tongurai limpiti : future of thai banking system – the road towards aec keynote address by ms tongurai limpiti, deputy governor for corporate support services and banknote management of the bank of thailand, at the idc financial insights, thailand financial services summit 2012, bangkok, 8 november 2012. * * * good morning, ladies and gentlemen. it is an honor to join all of you today and i would like to thank the idc financial insights for inviting me to deliver a keynote address at this event. the title of my remark today is about “ future of thai banking system : the road towards aec 2015 ”. i think that this issue is appropriate and timely as we are now approaching a new face of regional economic integration, or the asean economic community, which will come into effect in 2015. to be aware of its impacts and to identify company positions and strategy in responding to its impacts would be of a great benefit. i hope that this event will provide a very good opportunity for us to share experiences and views on the way to move forward. with the given time, i will use this opportunity to touch on three topics which are current situation of thai banking system and the new challenges from aec, the impacts of aec on financial institutions, and the role of central bank. ladies and gentlemen, when we talk about thai banking system, i think it can be claimed, now, that we have safe and sound banking sector with sustained profitability, despite the ongoing global financial crisis and severe flood last year. the financial institutions have robust risk management system. the average capital adequacy ratio is highly above the minimum requirement at around 15 %. loans expand in line with economic recovery, while banks increase provision in anticipation of global economy. loan quality also improves as reflected in the reduction in non - performing loan ratio. there is also adequate liquidity in the system. in the second quarter of 2012, the banking system reported net profit of 49 billion baht, increasing 21 % from the last quarter. while we have a stable and strong banking system, there are new challenges coming from the regional integration of the asean economic community in 2015. the aec is not, and has no intention of transforming asean into a european style union. what the aec does aim to do is to “ transform asean into a single market and production base, a highly competitive economic region, a region of equitable economic development, and a region fully integrated into the global economy ”. 1 the aec

to smes which is the issue of high perceived risks among smes by introducing a credit guarantee facility. this is to accompany our lending facility to encourage banks to lend to smes. as we had initially put in place a soft loan facility which is directed to smes, we found overtime that the facility was not being tapped as well as it should. to put it as an analogy, the pipes were getting clogged. thus, we responded flexibly and pragmatically by issuing a new emergency decree to put in place a new sme credit guarantee facility with accompanying credit facility for banks to try to lend to these smes. we have initially set a target of hundred billion baht loans extended through this facility in six months and we are well on our way to achieving that target. the latest figure stands at around 89 billion baht after about four page 4 of 9 months. this is an example of the pragmatic approach and the implementation that we, at the bank of thailand, have been willing to do. another example of our flexible and pragmatic approach, and an indication of our willingness to step outside of our comfort zone as a central bank, is by introducing this other scheme, in addition to the sme credit guarantee facility, an asset warehousing scheme. we recognized that certain sectors require a targeted response in terms of the approach of debt restructuring. certain sectors that are hard hit by the tourism slowdown are not in a position to engage in usual debt restructuring because with no tourists, several businesses in these sectors do not have any cash flow. therefore, a more appropriate solution would be for them to be able to transfer the ownership of their assets in exchange for debt repayment with the option to repurchase those assets back at a later date. as such, this scheme will remove debt burdens that would incur otherwise if they still have to hold onto the assets and loans. these examples provide some concrete illustrations of how we, at the bank of thailand, have tried to respond flexibly and pragmatically to the changing circumstances of the covid - 19 crisis. part 3 : future plans let me now turn to the third part of my remarks today, which is what is next? one thing that we would like to do is a move from short - term and blanket measures such as a debt moratorium to longer - term and more targeted solutions such as debt restructuring. moratoria are good responses to something that is short, severe and broad