Abstract
One of the core objectives of the regulatory authority is the stability of the banking system, which depends on the soundness of the banks exemplified by good quality assets, high profitability and sustainable earnings. Bank-lending channel plays a significant role in determining the rate of expansion or contraction of private investments and output growth. To encourage the banking industry to play these desired roles effectively, the regulatory authorities continue to provide the required policies and fine tune the banking environment to enable the banks operate optimally. This includes occasional adjustment of the policy variables, and the prudential measures aimed at smoothing the playing field for the banks. Banks are unavoidably involved in risk-taking by the nature of their business operations.
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