The third aspect of our financial reform is market discipline. ·  We recognise that sound corporate governance, both in banks and their borrowers, will provide discipline from within, while public disclosure will allow market force to discipline the financial institutions from the outside. ·  We will launch a new Directors’ Handbook for the financial community, which will further encourage understanding and motivation behind good governance, and we will also endeavour to improve the transparency of appointment and compensation. Ladies and gentlemen,  BIS Review 70/2001  5  The last challenge I want to share with you is the strengthening of the Bank of Thailand to meet future challenges. The crisis of 1997 brought to light weakness in Thailand’s financial management. The Bank of Thailand like most central banks in the region, have had to go through sea of changes in the wake of the crisis, and undergo intensive reform of its operation and organization. Three areas of change in particular that stands out as our major achievements are internal reorganization, strengthening the framework for monetary policy under inflation targeting, and enhancing communication and transparency of operation. At the onset of the crisis, the Bank of Thailand underwent major restructuring in the organization structure, data management and work process. These were aimed to ensure the good foundation in our decision-making process particularly with monetary policy implementation and financial institution supervision.
To restore stability to the financial system, the most immediate step taken was to ensure that financial institutions have adequate capital to withstand future risks. The sources of capital were to come from the private sector including the original shareholders and new partners, both Thai and foreign. As it turns out, in some cases, the authorities did eventually provide a recapitalisation scheme. Nevertheless, this scheme was not much utilized by banks. In fact, only 74 billion baht of the scheme was actually used. Another important step taken to stabilize the financial system was to raise the prudential and supervision standards such as the rules on loan classification, provisioning, asset valuation, just to name a few examples, to be in line with international standards. As a result, commercial banks in Thailand have gradually recovered from the crisis. Here are some facts and numbers. ·  The banking sector now has a capital adequacy ratio of 11.9%. ·  The Thai banks recorded a better result in the first quarter of this year. They turned in a profit of 1.9 billion compared to a loss of 39 billion baht in the same period last year, as loan provision expenses declined significantly. This is partly due to the large provisioning and loss recognition, which were already taken last year. In addition, there has been substantial progress in debt restructuring the Thai banks recorded.