prasarn trairatvorakul : challenges to central banks in the era of the new globalisation opening remarks by dr prasarn trairatvorakul, governor of the bank of thailand, at the bank of thailand international symposium 2010 on “ challenges to central banks in the era of the new globalisation ”, bangkok, 15 october 2010. * * * professors, fellow central bankers, distinguished participants, ladies and gentlemen, it is a great pleasure for me to welcome you to the bank of thailand international symposium 2010 on “ challenges to central banks in the era of the new globalisation ”. this event is the fourth in a series of international symposiums organized by the bank of thailand, which have been a forum for prominent academics, policy makers and market practitioners to meet and discuss current issues related to central banking and monetary policy, especially from an international perspective. as the world begins to recover from the global financial crisis, a new stage of globalisation has emerged and brought along a transformation of the economic and financial landscape. the meeting today will again be an opportunity for us to share views and address key challenges facing central banks during this time of change. i will highlight three of them. first, the global financial crisis has brought to the fore the importance of financial stability as a necessary condition for economic stability. the need to fulfill this objective will forever change the way central banks conduct their policy. the most important question is how the central bank can embrace this objective without impairing price stability and without creating unrealistic expectations about what it can and cannot do given limited tools at its disposal. second, with the global financial crisis revealing many regulatory gaps, especially in advanced economies, many new proposals have, understandably, been made to reform international financial regulations. however, it is important to note that attempts to fix the last crisis may not prove effective in preventing the next one, as crises always come in different shapes and forms. in addition, some proposed new standards, such as basel iii, appear to mainly address the problems of banking systems in developed countries whose business models and risk - taking behaviour may well be very different from those of emerging markets. therefore, the key challenge for policymakers in these countries, going forward, is how to adapt the global standards to best suit local needs, bearing in mind the enormous economic costs of over - regulation. third, differential growth outlook between advanced and emerging markets in the aftermath of the global financial crisis is inducing large and persistent capital flows to emerging

. this conclusion is supported by the following five important reasons. first and foremost is the low direct exposure that the thai banking sector has to sub - prime credit and cdo. cdo exposure of thai banks at the second quarter of last year was less than 0. 3 percent of total asset. banks with cdo exposure have already made full provision and recognized losses in line with ias 39, and presently all sub - prime related cdo positions have been unwound. more importantly, thai banks also do not have investment in us gse securities. this is another positive point that will help insulate the banks from any further spillovers. reflecting this, the direct impact of the turmoil so far, on the thai banking sector, has been limited. second, on the issue of liquidity and financing, banks in thailand are predominantly domestic - owned. hence, they rely more on deposit funding rather than external funding. domestic funding is a more stable source of funding and is not affected by the turmoil. this feature will help cushion thai banks from the effects of the global credit crunch. third, fundamentals of the thai banking system have improved and the key fundamentals are sound and resilient. as a sector, banks in thailand have enjoyed good profits for the past seven years and are well capitalized with the bis capital adequacy ratio at 15. 2 percent at end of june this year. over the years, better risk management, improved asset quality, greater provisioning coverage against losses, and the regulatory and supervisory frameworks that meet international standards, have significantly improved the overall risk profile of the sector. as for the most recent quarter, net profit of 57 billion baht was registered in the second quarter of this year. loan growth in july increased to 11. 8 percent while deposits including bill of exchange grew by 1. 9 percent. liquidity in the system remains adequate, with loan / deposit ratio excluding interbank transactions at 90. 1 percent in july. on asset quality, gross npl ratio edged downward to 6. 4 percent in june. these numbers show that the performance of the thai banking sector is quite robust, and is well positioned to support the economy. fourth, a more difficult picture to assess is the impact of the turmoil on the economy and how this would translate into the impact on the banking sector. so far, notwithstanding the less helpful global environment, the thai economy has performed relatively well, with growth averaging 5. 7 percent in the first half of this year