in unreliable financial information. for example, when a bank applies the fair value option to its liabilities and is downgraded, the yield for its liabilities will increase to reflect the increased risk. consequently, the mark - to - market value will be lower than the original value, and the gain is recorded as profit. therefore, it seems unreasonable that banks can record profit in a difficult period by applying the fair value option to their own liabilities. ladies and gentlemen, my last point is that basel ii and ifrs will undeniably bring some fundamental changes to the business of banking. first, banks may need to rethink their operations and strategies on account of the expected greater involvement of third parties. the point here is that new regulations allow banks to use financial models to estimate required capital and fair values of assets and liabilities. this means banks can take advantage of the lower capital requirements by offering cheaper or more cost efficient products to their customers. however, to develop financial models requires a certain amount of data and know - how which a single bank may not have. so, to overcome this difficulty, banks may have to seek support for additional credit data from peer banks, rating agencies, or the credit bureau. second, banks must increase their knowledge base regarding risk management techniques, especially on risk modeling. going forward, a good internal rating system is key to business expansion and growth. to do so, banks can initially seek support from external consultants to transfer the know - how on risk management. but, in a longer term, it will be necessary for banks to have their own staff and expertise to work as specialists on internal rating system and risk modeling. lastly, i would like to stress the importance of coordination and cooperation in implementing the two standards. we at the bot have always sought comments and views on our policy statements, and on the implementation plan from both local and international entities. within thailand, comments were sought from the stock exchange of thailand, the federation of accounting professions, private consultants, rating agencies, external auditors, the foreign banks ’ association and most importantly the thai bankers ’ association. on the commercial bank side, a basel ii implementation working group has been set up by the thai bankers ’ association and the bank of thailand. through this working group, i encourage banks to share basel ii implementation experience so that common issues can be resolved more effectively. any common concerns, on the other hand, can be passed on to the bot for consideration. and if necessary, the bot is

of years ago. the bank has set up several internal working groups to study the guidelines and its suitability to the thai market. staff were sent abroad for training on basel ii implementation. experts from other supervisory authorities and consultants were invited to hold seminar and training on the underlying concepts, applications, and supervision issues. the drafting of the thai version of basel ii has been quite involving. during the drafting, the bank of thailand carefully studied other countries guidelines and consulted with other supervisors to gain insights on the suitability of basel ii to the thai financial system. as a result, we have made some necessary adjustments to the guideline taking into consideration its practicality. banks in thailand have been consulted in the process so that the guideline does not impose extra unnecessary burden. at this time, we have mostly completed basel ii ’ s key guidelines with only a few remaining issues. this includes finalizing pillar 1 – namely, minimum capital adequacy return form, and the recognition of external credit assessment institutions and the mapping process under the standardized approach ( sa ). on the commercial bank ’ s side, our assessment shows that the preparation for basel ii implementation is on track. in terms of capital impact, based on end of june data for 2006, our quantitative impact study shows that the bis ratio for the whole industry is expected to decline approximately by 1. 5 percentage point. this means basel ii implementation will not have a major impact on the thai banking industry. at this time, while most of our banks have decided on using the sa for calculating minimum capital, they are fully aware of the need to improve the database to support a more advanced risk management process. reflecting this, larger banks are in the process of developing advanced internal rating systems to be fully compliant with basel ii advanced approaches in the near future. by the end of this year, banks in thailand will also begin parallel calculations of the required capital under basel ii. and we, at the bot, are keeping a close watch on this progress with keen interest. regarding the implementation of ifrs, i have to say the readiness amongst thai commercial banks and foreign bank branches do vary a great deal. foreign bank branches, especially european banks, are better prepared to implement the ias 39 and ifrs as they are more familiar with the new accounting principles. this is because they get the supporting systems, as well as knowledge, from their head offices. thai commercial banks, on the other hand, are studying the implications and the context of the new accounting standards,