, both the thai economy and financial system have shown resiliency and robustness. this helps to stand us in good stead, and provide a strong grounding to forge our strategy to handle coming challenges. nevertheless, looking ahead into the longer term, thailand ’ s economic and growth potential is still not fully and efficiently harnessed. economic efficiency, international competitiveness, and economic stability are keys to sustainable growth. a robust and stable financial system, that we have managed to ensure so far, is a necessary, but not sufficient condition for achieving sustainable growth. financial system efficiency needs to be upgraded, so that it serves to lift economic efficiency, not least by harnessing the hitherto untapped strength of the grass - root economies, where the emerging organic social - economic network has increasingly highlighted the potential contribution to growth and welfare improvement. for the banking system, the strategy to harness this potential is set out in the financial sector master plan phase 2, which is a continuation from phase 1. ladies and gentlemen, the challenges i have raised, together, pose a tall order. so in today ’ s talk, let me set out our strategy and policy priority in three parts. first, the swot analysis of the banking system and the challenges we face ; second, the key strategies in the financial sector master plan phase 2 ; and third, the key measures in risk - based supervision to ensure stability. first, the strength of our banking system is evident in its continuous solid performance. during the toughest times, our banks remained strong and resilient against the backdrop of economic slowdown. loan decelerated, partly due to contraction in corporate portfolio and deceleration in household portfolio, as a result of more cautious business undertaking and household spending, and partly due to tightened loan underwriting standard. the good news is the figures are already starting to pick up again. meanwhile, npl and delinquency have continued to decline, as the ratio of npl, net of provisions, to total loans has declined further to 2. 7 percent as banks attentively monitored their asset quality. moreover, profit continued to be recorded for nine consecutive years, and the overall capital position of the banking system strengthened further, with bis ratio at 16. 1 percent, of which 12. 6 percent is tier 1 capital. much of the current strength and resiliency of our banking sector owes a great deal to the reform groundwork laid during the past decade. on prudential supervision,

as apart from requiring banks to conform to international best practices on risk - based supervision under basel i and now basel ii, the bank of thailand also moved to strengthen our supervisory function, utilising both on - site and off - site supervision as well as asking banks to carry out stress tests on a regular basis. the key here was to strengthen banks ’ own risk management culture and system. works on strengthening the financial infrastructure were started and are still on - going. in this regard, various initiatives were introduced, including the long - term effort to reshape the financial system, and address inherent structural weaknesses, that was the mission of the financial sector master plan phase i. the establishment of the national credit bureau to improve credit information, and improvements in financial legislations, including the new financial institutions business act, the bank of thailand act and the deposit protection agency act. today, our banking sector fundamentals continue to be strong, serving as a dependable pillar for our economy. despite this advantage, the bank of thailand is not complacent and we will continue to prepare our banking sector for future challenges. in this regard, a swot analysis of our current financial institutions system reveals that while there was overall improvement in efficiency and soundness, operating costs remained high and financial access gaps remained. furthermore, there was still inadequate financial infrastructure to support risk management of financial institutions. meanwhile, future challenges of the next five years would likely come from more intensified competition – not only among banks, but from capital market, both local and overseas. it would also come from more complex and varied needs for financial services, as a result of globalizations and aging population, the shift in resource allocation with greater role of domestic demand vis - a - vis external demand as engine of growth, and finally, capital inflows and external challenges from the global economic crisis. taken together, these remaining areas of improvement and the need to tackle future challenges have led to the recent launch of the second phase of financial sector reform. this brings me to the second part of my talk : key strategies in the financial sector master plan phase 2. when thinking about characteristics that our future financial system is envisioned to have, several keywords come to mind : efficiency, strength and resiliency, diversification, fairness and transparency. with all of these keywords in mind, measures under the financial sector master plan phase 2 are grouped into three main pillars, aimed to tackle the following tasks : first, reducing system - wide operating costs,