bandid nijathaworn : how strong are thai banks to weather the turmoil? keynote address by dr bandid nijathaworn, deputy governor of the bank of thailand, at the fitch thailand ’ s 2008 annual conference, 10 september 2008. * * * thank you, chairman. first, let me thank fitch thailand for the invitation to address this year ’ s conference as a keynote speaker. our topic this morning is “ how strong are thai banks to weather the turmoil? ” my answer is short and simple : thai banks are strong enough to weather the current global turmoil. the sector is also well positioned to support the economy. this is the message i gave six weeks ago when we had a press briefing at the bank of thailand. although conditions in the global economy and financial markets have changed somewhat since then, it is the same message of resiliency and strength that i want to echo to you this morning. i agree with the two previous speakers that global financial market conditions and growth prospects have further weakened especially in the past two months. in financial markets, we continue to see falling share price indices and increased spreads in a large number of us dollar products, including high - quality us corporate bonds, money market spreads, and bank credit default swaps. doubts about additional losses by banks in major economies also persist and this has made it more difficult for banks to raise capital. as a result, funding costs for households and businesses in the major economies have risen as banks continue to tighten credit standards, which is not positive for growth. on account of this, global growth prospects seem to have further weakened, while the decline in oil price have helped ease concerns about global inflation. future direction of the oil price, however, is still very much uncertain. the global economy and conditions in the global financial markets, therefore, have become more challenging, and they are likely to have important implications for emerging markets through the usual trade and financial channels. this is, therefore, an important area that we need to pay close attention to in the next few months. under the current global setting, a decline in oil price will be positive for emerging markets like thailand, and as a group, the growth prospect of emerging markets should remain satisfactory given their abilities to support domestic demand. but questions remain about individual economies on how resilient they would be in the face of such shocks, including the banking sector. in the thai case, our assessment is that the thai banking sector is strong enough to weather the current turmoil

and develop our digital finance ecosystem. the first principle is the open architecture framework. important infrastructure must be made open, allowing both old and new market participants to easily connect as long as they meet the required security standards, appropriately share the cost of development and maintenance, and do not pose financial stability risks. the open architecture framework will level the playing field and eliminate barrier to entry for new players who often enter the market with innovations. the second principle is interoperability of systems. because every financial service provider is different and they might operate on different systems, we need to make sure that these different systems can communicate, that money and data can flow among them — in other words, that they are interoperable. and this is where standards come in. common standards — be they for data structure, qr code payment, or biometric authentication — would allow us to benefit from competition between systems, while ensure that the competing systems are interoperable, and the financial network as a whole does not become fragmented. the concept of interoperability can also be extended internationally, as we have seen in the case of cross - border qr codes for payment in asean. the third principle is creating the right incentive structure. ensuring that both service providers and customers benefit from any given financial technology and digital financial services is critical for the adoption, the continued development, and ultimately the sustainability of those innovative financial services. in addition to convenience and pricing, an important aspect that would incentivize customers to adopt digital financial services is the confidence in digital finance. customers need to be safeguarded against technology - related risks. a desirable incentive structure must also be able to limit distortion of market power, especially by dominant market powers who could undermine ongoing competition, and hence innovation. making sure that our digital finance ecosystem has the right incentive structure will provide a foundation for wide adoption by customers, ongoing innovation and upgrade of services by financial service providers, and market access among new innovative players. the fourth principle is creating regulatory framework that promotes agility and innovation while preserving financial stability. regulators must continually review and ensure that their governing frameworks remain relevant in the context of the fast - changing digital world. outdated and inflexible laws and regulations need to be amended accordingly. with the advancement of technology, financial innovations usually start off small and scale up quickly. regulators must therefore keep in mind the concept of proportionality, allowing themselves to be more tolerant towards low - risk financial activities and more scrutinizing towards activities that might