The enhanced strength and increased competition has fostered continued profitability as well as expansion of economies of scale and scope in the banking system, with wider range of products to serve the public. Going forward, Phase II of the Financial Sector Master Plan seeks to build further on this process, and ensure that the Thai banking system can meet future challenges. These challenges include globalisation and technological development which will increase competition in retail banking. The Thai economy will become more open, with increasing intra-regional trade and investment, due to the growing importance of regional economies in the world economy as well as various trade and investment treaties. Hence, financial institutions need to not only build resiliency and ability to adjust to these changes, but also build capacity to serve clients which will have growing needs for international businesses and risk management. Moreover, demographic factors point to an aging-society in the future, thus increasing demand for wealth management. The regulatory framework will continue to evolve with due regard to international standards and local needs. Indeed, with the current global financial turmoil, each of these challenges will become even more poignant in the future. The implication of these challenges to Thai financial institutions is that they must enhance their operating efficiency and risk management, while also becoming more responsive to clients, with fair and transparent treatment. Given these challenges, what do we envisage are the key features of the future landscape?
Pillar II is based on five key principles. The first principle is to ensure a robust banking system that is resilient, committed and able to provide a strong foundation to support the Thai economy at all times. In the second principle, banks will be encouraged to reap the economy of scale by promoting voluntary consolidation to promote competitiveness. At the same time, proper competition policy will also be put in place to ensure fair consumer treatment. The third principle aims to promote competition via the liberalization of branch network and business scope and to enhance the roles of existing players, including banks and niche banks, while the fourth principle will consider new entries based on the value added to the economy. Lastly, the fifth principle will focus on enhancing the role of specialised financial institutions in providing increasing access to financial  BIS Review 133/2008  5  services for the low-income and small business groups and reducing the role of the state in commercial banking. Pillar III, on the other hand, will focus on laying down the foundation for a strong and supportive infrastructure for the medium term development of the financial system. This will be done through further enhancing the market and products which will facilitate banks, own risk management, promoting an effective information system and pushing for the amendments of necessary laws to facilitate risk management. Ladies and Gentlemen, The Thai banking system will continue to face new challenges going forward, both from external developments and domestic factors.