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.

Banks will need to further build on this significant progress in order to meet the challenges going forward. These include macroeconomic challenges, growing pressure from increasing competition, and the changing regulatory environment. Obviously, the ability to meet these challenges varies among banks. But we, as regulators, are well prepared to steer a steady course for the banking system as a whole. As you know, the first phase of the Financial Sector Master Plan has been completed. We have already seen significant consolidation and increased efficiency of the banking sector. We are moving onto the second phase of the Master Plan, which will further step up the pace of reform. This will increase the efficiency of the system and ensure that it can meet intensified competition that will come with globalization. BIS Review 20/2007  3  Let me emphasize that globalization is a pervasive process. Given financial innovations, it can transcend national borders even without an explicit market opening. Our liberalization strategy is to ensure strengthening of the domestic system, and allow gradual opening of the banking sector. This will mean new entries into the system, as well as more intensified competition between existing players. The phasing of this process will be consistent with continued economic and financial stability. The banking system must be prepared for greater competition. Improved risk management framework will be the critical success factor for banks' ability to meet future challenges. These include the adoption of IAS 39, currently underway, and the new Basel Capital Accord at the end of next year.