2  GDP based on purchasing power parity (PPP). 2  BIS Review 83/2007  flexibility of the financial sector, contributing to reducing the cost of doing business as well as expanding the scope of activities of the financial sector. In April this year, several liberalization measures were implemented to further increase international investors' participation in the Malaysian capital market, provide greater flexibility for resident investors to diversify into non-ringgit investments in Malaysia and overseas, and to facilitate the expansion of the domestic banks' foreign currency business. Fourth, the trend for the growing significance of domestic demand has also become more pronounced and is expected to continue going forward. Supported by rising incomes, firm labour market conditions and a young demographic profile, private consumption activity has moved towards income-sensitive goods and lifestyle services for which the retail banking sector should be well-positioned to offer a wider range of innovative products and services to meet the requirements of increasingly more sophisticated consumers. The change in demographic structure of the population will also have an indirect impact on the domestic financial landscape. While Malaysia's population is still relatively young, an increasing segment of the population is in the group aged 64 and above. This development will have implications for human capital, business and product strategies of banking institutions in terms of savings behaviour and demand for different types of products. Fifth, a new area of growing significance in the international financial system is Islamic Finance as a viable and competitive form of financial intermediation.

As a result of the realignment, the Bank is better positioned to conduct effective surveillance of the financial system; to address regulatory overlaps and duplication within the system; to deal more strategically with the weight of multiple objectives and range of issues confronting the financial system, and more importantly, to preserve regulatory neutrality in the management of similar risks between different financial service providers. Ladies and gentlemen, These emerging trends in the international and regional environment will have an important bearing on the changing climate shaping the banking sector. While it brings new opportunities, it will also bring challenges. Let me return to the theme of this summit – the continued reinvention and transformation that needs to be considered for the industry going forward. I would like to focus on three main areas. The first concerns human capital development. This is vitally important for the future development and growth of the financial sector. Going forward into the future this will become the pivotal factor determining the capacity to reinvent and transform. Financial institutions have two broad options. One would be to “buy talent”. This remains a viable option as long as productivity growth remains aligned with wage increases. Banks, however, need to be wary of bidding up wages without commensurate efficiency improvements or increases in value-add. This would not be sustainable and given the prevailing competitive market conditions, such a strategy will eventually erode the banks' competitiveness resulting from the additional costs. The other option is to “build talent”.