5
the country had entered a new phase.
There is also the danger of an unsustainable increase in domestic credit reliant on short-term foreign borrowings. This is due to the lack of deep domestic financial markets. The current global accommodative financial conditions raise the possibility of unhealthy global capital flows into Asian economies. Such capital flows could result in the build-up of distortions and risks in the financial systems of these economies. For example, several economies have seen considerable increases in real estate prices partly due to foreign capital inflows. Needless to say, if there were a substantial decline in real estate markets, nonperforming assets could pile up in the financial sector. Such a scenario could hamper growth substantially and for a prolonged period, depending on the magnitude of the problem.
To prevent such distortions and risks from building up, commercial banks and financial supervisory authorities need to enhance their credit risk management capacity. They need to instill a credit culture in which credit is pro