21st ASEAN Banking Conference Governor’s Speech 28th November 2016, Anantara Siam Bangkok Hotel “TRANSFORMING FINANCIAL SERVICES TO MEET THE NEEDS OF THE GROWING ASEAN ECONOMIC COMMUNITY (AEC)” Chairman of the ASEAN Bankers’ Association Chairman of the Thai Bankers' Association Deputy Governor of the National Bank of Cambodia Chairpersons, CEOs, and Top Executives of ASEAN Banks, Distinguished Guests, Ladies and Gentlemen, Sawasdee Krub A very good morning to you all. It is a great pleasure for me to be here today to share with you my thoughts on the upcoming challenges for the ASEAN banking industry. Before I begin, I would like to thank the Thai Bankers’ Association for the invitation to this annual gathering of ASEAN bankers. Let me also extend a warm welcome to the executives of ASEAN banks who have travelled here for this special event. From my calculation, in aggregate, you all manage assets of around 120 percent of total ASEAN GDP. Ladies and gentlemen, We are going together through profound changes in the global economic environment. The economic condition called the “new mediocre” together with the transformation towards digitization have been key driving forces for a volatile, uncertain, complex, and ambiguous environment or the VUCA world in short. Against this backdrop, we as commercial bankers and regulators have to move together to ensure growth, prosperity, and sustainability for our region. Let me elaborate on the key issues we are facing. The “new mediocre” is a state of multiple “lows” – low-growth, low-investment, low-trade volume, low-interest rate, low commodity prices, and low-inflation.

During periods of low growth and low yield, banks should refrain from unsound search-for-yield behaviours or facilitating aggressive search-for-yield behaviours that could build-up systemic risk and cause financial instability. Thirdly, behaviour and culture within financial institutions must gear towards good governance, soundness, and sustainability to pre-empt unwarranted risks. During the last Asian and global financial crisis, excessive risk-taking behaviour was one key driver. Short-sighted views on risk were embedded in the practice of management and employees. This was defined and reflected in the structure on rewards, accountability, personalities, as well as check and balance mechanisms, or lack thereof, within the organization. More recently, the manipulation of the London Interbank Offered Rate (Libor) which has done serious reputational 3  damage to the banking industry and reduced public trust was an example of misbehaviour fostered by inappropriate cultures. While events such as the financial crisis, and other scandals have continuously triggered waves of regulatory reforms, those are not enough and our work is far from over. Today, there are still examples of poor corporate governance and misconduct resulting from the root-cause of inappropriate behaviour and culture within banks. Recently, fraudulent practices in a large global bank were exposed where bank accounts were opened without customers’ consent or knowledge. Banks themselves need to create culture that encourages management and employees to have the right values and behaviour. This behaviour and culture cannot be detected quantitatively and similarly to the way we assess financial data, or risk-taking investment.