This is a clear example of how we are harnessing the advances made by the leading institutions within the industry. Furthermore, to encourage those institutions which are not at the leading edge in this field to make enhancements in their internal controls and risk management processes, the New Accord will offer explicit economic incentives to adopt - over time - more accurate measures of risk and more sophisticated means for controlling their exposures to such risks. However, the Basel Committee recognised that relying on uniform rules alone would have introduced certain drawbacks. Rules tend to be inflexible and therefore might preclude or ignore innovation. Applying uniform rules may also fail to account for a bank’s unusual businesses or risk profiles. Consequently, our second pillar, supervisory review, addresses some of those drawbacks. It introduces judgement into the policy mix. Banks and supervisors will exercise discretion in determining capital needs relevant to their particular businesses and risk profiles. That degree of discretion makes the supervisory framework more flexible and better able to adapt to change and innovation. Finally, the third pillar, market discipline, adds greater transparency to the process. When a bank discloses information that offers meaningful insight into its risk positions and exposures, marketplace participants are better able to assess its financial health. Counterparties, investors, rating agencies, and even customers can reward banks that manage their risks properly and penalise those that hold unrealistically low amounts of capital for their risk.

Ladies and gentlemen, The growing evolution and demand for online financial services will lead to greater digitisation of banking services. While the use of cash and cheques will continue to be important, more consumers are realising the convenience and flexibility of electronic banking in meeting their daily payment needs. The change in consumer behaviour is reflected in the increasing use of electronic payment systems in the country. The volume of cheques processed through the cheque clearing centres has shown a declining trend in terms of both volume and value. This has been reinforced by the introduction of the interbank Giro and Internet banking three years ago. The number of interbank Giro payments has more than quadrupled in 2002, while electronic funds transfer and bill payments conducted through Internet banking has been on an increasing trend. More customers are likely to be drawn to Internet banking, which is gaining acceptance in Malaysia with now over 1 million subscribers. Increases have also been recorded in the number and value of ATM transactions and card payments. Ladies and gentlemen, While the pace of the transition from paper-based payment instruments and systems to electronic instruments is increasing, the adoption of electronic payment solutions needs to be accelerated. Consumers and businesses have to become familiar with using the new payment methods and their advantages. The SMEs, in particular, should take advantage of electronic delivery systems to improve their access to banking services and finance. This would be an initial step toward venturing into e-commerce as a means to penetrate new markets.