challenge that our banks must not underestimate. we are maintaining the prescribed minimum car of 10 percent. however, consistent with basel ii recommendations, we have begun implementing major methodological revisions to the calculation of minimum capital that universal banks, commercial banks and their subsidiary banks and quasi - banks should hold against actual credit risk exposures. this significantly amends bsp circular no. 280 dated 29 march 2001 ( for banks ) and bsp circular no. 400 dated 1 september 2003 ( for quasi - banks ). meanwhile, stand - alone thrift banks, rural banks and quasi - banks will continue to be covered for now by existing regulations ( i. e., circular nos. 280 and 400 ) insofar as credit risk measurement is concerned. however, we are studying enhancements to make the applicable capital regulations more attuned to basel ii principles. moreover, the guidelines for allocating minimum capital to cover market risk ( bsp circular no. 360 dated 3 december 2002 ) have also been amended to some extent, primarily to align specific market risk charges on trading book assets with the revised credit risk exposure guidelines. a completely new feature is the introduction of capital charge for operational risk. this reflects recognition of the potentially significant costs emanating from this critical risk area that actually encompasses all facets of bank operations. complementary reform initiatives on other key fronts, we will also carry on with our task of fostering the development of our financial markets through support for various legislative measures, such as the enactment of the credit information system act ( cisa ) that will be pivotal in helping establish a reliable and comprehensive credit information system in the country. we will also continue to foster the creation of stronger and globally competitive financial institutions that can be an asset to the financial system. lately, we have been witnessing a growing trend toward mergers and consolidations among domestic banks and we expect this to further hasten in the next two years. this is driven in part by the increasing market competition as a result of liberalization and the adoption of more stringent global standards. however, we are not discounting the role that smaller specialist banks play in the evolving financial landscape. definitely, we need smaller specialist players that can more effectively cover important niche markets that have their own unique needs. under this scenario, the smaller specialist players are able to complement the services offered by bigger banks. simultaneous with the ongoing process of reform in the banking system, the bsp has also actively engaged in initiatives to promote a deep domestic capital market that

spv law ; improve the risk management process through effective enforcement of risk - based supervision ; promote better governance and market discipline ; and establish an appropriate capital adequacy framework for banks. at this point, let me give you an overview of where we are now in the reform process and what still remains to be done. ongoing asset cleanup the asset cleanup process remains a priority. here, we expect banks to unload more bad assets under the amended spv law. the bsp has so far approved certificates of eligibility ( coe ) amounting to p31. 7 billion spvrelated transactions under phase ii of the amended spv law. combined with the p97 billion worth of npas disposed under phase i, this brings the total amount of npas sold to roughly p128. 7 billion. we expect this to reach up to p200 billion. full implementation of risk - based supervision we are also fostering a strengthened environment through full implementation of consolidated and risk - based supervision. to keep pace with the increasing sophistication and complexity of the financial environment, we have directed our policy thrust toward acceptable risk management practices that enable financial industry participants to better assess and manage risks without unduly hampering the ability to innovate. in effect, we have assumed a more liberal approach to bank supervision in the sense that we do not instruct banks to avoid risks that seem too high, which is the way traditional bank supervision is done. instead, the approach being used is to favor assessment of the quality of risk management practices by giving banks greater flexibility to respond to changing opportunities and allowing them to take risks so long as they demonstrate the ability to manage and price for those risks. this is being complemented with enhanced regulations on risk management as a way of developing appropriate standards suited to banks ’ risk - taking activities. more recently, we have issued general guidelines on supervision by risk, setting forth the broad expectations of the bsp with respect to the conduct of risk management by financial institutions under its jurisdiction. we followed this up with the issuance of specific guidelines on technology risk management, one of many envisaged to cover strategic areas, which is aimed at ensuring effective management of technology - related risk by financial institutions. we have since come up with specific guidelines on market risk management and liquidity risk management, which set forth bsp ’ s expectations on the management of these key risks by banks. another related issuance of the bsp is the strengthening of the prompt correct