On the Islamic banking front, new foreign Islamic banking players and the transformation of Islamic windows into Islamic subsidiaries of a banking group present new challenges to the Islamic banking scene where competition is expected to intensify. In line with the government's strategic direction, initiatives are being taken to encourage strong and capable Islamic financial players to venture abroad to explore new markets. In the years to come, it is envisaged that corporations and multilateral institutions will increasingly use Malaysia as a launching pad to raise Shariah-compliant long-term capital and issue sukuks, while investors look to Malaysia for investment in Islamic financial instruments. This is not merely a national vision, but actually a national target. The key challenge is to ensure that the financial infrastructure is well in place and that our banking institutions are well equipped with distinct capabilities to enable Malaysia to compete regionally and internationally as a leading Islamic financial centre. BIS Review 32/2005  1  Ladies and Gentlemen, As competition intensifies with the entry of foreign players and non-bank financial intermediaries, another challenge confronting banking institutions is to find new markets or growth areas to tap new sources of income and thereby diversify their income sources. Amongst the growth areas is financing to small and medium enterprises (SMEs). SMEs play a very significant role in terms of generating employment and contribution to export earnings, and that SMEs can blossom and contribute significantly to the national economy in the future.

Ladies and Gentlemen, Another key aspect that drives higher standards of performance and competitiveness is the capabilities to deliver products and services in the most efficient and effective manner. To facilitate this, banking institutions should adopt the relevant technology to enhance their delivery capability to ensure speedy and seamless customers access to banking services through a wider range of delivery channels, aimed at reducing operating costs and providing greater convenience to customers. Information technology still has immense untapped potential in banking. For instance, technology could be harnessed as an enabler in building higher quality research, strengthen risk management capabilities, enhance market information gathering and analysis capacity to keep pace with the changing trends and demand patterns. While leveraging on technology may achieve improved efficiency, banking institutions should also ensure that the new banking technology does not lead to the emergence of a digital divide in the access to banking services. In this regard, banking institutions are expected to continue providing high standard of banking services to all consumers, regardless of their income and where they live, whether urban or rural. With the growth in the diversity and complexity of products and services, risk profiles of banking institutions will change. Consequently, banking institutions should continuously upgrade their risk management framework by improving their governance standards, adopting global best practices and enhancing information management systems. Enhancing risk measurement and management systems would better prepare banking institutions in complying with the criteria required under the Basel II Capital Accord.