in recent years, the core banking businesses remain traditional ; largely deposit taking and loan extension. meanwhile, treasury operation remains relative small. moreover, with the financial market predominantly bank - based rather than market - based, there tends to be less risk and complication arising from the originate - to - distribute models of securitisation. nevertheless, in the past few years, banks have expanded business scope, operating as universal banks or financial conglomerate, with securities and insurance arms. therefore, organisational structure and risk profile, of even the more traditional banks, have become much more complex. this, in turn, demands that bank ’ s risk management, board ’ s oversight, and supervisory framework can match the increasing complexity and ensure adequacy of capital and risk management system on a consolidated basis. on market risk, some banks in asia and pacific countries have been exposed to the subprime related assets such as cdos as well as assets of failed institutions. the losses so far have been limited to foreign assets and are addressed by private and government assistance. on hindsight, this crisis highlights the fact that it is easy to overestimate one ’ s risk management ability. the same applies to banks, rating agencies, specialist players such as bond insurers, hedge funds, and regulators. mistakes brought down even highly sophisticated market makers and specialist players such as lehman, bear sterns, and aig. the cdos and structured products were very complex, and their valuation and risk management required sophisticated quantitative skill. when mark - to - market failed, mark - tomodel becomes complicated by absence of in - house capacity. and, the option of turning to external expert valuer such as arrangers is very expensive, due to the lack of liquidity and captive nature of such market. thus, the knowledge required to properly manage these risks goes well beyond the quantitative skill and the usual front - office ability to value, price, and trade in normal market period. during abnormal periods, the board must understand the context of each market, especially its market structure, to be in a better position to gauge erratic market behaviour and liquidity. board members need to have a clear view, for example, whether the market would likely become a captive one, and the degree of counterparty risk in such otc derivatives market. in the crisis environment, the strength of capacity of mid - and back - office becomes critical for minimizing losses, such as by reducing counterparty risk, and dealing with settlement

the third quarter, with slight tightening at the end of second quarter as loan growth accelerated, reaching 13. 2 percent in september. the direct impact of the turmoil so far on the thai banking sector has been limited. this is because the thai banking sector has low direct exposure to cdos and other problem assets. thai banks ’ exposure to cdos including sub - prime cdos is now less than 0. 1 percent of total asset. banks with cdo exposure have already made full provisioning and recognized losses in line with ias 39, and presently all sub - prime related cdos have been unwound. thai banks also have very low exposure to investment banks like lehman brothers and have no investment in us gse securities. in all, total exposure of thai banks to foreign investment is about 1. 2 percent of total assets, about half of which are sovereign assets. having said this, we are very mindful of the risk from second round effect of slowdown in global growth and domestic growth, which can affect credit, market, as well as liquidity risk. to handle this, the bank of thailand has been holding dialogue with top managements of banks to discuss financial stability outlook, and have conducted stress - test to ensure that banks are alert to these risks and are able to manage them to ensure adequate capital and liquidity. we will continue to hold candid and two - ways dialogues with all the banks operating here to ensure that we can manage these challenges and dynamics of the global turmoil. ladies and gentlemen, i would like to conclude with some lessons learned so far to increase our immune system going forward. first, growth must be based on strong macroeconomic foundation, with prudent fiscal and monetary policy, flexible policy options, and strong external positions. second, sound system of financial institutions, with adequate capital fund, good risk management, corporate governance, and systematic and effective system of financial and market information disclosure that promotes market discipline is important for economic stability. finally, the private sector should increase competitiveness and the ability to adapt, with emphasis on human resource development and key infrastructure. ladies and gentlemen, with increased globalisation and financial integration, emerging market economies has become more synchronized with advanced countries. as the turmoil is unfolding, we must work even more closely together to ensure smooth adjustment and safeguard economic and financial stability. thank you for your attention.