M R Pridiyathorn Devakula: Commercial Banking and Financial Services - our Vision for Thailand Speech by M R Pridiyathorn Devakula, Governor of the Bank of Thailand, at the Conference on “Modernizing our Financial System: Challenges for the New Millennium”, Bangkok, 23 January 2002. *  *  *  Your Excellencies Distinguished Guests Ladies and Gentlemen, I would like to take this opportunity to welcome all of you to our conference on "Modernizing our Financial System: Challenges for the new Millennium". I would also like to express our deep appreciation for the distinguished speakers who came all the way from Australia, Canada, Hong Kong, and South Africa to share with us their expertise and knowledge on this very important topic. And, of course, to the World Bank, our co-host, for help organizing the conference. Our financial crisis in 1997 and its subsequent impacts highlighted the lesson of critical importance that dynamic and strong domestic financial institutions are vital to sustainability of development and growth. Over the past 20 years, financial sector has been one of the major forces that support our progress and financial services share in our GDP has grown from a mere 3 percent to roughly 8 percent. It is the fifth largest industry in term of value added to our GDP, and currently employing more than 300,000 of our workforce. Nevertheless, despite such favorable development, there are some concerns: -  First, in term of competitiveness of our financial institutions, there is room for improvement.

The International Institute for Management Development in its well-known Wor l d Competitiveness Report ranked our competitiveness position in finance for the year 2001, 44th from the top 49 countries in the world. -  Second, in term of financial service availabilities, there are still some people lacking adequate access to the mainstream banking activities, particularly those in the rural area and those with low-income in the urban area. Recent statistic reveals that 54 districts in Thailand have neither branches of commercial banks nor those of specialized financial institutions. -  Third, there are inherent weaknesses within our system. We are overly dependent on commercial banks as the main channel of financial intermediaries with bank loans accounting for 70 percent of external funding in Thailand, comparing to 20 percent in the US. Although large corporate and the Royal Thai government have recently turned to capital market as their alternative sources of financing, bank loans remains dominant, making the economy particularly vulnerable to changes in commercial banking sector. These are the issues that we will be focusing on today. And following this conference, the Bank of Thailand will embark on the process to articulate our medium-term plan to increase competitiveness of financial institutions, improve people access to financial services, ensure financial system sustainability, and take this opportunity to systematically correct problems which remain unresolved by financial reform implemented thus far. Ladies and Gentlemen Our financial institutions must be the sources of our national strength and should be the main instrument in our development.