bandid nijathaworn : developing the bond market - a central bank perspective remarks by mr bandid nijathaworn, deputy governor of the bank of thailand, at the asset forum, bangkok, 29 march 2005. * * * distinguished guests ladies and gentlemen let me first thank the asset magazine for inviting me to give this luncheon address. it is a pleasure to be here. i also would like to congratulate the organizer for putting up today's event. the bond market in thailand is now at an important stage of development and a function like this is certainly a positive contribution. for my brief remark today, i want to make a few points on the thai bond market from the standpoint of the bank of thailand. i also want to share with you our plan for developing the bond market this year. from the bank of thailand's point of view, the bond market is of exceptional importance to us. this is because it is the market that we operate monetary policy through open market operations and through our operations in the repo market. therefore, the more developed and efficient the bond market, the more effective the conduct of monetary policy would also be. also, a vibrant domestic bond market is essential for a robust and efficient financial system. this is important for the development of the economy in the longer - term. at this time, the thai bond market has a strong potential to become the important third pillar of thailand's financial structure next to the credit and the equity markets. at present, the size of the bond market in terms of market capitalization to gdp is about 50 percent. hence, there is considerable scope for the local bond market to grow and expand. thai bond market in 2004 last year, the thai bond market grew by about 9 percent in terms of the amount of bonds issued, while activities in the secondary market increased by about 12 percent. the growth reflects mostly transactions in government securities, particularly treasury bills and bank of thailand bonds. last year was also an important year for bonds as it was the year that we saw a shift in the stance of monetary policy. the policy interest rate was raised three times in the second half of last year in response to increased pressure on prices and economic stability. looking back, one has to say that the bond market adjusted very well to the shift in the monetary policy stance. bond market interest rates responded in an orderly manner and moved in line with policy signal. this smooth adjustment reflects two important qualities that we are now seeing

to illustrate that, in the context of policy making, challenges and achievements are more closely interrelated than we think. as a central banker of over four decades, i have witnessed how significant economic and financial challenges / changes served to catalyze crucial and progressive reforms. stepping up to the challenges – banking sector : a case in point is the 1997 – 98 asian financial crisis ( afc ) that revealed vulnerabilities in the philippine financial system. the recognition of these weaknesses firmed up our resolve to formulate measures and implement reforms to address these concerns. the afc also highlighted the importance of reducing currency and maturity mismatches through the creation of a fully developed capital market. this triggered a whole slew of market reforms that included the development of “ organized markets ”, where transparency, price discovery, and more reliable benchmarks are essential elements. 1 / 4 bis central bankers'speeches then in 2007, we witnessed the outbreak of what eventually evolved into the worst financial crisis the modern world has witnessed. international financial institutions weighed down by bad debts collapsed or had to be supported by their governments to keep credit flowing to credit - starved economies. notwithstanding, the global recession that ensued was the worst since the great depression. in contrast, the philippine economy continued to grow through the global financial crisis ( gfc ) with our banking sector remaining sound, stable and liquid. indeed, this performance can be attributed to the crucial reforms that had been put in place earlier. in the aftermath of the gfc, the bsp is unrelenting in its pursuit of an even broader reform agenda aimed at further strengthening the philippine banking industry in terms of capitalization, risk management, and corporate governance. clearly, the bsp has provided the regulatory framework. in response, the banking industry stepped up the plate and aligned their standards with international best practices. in other words, the synergy worked! thus, even in the face of lingering uncertainties overseas, the domestic banking system has maintained a remarkable growth momentum. as of december 2016, total resources and deposits of the banking system have reached historic high levels ( p13. 8 trillion in resources which increased further in q1 this year and deposits of over p10 trillion ). this allowed bank lending to continue to expand by double - digit rates, most of which financed productive sectors. in addition, asset quality continues to improve with npl ratio of universal and commercial banks dropping to less than 2 % in december 2016, even better than the pre - asian financial crisis levels.