credit for investment. to address the issues above, i am convinced that the policy to deepen the domestic financial market, as well as to develop innovative financial products, can be a strategic step that will support investment in real sector, which, in turn, may reduce the liquidity overhang. efforts that can be made to deepen the domestic financial market and widen its products range include issuing spn and fostering sbi of the longer term durations ; providing an effective regulatory environment for financial product development that covers medium - term notes, corporate bonds and commercial papers ; and providing a greater opportunity for activities related to asset securitization, universal banking and the growth of sharia - based financial instruments. these steps clearly require collaborative efforts from bank indonesia, the government as well as banking and non - bank financial institutions. in relation to this, bank indonesia will incorporate the issue of financial market development in the banking law. the seventh strategic step concerns policy and strategy related to the expansion of sharia banking. witnessing the rapid growth of the sharia banking industry in our nation, bank indonesia believes that it is necessary to expedite such growth in order for the public to reap even greater benefits. we estimate that the total assets of sharia banking, which currently account for about 1. 5 % of total banking assets, to increase to at least 5 % by the end of 2008. consequently, we will conduct an accelerated program of sharia banking, which will be effectively carried out beginning in 2007. the program to accelerate the expansion of indonesian sharia banking will be undertaken through three key measures : first, through more intensive societal education regarding sharia banking. this measure will be taken to improve public understanding and awareness of sharia financing and banking. second, we will stress a review of sharia products, sharia financing services, and encourage the expansion of service outlets to boost the accessibility of sharia banks in line with the public requirement. and third, bank indonesia will actively participate in supporting incoming foreign investment through sharia financial instruments. through these three measures, we hope to make sharia banking the pride of its followers. sharia banking is not a flash - in - the - pan but something truly monumental, with comparable quality and reach to conventional banking. sharia banking products and services have to be attractive and formulated in line with public demand. in essence, better realization and understanding from society precipitates greater, real and effective, demand from the public. in this context i

, the tourism industry in bali directly competes with phuket in thailand. the dried fruits industry in east java has to jockey with the same industry in cebu philippines. without adequate knowledge regarding the state of the competition and various upcoming challenges, as well as guidance in confronting those obstacles, it is possible that regional industries will experience uncertainty or even make unfeasible moves that can weaken their competitiveness in international trade. to this end, bank indonesia will participate and conduct real sector studies from the perspective of regional uniqueness and niches. the second strategy and direction of policy which will be taken in the coming year is to collaborate and coordinate with the government in order to reorganize the national banking industry through the revitalization of existing banks and their role, especially state - owned banks. we fully support and openly welcome the policy steps taken by government to improve the performance of state - owned banks. in our view, the rejuvenation of state - owned banks is a step that needs to be taken immediately, especially due to their strategic role and position in the national banking industry. at present, the total assets of state - owned banks amount to 37 % of the total assets of the banking industry with share of credits at almost the same level of around 36 %. we have a high expectation that state - owned banks are capable of taking the lead in endorsing the bank intermediary function, which is currently sub - optimal. furthermore, we also rely on their power and competence to fund various development projects that are in the interest of many people. however from recent progress, we have notice that competition within the banking industry for potential customers with good track records is becoming very heated ; it is neck and neck. what is noteworthy is the participation of foreign - owned banks, including joint - venture banks, adding to the competition with their readiness and strength of service. competition challenges from foreign - owned banks will gradually become an important factor that must be noted by domestic banks, particularly state - owned banks within the same peer group. looking at the data, it appears that the credit allocated by foreign - owned banks is showing improvement. one of the key strengths of foreign - owned banks in penetrating the markets is their higher efficiency level compared to state - owned banks. the efficiency of foreign - owned banks is clearly reflected by their low ratio of overhead costs to operational costs, such that they are capable of offering credit at a lower interest rate without sacrificing profit ( see graph 12 and 13