zamani abdul ghani : riding out of the global financial crisis – banking reforms and revival closing remarks by mr zamani abdul ghani, deputy governor of the central bank of malaysia, at the 13th malaysian banking summit 2009 " riding out of the global financial crisis – banking reforms & revival ", kuala lumpur, 12 may 2009. * * * on behalf of bank negara malaysia, i would like to thank asli for the opportunity to make the closing address for the 13 th malaysian banking summit. indeed the theme chosen is highly appropriate and timely as we are currently facing a period that is most challenging. the current global economic slowdown, as many are aware, has been compared to the great depression of the late 1920s. it began with the stock market crash in october 1929, otherwise known as “ black tuesday ”. as to whether the current global slowdown reach such proportions, it remains anyone's guess. but as events unfold and with lessons of hindsight gaining clarity, we have seen how institutions failed to fully understand or underestimated the complexity of products, and were unable to adequately measure tail risks as well, the procyclical impact of fair value accounting. while these may have merits in sharing the blame, others like the high levels of risk concentration and gearing together with the failure to manage maturity mismatches, are also equally apparent, if not fundamental, in contributing to the financial crisis. comforting, however, is that none of our malaysian institutions undertook complex derivative transactions. this underscored how important it is for boards of directors to understand products and carefully weigh the risk - versus - return paradigm. here in malaysia, parallels have also been drawn with the 1997 asian financial crisis, but interestingly the similarities are arguably few in nature. correspondingly, the regulatory and policy response at the time was also suitably crafted towards addressing relevant issues and to achieve specific objectives. today, the consolidation of the banking sector and the significant advances in risk management infrastructure and practices are also firmly in place and institutionalized. payoffs from these efforts are evident as malaysian financial institutions are now on a stronger foundation to venture into new businesses and countries, undertake more complex risks and withstand shocks. their enhanced capabilities are now backed by stronger balance sheets, with the risk - weighted capital ratio of the banking sector at 13. 4 % and net non - performing loans ratio of 2. 2 % as at 31 march 2009. our financial institutions have also continued their lending activities despite the global slowdown.

volatility in oil markets makes it difficult to forecast short - term inflation developments. however, once some normalisation in these markets has occurred, more fundamental factors should dominate price developments. first, the significant appreciation of the nominal effective exchange rate of the euro over the past year is expected to continue to feed through the economy into consumer prices, via import and producer prices. second, the moderate pace of economic growth should also reduce inflationary pressures, influencing price and cost - setting behaviours. if oil prices moderate in the future, as currently expected by markets, the most likely outcome will be that inflation rates will fall below 2 % in the course of 2003 and remain clearly at levels in line with price stability thereafter. this baseline scenario relies on the assumption that, especially in an environment of subdued economic growth, wage moderation will prevail. in fact, some recent indications suggest more modest wage developments towards the end of last year, but this picture would need to be confirmed in the future. overall, ecb key interest rates have reached levels which are very low. on the basis of the currently available information, this policy stance, while contributing to the preservation of price stability over the medium term, provides some counterbalance to the various factors which are currently having an adverse effect on economic activity. looking ahead, the most likely scenario is that economic growth will gradually recover once the factors contributing to the high economic uncertainty have diminished. while the expected weak economic activity at the beginning of this year will imply low average economic growth in 2003, a rise in quarterly growth rates should materialise in the course of the year. over time, the euro area economy should benefit from a global economic recovery and the prevailing low levels of interest rates, as well as from falling inflation supporting real disposable income and underpinning private consumption growth. however, any judgement on future developments is overshadowed at present by the geopolitical tensions and their potential resolution. monetary policy cannot address this kind of uncertainty. depending on further developments, the governing council stands ready to act decisively and in a timely manner. the prospects for the euro area economy will depend very much on measures taken in other policy areas. as for fiscal policy, adherence of all countries to the framework laid down in the treaty and the stability and growth pact will support stable and sustainable public finances, and will thereby contribute significantly both to confidence and to favourable financing conditions for the private sector. in most cases, the fiscal policy stance implicit in the updated stability programmes strikes