will be increased complexity in identifying the risks which will in turn complicate the process of risk management. the increasingly integrated and liberalised markets will also expose our porous economies to greater external influences and to contagion risks. a higher level of vigilance is thus required to allow for pre - emptive policy measures in a timely manner. this will require adequate levels of cooperation among the regional regulators in addressing potentially contagion systemic risks and ensuring regional financial stability. the deepening of co - operation between the nusantara's monetary and regulatory authorities is thus a key factor in the development of a robust integrated platform. enhanced cooperation will promote greater resilience and reduce regional vulnerability to external developments. there are now various regional mechanisms in place to undertake regional surveillance, to facilitate the exchange of information, to enter into greater engagement on issues affecting the region and in developing regional financial markets. in addition, frameworks for enhanced regional risk management, crisis management and resolution are also being put in place. with greater financial integration, the region will be able to leverage on the advantages of economies of scale, innovation and more importantly place greater reliance on the cumulative strengths that resides within the region including our financial resources, skills and knowledge. it will also better position the region to collectively address emerging issues and challenges faced by the region taking into consideration the region's socio - economic context. ladies and gentlemen : while islamic finance is gaining global interest and acceptance, the world's most populated muslim region in the world, the new nusantara offers opportunities for the accelerated expansion of islamic finance. the intrinsic nature of islamic financial structures encourages stability. islamic principles require that the financial transaction be supported by genuine economic transactions. to further reinforce this, the governing shariah principles also serve as a built - in self - regulatory mechanism that insulate islamic instrument issuers from unproductive, speculative and unethical elements and thereby contributes to the stability of the financial system. historically, capital financing and investment flows into the nusantara region have generally been sourced from the developed financial markets. while we may see continued growth in short term capital inflows from these traditional sources, the more competitive global environment provides no assurance of the sustainability of such longer term investment flows. meanwhile, our own south east asian region and that of north asia and the middle east countries continue to have high surplus savings seeking opportunities for investment and new asset - classes for greater risk diversification and improved returns on their investments. hundreds of years

the board of directors and management. the policy on shareholding will therefore be enhanced to promote greater shareholder activism within banking institutions. shareholders need to be concerned with the practices of banking institutions, particularly those which can have adverse implications on depositors'interests and on financial stability. similarly, given the increasingly competitive environment, advancement in risk management practices and the strengthened corporate governance framework, a more flexible policy framework on lending to connected parties will be put in place. however, to prevent abuses of such flexibilities, there will be safeguards and conditions that need to be observed by banking institutions. ladies and gentlemen, the adoption of a principle - based regulatory approach will provide banking institutions with greater flexibility in deciding on strategic options in a more competitive environment. as the banking industry grows at an accelerating pace, there are common areas where collective efforts by the industry will not only bring benefits to the financial sector but also to the overall economy. in this regard, there is an increasing trend among developed countries such as the united kingdom, canada, and australia, where the bankers associations have an important role in spearheading initiatives to promote high standards of ethical code of market conduct to meet consumers'rising expectations and demands. the bankers associations have increasingly assumed the role as a focal point for consultation with not only the regulatory authorities, but also by the other stakeholders on policies affecting the financial sector. in this respect, such associations have played an important complementary role to the regulatory authorities'efforts in promoting a more progressive, dynamic and resilient banking system. in addition, banking associations in these countries have also acted as the voice for the industry in articulating the position of their members to promote the interests of the industry. in malaysia, there are several areas of common interest to the industry which the associations can spearhead. it is, therefore, to the benefit of the industry to reassess the role of the associations with respect to taking forward common initiatives and interests of the industry. ladies and gentlemen, moving forward, consumer and sme financing will continue to be two important areas of growth. the overall macroeconomic and interest rate environment would continue to be supportive of growth in these two sectors. the challenge for banking institutions is to ensure that consumers and the businesses have access to a wide range of products, while at the same time ensuring that the necessary infrastructure is in place to manage risks arising from these businesses. this is to ensure that lending to these sectors would be sustainable and avoid the risks that have recently been experienced in