Fraud, unethical practices, and monopolistic and unfair practices would, if left unchecked, adversely affect public opinion and confidence in the banking system, with consequences on the financial performance of individual institutions. Indeed, in order to preserve corporate reputation and sustain public confidence, banking institutions must be sensitive to the impact of their policies and practices on their customers and other stakeholders. It is, therefore, in the interest of the industry to collectively ensure that public confidence in the system is maintained at all times. BIS Review 10/2005  3  Ladies and Gentlemen, The recent issue on the fees and charges imposed by the banking institutions received significant attention by the public. Bank Negara Malaysia's policy has been to gradually deregulate the rules on fees and charges, as a way to drive improvement in the performance of banking institutions and promote innovation. Nevertheless, the flexibility given needs to be judiciously enforced so as not to result in any erosion of public confidence in the banking sector. To protect consumer interest, Bank Negara Malaysia will balance the competing expectations of banking institutions and consumers. While it is recognised that enhancements to products and delivery channels involve substantial investments, any realignment to the pricing structures on products and services need to be supported by the adequate costing and justification that also takes into account cost savings. More importantly, it must be accompanied by improvements in service quality.

This dialogue will provide an opportunity for the industry to discuss with the Central Bank these developments and their implications, important issues that have emerged and the Central Bank's policy initiatives. As the year 2005 unfolds, it is important for us to reflect on our progress achieved, the new challenges that have emerged and the actions that need to be taken to drive performance in the period ahead. The banking system in Malaysia today is vibrant, strong and profitable. In fact, the banking system is at its strongest position since the financial crisis. The high level of capital, improving asset quality and strong profitability have also been reinforced by substantial enhancements in the areas of corporate governance and risk management standards. Large investment has also been made to strengthen internal systems and processes, to improve delivery channels and to acquire talent. Cumulatively, these enhancements have enabled the banking institutions, particularly the domestic banking institutions, to remain competitive and to offer differentiated products and value-added services. Undoubtedly, the competitive environment has also driven domestic banking institutions to strive for greater efficiency as well as to venture into new areas of businesses, tapping new sources of income and entering into alliances with regional banking institutions. Most of all, these advancements have enabled the banking institutions to assume an important role in facilitating the increased role of the private sector in the economic growth process. The foundations for strong performance have now been well established for the domestic banks.