As ASEAN comprises 600 million people, the majority of which are growing middle class, economic integration via the ASEAN Economic Community will further enhance trade prospects through increase demands and an expanding market. Building upon this strategic location, the government investment plans on infrastructure, particularly railways and roads, and the establishment of five Special Economic Zones (SEZ) along provincial borders will help to facilitate an increase in border trade. BIS central bankers’ speeches  5  3. Sound banking sector  The Thai Banking sector is in a strong position to help accommodate economic growth and support the country’s development. The Bank of Thailand continues to improve financial system strength and efficiency. Meanwhile, the Bank of Thailand has also conducted riskbased supervision and enhanced its supervision and examination frameworks in line with international standards set by the Basel Committee on Banking Supervision. These transparent supervisory practices and the promotion of sound corporate governance, as well as risk management in financial institutions, help safeguard financial system stability. In the second quarter of 2014, Thailand’s capital adequacy ratio stood at 15.67%, well above the international requirement of 8.5%. Additionally, the ratio of actual to regulatory loan loss provision increased to 169.8%. These conditions ensure that the banking sector is capable of dealing with unexpected risks, particularly credit risks. 4. External stability  In light of global financial market volatilities, which resulted from divergent monetary policy paths amongst major industrialized economies, Thailand’s external stability is strongly safeguarded against volatile capital fluctuations.

First, we aimed to make these financial institutions healthy and profitable so as they could resume their normal function of financial intermediaries. In 2001, the Bank of Thailand issued a few measures and guidelines to enhance banks’ profitability; for example, the reduction of provision requirement for a normal loan which is not NPL to a more reasonable level and the classification of NPLs by account was introduced to replace NPLs by name. More important, banks were persuaded to change from the old practice of competing for deposits with higher interests which resulted in lowering the cost to support banks’ profits. Moreover, banks also have made substantial progress on productivity and risk management, with restructured work process that has significantly brought down operating costs. As a result, return on assets has improved from negative in 2001 to 0.7 percent in 2003 and the annualized rate of 1.5 percent for the first half of this year. At the same time, good progress has been made in NPL reduction. The proportion of outstanding NPLs to total loans has reduced from 24.5 percent in 2000 to 12.4 percent at the end of 2003 due to various efforts put to restructure NPLs. Now, with improved balance sheets and more stable financial standing of all banks, the Bank of Thailand has moved into the second step; and that is to improve the quality of banks’ businesses and management. The Bank of Thailand has recently tightened provisioning rules for NPLs.