that impact on institutions ’ viability including, but not restricted to, those factors which cannot be captured by automated ratings. this relates not only to traditionally qualitative elements, such as internal governance and risk controls, but also to the assessment of institutions ’ risk levels. this institution - specific qualitative assessment uses up most of the supervisory resources in the srep. if this were not done, too many aspects that are key for the viability of institutions could not be factored in. think, for example, of very “ soft ”, yet extremely important things, such as the risk culture and the general spirit of the institution. furthermore, we do not just conduct quantitative and qualitative assessments separately. we work hard to combine both approaches in our methodology by bringing together the strengths of both concepts. let me explain briefly the structure of this srep methodology. the slide shows that it consists of four main elements : 1. business model assessment, 2. internal governance and risk management, 3. risks to capital, and 4. risks to liquidity and funding. all four elements are assessed and rated. they feed into the overall srep assessment that forms the basis for srep decisions. of these four srep elements, only the internal governance assessment is purely qualitative, while all other elements are assessed as a combination of quantitative anchor points and qualitative assessments, based on supervisory judgement. in order to ensure consistency in the assessments while allowing the responsible supervisor to tailor those assessments to institutions ’ idiosyncrasies, we follow a so - called “ constrained judgement ” approach that limits the extent to which judgement can push qualitative results towards a predefined range around the anchor points. one example of the combination of quantitative and qualitative supervision is our pillar 2 addon quantification methodology. although at first glance a purely quantitative concept, qualitative elements play a key role in this methodology. under the so - called “ block 1 ” of element 3, we assess risk levels and risk controls for credit, market, operational risk and interest rate risk in the banking book. the respective risk controls are assessed in a purely qualitative manner, and then combined with risk - level assessments that consist of a combination of quantitative anchor points and a holistic, judgement - based assessment. in addition, we factor in, under blocks 2 and 3, the banks ’ internal capital adequacy assessment process ( icaap ) figures, including internal stress

. i would therefore like to take this opportunity to address the key duties and responsibilities of directors. we hope that you would have a better appreciation of why the bank of thailand needs to call for even more on your directorship role. but before i dwell into the topic of the duties of directors, let me take this occasion to extend to you my deepest appreciation and thanks for the tremendous efforts and cooperation you have given the bank of thailand in the course of the year. your institutions have continued to lend strong and valuable support to the recovery programme for the businesses affected by the tsunami disaster, and those affected by the violence and unrest in the three southern provinces, by extending the concessional lending programme for another year. to support the reform in the banknote management system, you have made substantial changes to your operation nationwide to take on the additional role of handling and moving banknotes. this cooperative spirit truly demonstrates a shared understanding of the benefits of reform, despite the adjustments required on your part. last year we also had a cause for celebration with the progress made in the data management system which helped improve efficiency of the reporting system for financial institutions, customers, and foreign exchange transactions data. going forward, we continue to receive full cooperation from banks in building the country ’ s economic database. the project is expected to be completed this year. turning to the payments system, the itmx project designed as infrastructure for a modern payment system, has also made tremendous stride with the full cooperation of all thai banks. this year should mark the historic new chapter for the nation ’ s payment system, where we would see the transfer of the payments operation function from the bank of thailand to the private sector. this would provide greater flexibility for the system to adapt to the fast changing modern payments system development. moreover, the recent announcement by the thai bankers association of a major reform in the price structure of various payment media, including cheques, provides an important milestone towards a more efficient payment services. the move reflects a pricing based on the cost of various means of payments which would quickly eliminate inefficiency and costs to commercial banks. another major achievement that calls for celebration is the significant reduction in the npl last year. thai banks have succeeded in bringing npl down from 556, 998 million baht, or 11. 82 percent of total loans at the end of 2004, to 461, 439 million baht, or 9. 05 percent of total loans at the end of last year. in all, the np