The preventive measures that were introduced included placing limits on the loan-to-value ratio for luxury mortgage, raising minimum repayment requirements for credit cards and personal loans, and strengthening NPL provisions by fair valuation standards of IAS39. Looking back, these measures have been useful in curtailing excessive leverage and household indebtedness, thus helping to maintain stability in our domestic financial system. Risk-based supervision was a key driving force to strengthen risk management practices of our financial institutions. Financial institutions and central bank laws have been overhauled to keep up with the increased complexity of the financial system. The new Financial Institutions Business Act, enacted last August, empowers the Bank of Thailand with the authority to regulate banks and non-banks under a consolidated supervision regime. Furthermore, risk management and governance practices of financial institutions have also been strengthened. Board of Directors are now held accountable by law for setting the strategic and policy goals of banks, while corporate governance guidance and notifications under the fit-and-proper rule for the appointment of bank management have been put in place. Financial institutions have been positive in embracing these changes, as they contribute to a more open, more accountable, and more transparent financial system. Given the dynamic changes in the financial system, it is important for risk management and supervision to be forward-looking, and recognize margins of error from risk models. Thus, it is sensible to adopt the conservative approach. Here, let me also highlight the importance of “stress-testing” as a risk management and supervisory tool.

Good governance underpins any successful business model and it is of utmost importance that DFIs follow best practices that promote integrity, transparency and accountability. To achieve this, DFIs should strive to strengthen behaviour and risk culture within the organisation. Strong governance entails crafting well-defined mandates that will insulate the organisation from undue external interference. Focus should also be given to foster a culture that welcomes active debates and critical thinking at all levels of the organisation to guard against groupthink. Last but not least, to sustain effective and high performance, continuous upskilling of the board, senior management and staff is crucial to be able to seize opportunities and overcome challenges as they arise. While the DFIs of today have grown in size and outreach, there remain opportunities for them to maximise their full potential. Innovation is lacking in developing diversified financial products that are tailored to meet the specific needs of targeted sectors. This is compounded by their limited capacity and capability to manage the potential risks arising from financing high risk sectors due to information asymmetries. DFIs should aim to become the centre of reference for new growth sectors and emerging markets and develop expertise in risk assessment and management of high risk projects in those sectors. Underlying the strategies for a good business model is the need for DFIs to strengthen research and analytical capabilities to address their lending capacity by developing innovative solutions.