more sophisticated demand, banks introduced new channels of services such as internet banking and tele - banking to satisfy the technology savvy demands of emerging new generation of customers. these efficiency gains have been achieved without forsaking comprehensive risk management. on the contrary, banks have begun to move away from collateral - based lending to risk - based approach. at the same time, financial literate board of directors has bolstered its oversight function to ensure that banks are managed in a sound manner. in the area of credit risk management, credit scoring has been widely applied in the retail loan originating process, whereas internal credit rating models have been used for significant corporate loan portfolios. moreover, banks also have in place security measures, contingency plans and auditing standards within their system of internal control to monitor reputational risk, strategic risk and other risks. the logical question to ask here is how do we ensure that these positive developments will maintain their momentum and that the banking sector will remain strong and sound amidst a more liberalized environment, fierce domestic and external competition, and the advent of more advanced technology and financial innovation? we can wait passively for external forces to inflict changes on us, or we can chart our own path of development in anticipation of any change. the asian crisis brought it to the fore that complacency when met with abrupt and radical reforms as a result of external forces could entail enormous output loss and social cost. thus, we must do what we can to ensure that the banking system is up to meeting any challenge. this brings us to the second point i want to make - what the authorities intend to do to enhance the financial system ’ s competitiveness and its capability to withstand forces of change in this age of globalization. the authorities are quick to grasp the opportunity of healthy economic and banking conditions conducive to embarking on a structural reform, with the announcement of the financial sector master plan. thorough discussion on the master plan will require a separate session of its own. so, let me just pick some of its key features that will have the most significant impacts on the structure and efficiency of the banking industry. first and foremost, under the “ one presence ” principle, existing financial institutions must choose one form of deposit - taking financial institutions ; be it a commercial bank, retail bank, foreign bank subsidiary or foreign bank full branch. this principle will foster a new structure that is clear, competitive and efficient. specifically, the structure whereby many types of financial institutions offer

essentially the same services to the same pools of customers and whereby a financial group has more than one type of deposit - taking institutions must go. financial institutions will therefore have to address the issue of redundancy resulting from this principle. moreover, the master plan has introduced additional competitive pressure to the banking industry. qualified foreign banks that opt to upgrade to subsidiaries will be able to open some branches, adding healthy competitive pressure to the market. on the part of regulators, we will streamline regulations to ensure a smooth transition process and to provide adequate flexibility for banks to conduct their businesses. for instance, the authorities are working to resolve tax impediments to mergers. moreover, banks have been allowed to outsource their administrative works and cut cost on redundant operations by back - office sharing. while the structural reform is under way, we continue to forge ahead with our prudential supervision to maintain banking system soundness. in this regard, there are a few key regulations in the pipeline, some aiming at expediting the npl resolution and others at strengthening the risk - based supervision. the bank of thailand is rolling out a new measure in the second half of this year with a view to giving banks a nudge to deal with npls head on. for npls that have long been pending without proper restructuring or legal actions, financial institutions will be required to set aside provisions for the collateral at an increasing rate, depending on the overdue period. essentially, banks will be required to make provision in full, regardless of the collateral value, for loans that have been non - performing for over four years. also, the asset management corporation, set up exclusively to buy npls from the finance companies that were closed down during the crisis, will be enabled to buy npls of banks. we are now in the process of amending the corporation ’ s charter. on risk - based supervision, the bank of thailand has issued a market risk supervision policy framework at the end of last year - a timely move given a possible upward trend of interest rates. this measure will ensure that financial institutions instill mechanism to manage market risk commensurate with their risk - taking activities, especially in the trading book. recognizing the need for financial institutions to adjust, the bank of thailand will implement the measure in transitional phases. by june 2005, banks will be required, for the first time, to maintain capital fund against market risk. prior to that, they will have to comply with guidelines on internal control and trading book