to the bsp. we have systems in place for the electronic transmission of reports to us not only by the big commercial banks but the thrift and rural banks as well. in order to better appreciate the reports and data gathered from the banks and utilize these to supervise them in a more proactive way, the bsp embarked on a data warehousing project. to fully automate the project, the bsp is procuring an integrated financial reporting portal system that will allow bsp - supervised banks to send / upload reports to bsp and retrieve / download processed reports from bsp using mutually acceptable secured channels of communication. reaching out to the rural areas an area that your association may be of help to us in this regard is encouraging through your education campaigns and drives the smaller thrift and rural banks to be more e - savvy. there are over 700 rural banks scattered all over the country but only about half have email facilities and about the same number have in - house developed systems. you may want to consider e - enabling the regional areas as there is already a heavy concentration of applications in the mega - metro manila area and other major cities. for the bsp ’ s part we developed the “ integrated regional information system ” ( iris ) which allows the branches of banks in the countryside to conduct electronic transactions with bsp such as cash deposit, withdrawal, fx purchase, peso exchange, and rediscounting of loans and payments. iris has been implemented in three bsp regional offices and 5 regional units, and is expected to be fully deployed in the remaining bsp branches by the 3rd quarter of 2006. it risk management with the increasing applications of technology to banking services comes increased exposure of banks to technology - related risks, including operational, reputational, and strategic risks. to help mitigate these, the bsp recently put out guidelines for technology risk management. the bsp established these guidelines to ensure that the knowledge and skills necessary to understand and effectively measure, monitor and control these risks are in place. anti - money laundering efforts in addition to risk management, you may also partner with financial institutions in the anti - money laundering efforts of the government. under the anti money laundering act, as amended ( amla ), covered institutions, i. e., financial institutions that are supervised by the bsp, the sec and the insurance commission, are required to electronically report to the amlc all “ covered and suspicious transactions ”. while the amlc has established its

estimates on a sample of the largest banks suggest that once fully implemented, the cet1 ratio will be lower by around 70 basis points, as against the eba ’ s estimate of 140 points for the leading european banks. the impact would mostly derive from the treatment of operational risk ; the rule on the minimum requirement for banks that use internal models ( known as the ‘ output floor ’ ) is expected to have a very limited impact in italy. this could be reduced further by the steps that the banks will certainly take to adapt to the new rules during the long transitional period prior to full implementation. banks must make good use of the time available before the introduction of the new rules. measures to strengthen their balance sheets and improve profitability are fundamental, continuing the action undertaken in recent years. in the first three months of this year, the profitability of italy ’ s largest banks improved, continuing the trend observed in 2017. for the significant institutions, annualized roe rose to 8. 4 per cent, from the 5. 1 per cent recorded in the first quarter of last year ; the cost - to - income ratio fell by around 5 percentage points, to 65 per cent. the average profitability of the less significant institutions is lower : in 2017, the last period for which complete data are available, their roe amounted to 1. 3 per cent, against 4. 7 per cent for the significant institutions. for all the banks, and especially for small banks, successfully meeting the challenges posed by stronger competition, regulatory pressures and new technologies, requires incisive action to increase operational efficiency. the reform of the mutual banking sector, which i mentioned earlier, is one of the responses to these challenges. but undoubtedly more must be done, especially in relation to technological change. with the advent of fintech, marking the marriage of high tech and high finance, the framework of reference is changing rapidly. new players are creating alternative and more efficient business models, often superseding functions traditionally carried out by banks, such as the provision of payment, asset management and securities investment services. based on market analyses, traditional banks believe that, over a five - year horizon, a number of their activities, corresponding to around a quarter of profits, are at risk. compared with the new entrants, incumbent banks enjoy advantages stemming from stable relationships with customers and the wealth of data collected over the years. by exploiting these advantages better through the use of new technologies, they can expand the range of services offered, improve