Some observers - including, perhaps, a few in this room - have noted that the effort to incorporate greater risk-sensitivity into the framework inevitably introduces procyclicality into our standards. That is, the capital requirements for loans to troubled borrowers will tend to increase at just the point when such trouble is becoming apparent. This is an important point, and one that we at the Committee are working to address. It is my view that the global financial system needs to move toward addressing potential credit problems preemptively - before these problems have time to grow from minor disturbances into major disruptions. To best accomplish this objective, any supplements to regulatory capital should be incremental or graduated, rather than a sudden ratcheting that could potentially reinforce a cyclical downturn. The second pillar in the proposed new capital adequacy framework has to do with the supervisory review of capital - a critical complement to minimum capital requirements. The Consultative Paper BIS Review 27/2000  8  proposes that supervisors should ensure that each bank has sound internal processes in place to assess the adequacy of its capital based on a thorough evaluation of its risks. In evaluating the strengths and weaknesses of a bank’s internal allocation process, supervisors would draw on, among other things, their knowledge of best practices across institutions. I want to stress that this proposed approach in no way intends to replace the judgment and expertise of bank management, or to shift responsibility for capital adequacy to supervisors.
This is a dynamic process as the requirements and expectations of consumers are also changing rapidly in tandem with the increased education levels and growing affluence. In recent years, consumers have become more discerning and demanding better product choices, more efficient delivery channels and more customer friendly practices from takaful operators. Bancatakaful, for example, has made noticeable headway to account for 20.4% of takaful contributions in 2005, compared with only 6.5% in 2004, reflecting the consumers' preference for selected products to be made available through this channel. While product offering among takaful operators will eventually converge, the consumers ultimately expect speed in service delivery, simplicity in dealings, stretching or going the extra mile in satisfying customer's needs and unquestionable integrity. Thirdly, Malaysia still has competitive advantage in terms of takaful and is well-positioned to be a takaful and retakaful hub in this region . During the past two decades, we have seen the gradual opening up of takaful operation in many jurisdictions throughout the world, primarily in Islamic countries and countries with large Muslim communities. In this period, Malaysian takaful industry has gained significant attention with the remarkable growth rate recorded domestically and in other countries as far afield as Saudi Arabia. Malaysian takaful industry alone successfully garnered approximately 26% of global takaful contributions and our takaful operator has been recognized as among the leaders at the global front.