Moreover, capitalizing on their extensive network of over 3,000 branches, banks have widened the arrays of services to include distribution of corporate bonds or debentures, unit trusts, IPO shares and other debt instruments. Such efforts pay off with tangible result. Within four years, banks’ ratio of net interest- and non-interest income to average number of employees rose from 0.8 to 2.6 million baht per person per year in 2003. We also witness improvement in the area of customer access. Crowded customers at micro-branches speak volumes for the success of banks’ strategy to approach customers outside their office hours. In response to more sophisticated demand, banks introduced new channels of services such as internet banking and tele-banking to satisfy the technology savvy demands of emerging new generation of customers. These efficiency gains have been achieved without forsaking comprehensive risk management. On the contrary, banks have begun to move away from collateral-based lending to risk-based approach. At the same time, financial literate Board of Directors has bolstered its oversight function to ensure that banks are managed in a sound manner. In the area of credit risk management, credit scoring has been widely applied in the retail loan originating process, whereas internal credit rating models have been used for significant corporate loan portfolios. Moreover, banks also have in place security measures, contingency plans and auditing standards within their system of internal control to monitor reputational risk, strategic risk and other risks.
The logical question to ask here is how do we ensure that these positive developments will maintain their momentum and that the banking sector will remain strong and sound amidst a more liberalized environment, fierce domestic and external competition, and the advent of more advanced technology and financial innovation? We can wait passively for external forces to inflict changes on us, or we can chart our own path of development in anticipation of any change. The Asian crisis brought it to the fore that complacency when met with abrupt and radical reforms as a result of external forces could entail enormous output loss and social cost. Thus, we must do what we can to ensure that the banking system is up to meeting any challenge. This brings us to the second point I want to make - what the authorities intend to do to enhance the financial system’s competitiveness and its capability to withstand forces of change in this age of globalization. The authorities are quick to grasp the opportunity of healthy economic and banking conditions conducive to embarking on a structural reform, with the announcement of the Financial Sector Master Plan. Thorough discussion on the Master Plan will require a separate session of its own. So, let me just pick some of its key features that will have the most significant impacts on the structure and efficiency of the banking industry.