be at longer average tenors than domestic deals. it seems that it is easier, or at least has been in the past, to borrow at term overseas than in the australian market. by all accounts, asian investors have helped support longer - term australian dollar issuance of late. 8 it does not yet seem to be the case that resident investors are able to provide the demand needed for a large volume of longer - term issuance, although that could evolve over time. 10 / 15 bis central bankers'speeches where to now? these developments i ’ ve summarised have generally been positive. to recap, accommodative monetary policies and greater confidence in the outlook for global growth have contributed to low spreads on a range of non - government debt. australian issuers have benefited, with greater issuance, across a more diverse range of issuers and at longer average tenors. but the outlook is not without risks. indeed, accommodative monetary policies have encouraged greater risk - taking by both lenders and borrowers. this is one of the important ways in which the monetary transmission mechanism works. it has supported the decline in spreads and other positive developments i ’ ve just discussed. at the same time, however, the combination of low interest rates and low volatility in financial markets is of concern to the extent that it can lead to excessive risk - taking via a search for yield. this is something that the reserve bank has been noting for a time. 9 is there evidence of excessive risk - taking in fixed income markets? it ’ s hard to say. spreads have been bid down across a range of australian markets to levels that are close to those that prevailed ahead of the global financial crisis ( graph 11 ). however, spreads for rmbs are not quite so low relative to that history ( graph 12 ). 10 first and foremost, this reflects the reassessment at the time of the crisis by investors globally of the risk of this type of asset. that assessment has persisted. also, it may be that the spread is somewhat higher in australia than it was a few years ago in response to the build - up of risks in housing markets and household balance sheets – on the back of high and rising household indebtedness. we have talked about that at length for a time now. 11 11 / 15 bis central bankers'speeches 12 / 15 bis central bankers'speeches it ’ s not clear that the relatively low level of spreads in fixed income markets

##al or macroeconomic shock than a well managed business. what lessons for the future can we draw from the difficulties we have faced over the last year? i would like to highlight three areas where we can strengthen banking sector performance and resilience. first, banks need to strengthen their credit management to mitigate credit risks. one crucial area which needs to be addressed is that of currency mismatches. foreign currency loans account for 43 percent of total bank loans, but the majority of borrowers operate businesses in the non traded goods sectors of the economy. even if borrowers of foreign currency loans which operate in non traded sectors price their output in dollars, as many owners of commercial property do, they are still vulnerable to shifts in the real exchange rate, because their customers do not earn dollars. exchange rate depreciation raises the real value of dollar denominated loan repayments but it does not enhance the capacity of non traded goods businesses to earn more income. banks should restrict foreign exchange lending to companies which sell their output on the global market rather than the domestic economy, such as exporters. in general banks must be careful in evaluating the capacity of the prospective borrower to continue servicing a loan in the event of plausible shocks to revenue streams or debt servicing costs. secondly, one of the reasons why lending rates of interest remain high is that banks incur heavy operating costs annual operating costs as a percent of average bank assets are as still as high, at more than 7 percent, than they were 10 years ago. as a percentage of their earning assets, banks ’ operating costs average nearly 11percent. these costs must be covered from the interest rate spread and non interest income ; hence it is not surprising that interest rate spreads are high in uganda. over the long term, we need to lower lending rates in uganda in a sustainable manner, to support the growth of private sector business, but this will only be possible if banks ’ operating costs can be reduced. thirdly, as i noted above, it is the large capital buffers which banks hold which ensure the stability of our banking system. average capital adequacy ratios exceed the statutory minimums, by 11. 8 and 10. 5 percentage points respectively for core and total capital. in line with the basel iii reforms and the agreements reached between the central banks of the east african community, we are raising the minimum statutory capital adequacy ratios at the end of december 2016, to lock in most of the higher capital that banks currently