he fragility of the banking system in the region was related to the excessive growth of credit, of which the allocation was increasingly skewed towards the non-tradeable and risky sectors, namely the property and stock markets. In addition, short-term external debts held by the banking sector in several regional economies were accumulating. These short-term external debts had been used to finance domestic economic activity. The domestic economic slowdown and higher domestic interest rates in turn adversely affected the property and stock markets and pressured the debt servicing capacity of domestic borrowers, making the regional banks Nevertheless, the•vulnerable to the deterioration in their asset quality. contagion effects of the crisis cannot be fully explained by the global exchange rate realignments vis-a-vis the US dollar. The vulnerabilities of the domestic economy to external shocks and fragility of the banking sector differed significantly across the region. Changes in market sentiments and investor confidence also played
             ...