The message is clear: make sure that you know and trust your banker. In Hong Kong there has been some talk of new banks being established for the sole purpose of conducting internet banking. In deciding whether to authorise such a bank, the Monetary Authority would expect to apply very much the same criteria as for a conventional bank, but would need to pay particular attention to the business plan in order to ensure that it reflected realistic assumptions and prudent banking principles. We intend in the near future to issue guidelines for any such applications. Already, as the supervisory body for existing banks, the Monetary Authority needs to take account of any particular risks that pertain to internet banking and to be sure that banks who conduct such business do themselves properly appreciate and allow for such risks. I would mention in particular the strategic risk, in that venturing into a new business arena may not always be assured of success; the operational risk, of dependence on IT networks, and the associated security considerations to which I have already referred; and any additional banking risks which may arise if internet transactions are deemed to be potentially more volatile or unpredictable, or customers less reliable, than in normal banking business. The need to be confident about the intermediaries with which you are dealing is also very relevant when we examine schemes for so-called digital cash or a cyberpurse.

Such new applications need to be reviewed as to how they will contribute towards improving product and services delivery, aid in risk management activities, and enhance management capability. Opportunities from regional integration Ladies and Gentlemen: Another important development that is taking place is the growing regional integration, driven by increasing intra-regional trade and investment flows. Asia has seen a rising pattern of intra-regional trade and investment where trade between countries in the region now accounts for almost half of Asia’s trade from just a fifth over a decade ago. Malaysia’s share of trade with ASEAN member countries now accounts for 24% of our total trade reflecting higher intra-regional trade (notably, increased imports from lower-cost suppliers such as Thailand, Indonesia and the Philippines) and better economic performance of ASEAN countries. In 2003, Malaysia recorded strong growth in exports of 29.6% to China and 26.7% to Hong Kong. Large businesses and corporations have begun to review their business architecture more aggressively and have moved to relocate their business operations. Such structural shifts driven by new demand patterns and new ways of organising production have led to increased specialisation and complementarity within the region. ASEAN alone offers a huge growing market of 500 million people. Therein lies the opportunities for the domestic banking institutions, opportunities to support Malaysian businesses and investors who are venturing abroad and opportunities to diversify across geographical sectors and across product range. The role of banking institutions needs to extend beyond the traditional role of being a financier, to manager of financial relationships.