initiatives while the bsp has been trying to enhance banks ’ risk management practices, it is also simultaneously working on improving the risk - based capital adequacy framework as empowered under the gbl of 2000. we responded swiftly once the legal framework was put in place. in march 2001, the bsp adopted basel i - type framework through circular no. 280. this circular provided the guidelines for the computation of risk - based capital for credit risk. the bsp ’ s risk - based capital adequacy framework was further enhanced with the issuance of circular no. 360 in december 2002. circular no. 360 incorporated market risk into the framework. in 2005, the focus was on preparing the implementing regulations for the eventual implementation of basel ii in the philippines. at the time, preparatory works on basel ii implementation were already at an advanced stage globally. the discussions during international fora had already become complex and rather extended. for our part, the approach to implementation has been more calculated. certain elements of the basel ii approaches such as those pertaining to risk weights for corporates and npls, were gradually incorporated in existing regulations to pave the way for a smoother implementation of the whole new framework in 2007. meanwhile, in response to heightened appetite and growing exposure of banks to structured products and in preparation for the envisaged take - off of the domestic securitization market following the approval of the securitization act of 2004, the bsp pre - emptively issued in 2005 the risk - based capital treatment of banks ’ exposures to structured products and securitization structures. in support of major policy objectives of enhancing credit access and expediting the clean - up of bad assets from the system, the bsp likewise advanced lower credit risk weightings for high grade corporate debt exposures and micro and sme exposures, but also increased the risk weighting on non - performing loans. this year, the bsp has issued the much - awaited basel ii implementing guidelines for the philippines. the bsp ’ s task force on the implementation of basel ii has just concluded their series of briefings both within and outside of the bsp in preparation for the parallel run that will be conducted starting end this year until mid next year. unlike the existing bsp risk - based capital adequacy framework, the new basel ii - based framework does not only focus on the computation of the appropriate level of capital given a certain level of risk exposure, but it also highlights

##3 billion as of end - march 2006. our banks have also issued p79 billion in tier 2 capital as allowed under our regulations consistent with international practices. car ( capital adequacy ratio ) stood at 19. 4 percent as of end - march 20061 while loss provisions, which serve as cushion for expected losses have been significantly boosted from just 1. 44 percent of total assets in end - december 1997, to 2. 72 percent as of end - june 2006. bsp ’ s risk management initiatives now, let me guide you through the important historical highlights of bsp ’ s risk management initiatives. in 1995, the bsp recognized the greater risk exposure in the system brought about by derivatives activities. to mitigate this, the bsp issued circular no. 102 prescribing the minimum standards for risk management of derivatives. this was probably the first bsp regulation that specifically focused on banks ’ market risk taking activities and risk management practices. prior to this, risk management regulations were largely confined to basic credit risk management and to internal control issues. in 1997, the thrust of bank supervision started to shift its focus towards a more forward - looking view of risk management and whether a bank has the infrastructure to manage its own risks, instead of just mainly performing financial audit and compliance review. the objective was to address weaknesses in management and internal controls before financial performance suffers rather than being satisfied with identifying what went wrong after the fact. the bsp ’ s effort to focus on risk management is ultimately intended to give banks greater flexibility to respond to changing opportunities and challenges in the face of global competition under a more deregulated environment and at a time of rapid technological advances. traditional bank supervision tended to micromanage banks to avoid risks that seem too high. the new approach to supervision is now more focused on the assessment of the quality of risk - management practices and generally allows banks to take on greater risks so long as the banks demonstrate the ability to identify, measure, manage and price for those risks. this more liberal approach to supervision, which allows banks more opportunities for success, entails that the bsp emphasize the responsibility of the banks ’ board of directors and senior management to ensure the soundness and stability of their respective banks. the regulators ’ role is primarily to evaluate the quality of oversight and management provided by these critical actors – that is, the quality of corporate governance. strengthening banks ’ corporate governance has thus been the theme of a number of bsp regulations. in june 1997, circular