But the overall economy needed some breathing room to afford a smooth transition. After a number of unsuccessful capital account measures, we resorted to imposing a reserve requirement on capital inflows in December to break the rapid one-way momentum and preserve overall stability. To this end, the measure has succeeded in its task. To be sure, no measure is cost-free. The reserve requirement has imparted a wide-ranging effect on the market and the economy. In response to this, once the appreciation momentum was broken, we have been carefully modifying the coverage of the measure to allow greater flexibility for business operations without compromising the needs to contain excessive volatility. We did this by providing the option to hedge fully for loans and inter-company loans. At the same time, significant relaxations on capital outflow were undertaken earlier this year to bring about a better balance between inflows and outflows. Let me be clear that the reserve requirement was designed to preserve market stability and to afford the real sector, which includes many SME operations, time to adjust to a more volatile market condition. To be clear, the reserve requirement was not designed to maintain a certain exchange-rate level. While the measure was necessary, we recognize its negative long-term effects and the adverse consequences on investor confidence and financial market development. As such, let me emphasize again that the reserve requirement is not a permanent measure; it is temporary. Its need is subject to constant review by the Bank of Thailand as the situation develops.

And I want to assure you that the loss will not affect the capacity of the Bank of Thailand in delivering its mandate in any way. In the final analysis, monetary and financial stability alone can only provide a favorable environment for sustainable growth, but it is not sufficient to ensure that Thailand will overcome the challenge of global dynamism over the long run. The critical challenge here is for the Thai economy to make sustained gains in productivity through increased flexibility, efficiency, and competitiveness amid everchanging global economic conditions and structure. In this respect, we need to continue with financial and real sector reforms, and pursue policies that promote macroeconomic flexibility and sustained growth. Ladies and gentlemen, I want to turn now to the banking sector and its challenges in the medium and longer terms. Despite a challenging year, the banking system turned in a sound and robust performance, recording profit for the 5th consecutive year. Strong earnings over the past few years, together with improved asset quality and recapitalization efforts have strengthened banks' capital base. The BIS capital ratio is at a comfortable level and the NPL ratio has declined. Loan growth has moderated in line with the economy, while borrowers as well as banks, have exercised caution in light of prevailing uncertainties. Improved financial strength and equally important, significant improvement in risk management at banks, have contributed to the resiliency of the system. This allows it to withstand the forces of change from globalization and intensified competition in the banking industry.