Pillar II is based on five key principles. The first principle is to ensure a robust banking system that is resilient, committed and able to provide a strong foundation to support the Thai economy at all times. In the second principle, banks will be encouraged to reap the economy of scale by promoting voluntary consolidation to promote competitiveness. At the same time, proper competition policy will also be put in place to ensure fair consumer treatment. The third principle aims to promote competition via the liberalization of branch network and business scope and to enhance the roles of existing players, including banks and niche banks, while the fourth principle will consider new entries based on the value added to the economy. Lastly, the fifth principle will focus on enhancing the role of specialised financial institutions in providing increasing access to financial  BIS Review 133/2008  5  services for the low-income and small business groups and reducing the role of the state in commercial banking. Pillar III, on the other hand, will focus on laying down the foundation for a strong and supportive infrastructure for the medium term development of the financial system. This will be done through further enhancing the market and products which will facilitate banks, own risk management, promoting an effective information system and pushing for the amendments of necessary laws to facilitate risk management. Ladies and Gentlemen, The Thai banking system will continue to face new challenges going forward, both from external developments and domestic factors.

We would like to see the banking system that is efficient, competitive, robust, and resilient at all times; the banking system that is able to support continued economic growth, while providing better access to the underserved segments. Different types of banks will operate in each market niche to provide better service via improved access, choice, and pricing. These banks will have enhanced efficiency via increased economies of scale and scope through voluntary mergers as well as expansion of business scope and deregulation, under a modernised legal framework. With this improvement, the local banking system will be better placed to meet the future challenges of market innovation and international competition. Ladies and gentlemen, The policy framework to achieve these objectives under the Financial Sector Master Plan Phase II comprises three key pillars. Firstly, improving the regulatory environment and reducing regulatory and legacy costs. Secondly, enhancing efficiency by injection of competition in an orderly manner, and thirdly, by improving financial market infrastructure such as the legal system and information, key to effective risk management. Let me turn to these three Pillars in more detail. Pillar I focuses on the assessment of the regulatory framework and streamlining regulations in order to minimize the burden of banks without compromising prudential imperatives. This will be done by shifting more to a principle-based approach focusing on risk, lowering operating costs stemming from regulation, as well as tackling remaining legacy NPLs. Under Pillar II, the objective is to enhance efficiency by an orderly increase of competition and promotion of financial access.