This dialogue will provide an opportunity for the industry to discuss with the Central Bank these developments and their implications, important issues that have emerged and the Central Bank's policy initiatives. As the year 2005 unfolds, it is important for us to reflect on our progress achieved, the new challenges that have emerged and the actions that need to be taken to drive performance in the period ahead. The banking system in Malaysia today is vibrant, strong and profitable. In fact, the banking system is at its strongest position since the financial crisis. The high level of capital, improving asset quality and strong profitability have also been reinforced by substantial enhancements in the areas of corporate governance and risk management standards. Large investment has also been made to strengthen internal systems and processes, to improve delivery channels and to acquire talent. Cumulatively, these enhancements have enabled the banking institutions, particularly the domestic banking institutions, to remain competitive and to offer differentiated products and value-added services. Undoubtedly, the competitive environment has also driven domestic banking institutions to strive for greater efficiency as well as to venture into new areas of businesses, tapping new sources of income and entering into alliances with regional banking institutions. Most of all, these advancements have enabled the banking institutions to assume an important role in facilitating the increased role of the private sector in the economic growth process. The foundations for strong performance have now been well established for the domestic banks.
But this partly reflects the weight of past decisions and specific factors relating to the reintermediation, by banks, of previously securitised loans. •  All surveys point to a tightening of credit standards going forward. “Tightening” does not mean that credit will dry up, but rather that it will be more expensive and more selective. Banks are gradually passing on to their customers the increase in the cost of financing that they incur. •  We are closely monitoring this development that, at present, does not appear to be, in itself, a threat to growth. Indeed, the recent period had been characterised by an extremely high credit growth rate. As you know, the government has implemented measures to facilitate the financing of SMEs. To conclude, in the longer term, and in accordance with the guidelines laid down by European governments on 4 and 12 October 2008, I believe that it would be useful to revisit the foundations of our financial regulation. This should be done without haste, but no stone should be left unturned. We must be willing to address all the questions and challenges that this crisis has raised. These include the role of credit ratings agencies, the management of risk, market infrastructures, the scope of financial regulation and the question of remuneration. As regards the latter, we should not seek to over-regulate or punish, but rather to instil a sense of responsibility. Pay structures should not encourage short-termism or, as was the case, excessive risk taking. BIS Review 129/2008  3