tanya sirivedhin : new challenges for finance and capital markets speech by ms tanya sirivedhin, deputy governor of the bank of thailand, at the conference on “ thailand - finance and capital markets ”, held in bangkok, on 28 september 2000. * * * today ’ s conference is very timely, in view of the increasing role that finance and capital markets are likely to play in the future thai financial scene. i have identified several aspects of the challenges of “ finance and capital markets ” which i would like to share with this audience. i hope that the open discussion of these challenges will be an important input into the work of the thai authorities, and what we envisage to be the vision for our industry. i shall frame the challenges in three dimensions : first, the challenges from rebuilding and strengthening the business and financial industry. second, the challenges from the adoption of best international practices. third, the challenges from the race to catch up with the new technological frontier of e - commerce and electronic trading. rebuilding and strengthening the financial industry the 1997 economic and financial crisis brought to light many weaknesses in thailand ’ s macroeconomic and financial management. in its aftermath, measures were undertaken speedily to shore up the currency and to restore confidence in the viability and sustainability of firms and businesses, both in the financial and non - financial industry. through the implementation of these measures, there were inevitably many casualties. for example, as many as 56 finance companies were closed down permanently while others, as well as the weak banks, were taken over by the authorities or consolidated. businesses caught short by the depreciation of the currency or the austere belt tightening environment which lifted interest rates to historically high levels, had to be closed down or consolidated. it became of utmost urgency to improve confidence, strengthen the operations of financial institutions and enable them to improve and resume their intermediation role. in the view of the bank of thailand, the only way to bring about sustained recovery of the economy which was affected by the liquidity crunch situation, and by the concern over counterparty credit risks in the midst of the crisis, was to tackle head - on the issue of non - performing loans. in june 1998, the bank of thailand, in cooperation with five associations, namely, thai bankers ’ association, foreign banks ’ association, association of finance companies, board of trade, and federation of thai industries, set up the corporate debt restructuring advisory committee ( cdrac ). this was aimed to oversee and

facilitate the out - of - court debt restructuring process. its mandate was to help push ahead complicated debt restructuring cases through a framework of negotiation. the committee also pushed through many initiatives to eliminate legal and tax obstacles to debt restructuring. consequently, npls in the financial system have fallen progressively from a peak of 47 % of total loans in may 1999, to the present level of about 31 % of total loans. the decline is partly the result of debt restructuring, as well as transfers of non - performing loans to asset management companies ( amcs ). as at the end of july 2000, restructured debt totalled 281, 222 cases with a corresponding credit outstanding of 1. 7 trillion baht, while cases in the process of restructuring totalled 22, 906 with a corresponding credit outstanding of about 773 billion baht. with cleaner balance sheets, banks are in a better position to start lending. now that the situation has stabilized, post - crisis rebuilding and reconstruction in the banking system must be pursued vigorously, both through policy - induced means as well as through individual firms ’ initiatives. to reduce reliance on bank credit, the capital market must be developed as an alternative channel for funding. this will help rectify an important weakness of the past whereby firms relied excessively on bank borrowing and were not able to access funds directly from the capital market. among initiatives to promote the capital market which are being pursued by the authorities are the development of the domestic bond market, the corporatization of the stock exchange of thailand ( set ) to widen membership and participation, as well as acceleration of the privatization process to increase the supply of new listings on the set. looking ahead, competition facing the financial industry will come not only from the entry of new participants, especially foreign players, but from competition across industries or frontiers such as between banks and securities firms. operational boundaries are becoming more and more blurred with the much debated argument of a universal versus a segregated banking system. yet the future landscape of the industry in regard to business operations of financial institutions is increasingly more challenging as technological competition encroaches on all fronts. electronic trading platforms for bonds, accessible to both banks and securities houses, will gradually erode the role of these intermediaries. customers can easily access a trading platform, searching for the best quotation to serve their needs and investment horizons. these electronic trading platforms can easily service the traditional customers of banks and securities firms, such as pension funds, provident funds, mutual funds and insurance, without