challenge and will require vigilance on macroeconomic policy, as well as prudential measures, to ensure continued economic growth and financial stability. let me cite some of the factors which have helped to keep the direct negative impacts limited. first, thai banks have low direct exposure to problem assets. the total foreign investment of thai banks amounts to only around 1. 2 percent of their total asset, and a small part of this is the investment by thai banks on cdos. banks that have cdo investments have mostly sold them off, and all have made full provision and recognized losses in line with ias 39. secondly, thai banks rely predominantly on local deposits for funding, as opposed to the international wholesale market. this helps make the domestic financial conditions more stable and not affected by the global credit crunch. liquidity conditions in the thai system have remained more or less stable, though liquidity tightened marginally due to acceleration in credit growth. the ratio of loan to deposits, including bills of exchange, has been stable at around 90 percent, indicating no shortfall in liquidity. thirdly, the fundamentals of the thai banking system have strengthened markedly, with robust capital and improved risk management. banks have had solid profit since 2001, with gross npl ratio to total loans declining to 6. 4 percent and the npl ratio net of provisioning declining to 3. 4 percent as of the end of the second quarter of this year. npls are fully provisioned for in accordance with ias 39. in august, the bis capital ratio of the banking system increased to 15. 5 percent due to higher profit and capital increase. credit growth accelerated to 11. 3 percent, supportive of economic growth, while banks, fund mobilization via deposits and bills of exchange accelerated to 3. 6 percent in august, allowing the ratio of loan to deposits, including bills of exchange, to remain stable. in sum, over the years, better risk management, improved asset quality, greater provisioning coverage, and enhanced regulatory and supervisory framework have significantly improved the overall risk profile of the thai banking sector. fourthly, despite much weaker global outlook, thailand ’ s economic conditions are expected to be well - supported. gdp growth for the first half of this year stood at 5. 7 percent, with inflation contained through appropriate monetary policy and aided by the fiscal package which delayed some utility price increase for around six months. while the expected slower global growth would pose downside risk to domestic growth via a slowdown in exports,

with the ministry of finance, office of the securities and exchange commission ( sec ), and the office of insurance commissioner to ensure that the regulatory framework is consistent and conducive to financial stability. where banks have securities companies or insurance companies as subsidiaries in financial conglomerates, the bank of thailand as lead supervisor currently supervises on a consolidated basis. it should also be emphasised that the bank of thailand is both the central bank as well as bank regulator, while also overseeing the payments system. thus, we are at a vantage point to closely monitor any risks to financial and economic stability, while also, with coordination with the ministry of finance and other regulatory agencies, have the means to act to safeguard the system. ladies and gentlemen, let me now turn to the impact of the global turmoil on the thai financial system, especially the banking system. the global financial turmoil continues to pose a critical challenge as prospects for global growth, asset quality, and banks, capital remain under pressure. in emerging markets, the stock market has been under considerable pressure. as of the 13th of october, the msci asia pacific index declined by 49 percent from its peak in november 2007, indicating the pressure of retreat to safe - haven, and lower liquidity in financial markets in emerging countries. most recently, the imf, in its world economic outlook assessment of october 2008, forecasted that “ the world economy is entering a major downturn in the face of the most dangerous financial shock in mature financial markets since the 1930s. global growth is projected to slow substantially in 2008, and a modest recovery would only begin later in 2009. [ … ] the immediate policy challenge is to stabilize financial conditions, while nursing economies through a period of slow activity and keeping inflation under control. ” nevertheless, there is also a positive development. central banks and regulators around the world are now taking coordinated and concrete actions. comprehensive measures aimed at restoring confidence in the banking systems include provision of liquidity, new capital injection, guarantee of interbank loans, blanket deposit guarantee, and government purchase of troubled assets. as for thailand, despite the magnitude of the turmoil in the global financial market and the decline in local stock market, the immediate impact of the turmoil on thailand ’ s banking system thus far has been limited. this is because the direct first - round impact linked to investment exposure of the thai banking system is small. the indirect second - round impact via the downside risks to economic growth and financial market volatility, however, will be a