have not suffered to date thanks to the support measures adopted. in the future, given the uncertainties associated with the impact of the crisis on firms ’ and households ’ credit quality and with the repercussions of gradually withdrawing the support measures, we must be alert to indications of latent credit risk and ensure an appropriate and timely coverage of such risk, in keeping with supervisory guidance. ensuring suitable risk coverage, while maintaining a flexible prudential approach, may make it easier to prevent any undue contraction in credit that could hamper growth in the new phase of economic recovery that we are entering. the impact of the pandemic has exacerbated some of the pre - existing structural challenges faced by the banking sector. these notably include the challenges associated with the cost of capital exceeding profitability, digitalisation and climate risk management

– is that some rebalancing from the current investment - led pattern to a more consumption - based model is required. this is not a simple task, since the underlying causes of the current growth pattern in some asian countries – including china – are manifold. issues such as the catching - up process, the need of a large part of the population to secure future incomes, or the role of the public sector in providing schooling and pensions, have all a role to play as has been widely discussed in recent years by scholars and policymakers in the region. in fact, the recently published asian development outlook delves on some of these issues at great length. as we will have the opportunity to discuss today, more developed financial systems can also greatly help to rebalance growth. financial systems are instrumental in mobilizing savings and helping smooth consumption patterns. they are also key in transforming risk and allocating capital to its more productive uses. many of these functions are directly linked to some of the problems that asian countries have been trying to solve over the past decade. to name but a few : very high saving ratios, possible investment overcapacity and slow takeoff of private consumption. although the investment - consumption patterns may already be changing in parts of asia, there is still a large scope for improvement and more efficient and competitive financial systems can provide a fundamental support. ten years after the asian crises, financial systems in the region have come a long way : asset quality has improved, profitability has been on the rise and so have capital ratios. regulation and supervision have been upgraded as a result of the crisis. financial depth is considerably higher in asia than in latin america and eastern europe, when measured by basic indicators such as the ratio of credit to the private sector as a share of gdp. nevertheless, it is also true that credit is heavily biased towards the corporate sector in asia. in the last years, consumer loans have been on the rise – along with home mortgage credit – in emerging market regions, such as latin america or eastern europe ; in asia consumer loans have also taken off, and this is a positive development. but there are still issues and concerns about the real extent of changes in lending standards and the potential problems that rapid credit growth might pose if the global economy were to turn to a slower gear. similarly, asian banking systems remain relatively close to the participation of foreign banking, as compared to other emerging market regions, a development which may be foregoing important benefits in terms of modernization and competition. all