The release of the Financial Sector Master Plan, a shared vision of medium- to long-term development strategies of all relevant stakeholders, marks an important milestone to the Thai financial system. The Master Plan envisions the financial system to become more balanced, resilient and competitive, and capable of providing financial services appropriate to the demand of all potential users, with sufficient consumer protection and fairness. Underpinned by the "One Presence" policy, whereby one financial group is allowed only one deposit-taking institution, the Master Plan has important implications on the structure of the financial system, especially as financial institutions are motivated to gain efficiency via rationalization and economies of scale.

With recognition of its impacts on the banking industry, the Master Plan was cultivated and is being implemented at the time when economic conditions and revitalized financial sector are conducive to changes. To date, all banking performance indicators point to resiliency, with solid capital base, continued profitability and increased lending activity, while the economy has returned to its steady growth path. Such favorable environment is particularly crucial for the initial stage of the reform: rationalizing the structure and roles of financial institutions. To ensure an orderly transition process, the authorities will closely monitor the impact of the changes. In parallel, the authorities will press on the reforms of key financial laws, especially the Deposit Insurance Act and new Financial Institutions Businesses Act, to strengthen the financial infrastructure necessary for the development of a sound and resilient banking sector.

Notwithstanding these positive developments, certain areas of concerns remain to be addressed. The authorities are working on new measures to comprehensively deal with the resolution of non-performing loans. For example, financial institutions will be allowed to transfer NPLs to the Asset Management Corporation after the amendment of the relevant legislation, while the Bank of Thailand is in the process of tightening the provisioning regulation for NPLs that have been long pending without proper restructuring or legal Notwithstanding these positive developments, certain areas of concerns remain to be addressed. The authorities are working on new measures to comprehensively deal with the resolution of non-performing loans. For example, financial institutions will be allowed to transfer NPLs to the Asset Management Corporation after the amendment of the relevant legislation, while the Bank of Thailand is in the process of tightening the provisioning regulation for NPLs that have been long pending without proper restructuring or legal Notwithstanding these positive developments, certain areas of concerns remain to be addressed. The authorities are working on new measures to comprehensively deal with the resolution of non-performing loans. For example, financial institutions will be allowed to transfer NPLs to the Asset Management Corporation after the amendment of the relevant legislation, while the Bank of Thailand is in the process of tightening the provisioning regulation for NPLs that have been long pending without proper restructuring or legal Notwithstanding these positive developments, certain areas of concerns remain to be addressed. The authorities are working on new measures to comprehensively deal with the resolution of non-performing loans. For example, financial institutions will be allowed to transfer NPLs to the Asset Management Corporation after the amendment of the relevant legislation, while the Bank of Thailand is in the process of tightening the provisioning regulation for NPLs that have been long pending without proper restructuring or legal actions. Meanwhile, the growth of consumer lending spurred by robust economic recovery is closely monitored in order to keep household debts in check. The Bank of Thailand's measure to tighten credit card lending to the lower end of the market indicates the authorities' intention to step in to curb excessive lending, if needed, in order to maintain financial system stability.

Looking to the future, the changing financial landscape, forces of globalization and liberalization, as well as advanced technology and financial innovation, will have major bearings on the Thai financial system. In this light, the Bank of Thailand will continue to strengthen risk-based supervision and place emphasis on corporate governance, with the aim of fostering competition and overall efficiency and safeguarding financial soundness. Banks also need to do their part to improve the overall risk management capacities in order to meet with these challenges and to prepare themselves for the implementation of the new Capital Accord. With these challenges, it is essential that we constantly assess our achievement in the area of supervisory policy and framework, as well as take stock of the system๛s strength and vulnerability, to prepare for any plausible adverse shocks. In so doing, benchmarking our financial system against international standards and codes is a means to identify areas for further improvement, taking into account the context of our institutional arrangements.

Thailand has already made enormous progress on financial and structural reforms, and we now have a road map toward a new era of a balanced and efficient financial system. All the stakeholders must work together to overcome the obstacles and achieve the objectives set out in the Financial Sector Master Plan. Daunting as these challenges may be, each step forward will be towards a meaningful and tangible result.

M.R. Pridiyathorn Devakula
Governor,
Bank of Thailand

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