and requirements. this will represent an important database for the development of a comprehensive framework for the development of smes initiated by bank negara. the survey findings will also be useful for the banking industry in formulating its own strategic plans with respect to this segment. with the advances in technology, banking institutions should be in a position to enhance access and quality of service for the smes. ladies and gentlemen, the performance of the banking institutions is also being gauged from the perspective of the shareholders. there are several significant issues affecting shareholders in the current environment. the global trend is being driven partly by an increased focus by banks on the financial performance and on the creation of shareholder value. in essence, the potential for growth lies in the value of their investments. this would be the right thing to do in the interest of long - term survival. there are enough examples of companies around the world that had lost track of the true reason for venturing into a particular business and as a result, they find themselves no longer in the business. despite narrowing of interest margins and high costs, the banking industry has been able to increase their returns with the average return to shareholders in 2001 being 14. 5 %. banks, like other companies in a free market economy, have a responsibility to generate returns for their shareholders. it is in the interests of the community as a whole that they do so, otherwise we could end up with a weak banking sector. but any company maximises shareholder value subject to constraints. these may be imposed by laws and regulations, or by the expectations of society. this means that if banks wish to preserve their reputation and the confidence of their customers, on which ultimately the strength of their franchise depends, they should act in a way that is seen to be fair and reasonable. to do otherwise, may in the long - term, be inconsistent with the objective of creating shareholder value. ladies and gentlemen, let me take a moment to say a few words on islamic banking. today, islamic banking in malaysia has firmed its position as a viable and vibrant component of the banking system. bank negara malaysia has been in the forefront in providing the necessary and required infrastructure for the sector to grow further. from a market share of virtually nil a decade ago, islamic banking has captured more than 8 % of the assets of the banking system and is poised to reach 20 % by 2010. we capitalized on the dual banking system which we believed is the right approach, and we will continue to embark in

deposit and loan initiation systems is significantly lower than that of the foreign banks. in terms of the time taken to approve new credit card applications it averaged 8 days for the domestic banks compared with 6 days for the foreign banks. as can be seen from the scorecard, the consolidation programme for the domestic banking sector was a necessary pre - requisite to enhance the sector ’ s capacity to compete. size alone however, is not a sufficient condition that will result in producing efficient and competitive banks and it does not offer guarantee of success. being a large bank is however, an important enabler to achieving enough scale to be able to invest in cutting - edge technology and management systems and to attracting the talent required to compete with the best players in the market. domestic institutions need to be able to meet the range of products offered by foreign competitors. but the larger scale and wider range of activities will demand stronger management teams. with the completion of the merger programme in december 2000, the banking groups are at various stages in building up their management team and enhancing corporate governance. a number of measures have been implemented to ensure that banking institutions ’ boards and key committees have sufficient representation of independent directors and that the boards are encouraged to appoint qualified professionals to run the banks. towards this end, bank negara has liberalised the remuneration package of the chief executive officers of banking institutions and left it to the boards to formulate appropriate packages to attract the necessary talent and determine their remuneration package. in the final analysis, a more competitive banking system should produce benefits to their customers and the business in terms of easy access, quality choices and competitive prices. an indicator of the improved level of competitiveness has been the narrowing of margins. during the year 2001, gross interest margins of banking institutions have narrowed to 3. 86 % for the commercial banks from 4. 3 %. this reflected the larger reduction in the average lending rate vis a vis the average cost of funds. competitive interest rates were particularly evident for mortgage and hire purchase loans reflecting strong demand for credit for these sectors. the competitiveness of the domestic banks in terms of the gross interest margin has also improved. the gap between the domestic banks and foreign banks has narrowed from 0. 92 percentage points as at the beginning of year 2000 to 0. 69 percentage points as at the end of 2001. ladies and gentlemen, banks which do not make investments to take advantage of the new technology may find themselves losing customers to the better - quality or lower - cost products of banks that