Such considerations mean that it is essential that banks have a sound strategy and good systems of risk management. The main responsibility for this rests with the board of directors and with senior management, although the regulators also have a responsibility to check that they are doing their job properly. To assist us in that process, we have recently issued a guideline which sets out the standards which we expect the board of directors to observe. One important feature of the guideline is the need for a strong independent element on the board provided by non-executive directors who can bring a fresh perspective to strategic planning based on their expertise and outside experience. Having said that, non-executive directors with the right degree of independence and expertise are not easy to find. This is one of the main challenges in corporate governance in Asia. Although sound strategic direction from the top and good internal systems of control are the primary defences against increased risk, banks also need to make sure that they hold sufficient capital to support that risk. The present capital adequacy regime formulated by the Basel Committee has been in place since 1988. Although it has served its purpose well, it is showing signs of its age and needs to be 3  BIS Review 93/2000  replaced. The Committee is therefore proposing to introduce a new Capital Accord, the guiding principle of which is that it should be more risk-sensitive.
The stability of the banking sector has been further strengthened by the ongoing reforms and boosted both mergers and acquisitions and foreign bank participation to the sector. The volume of the banking sectors’ credits to non-financial sector rose by more than 70 percent in real terms and the sectors’ profits increased by a considerable amount since 2002; capital adequacy and loan quality of the sector also improved. As of today, efforts towards increasing the consistency of the legal framework with the EU, completion of the restructuring process and then privatization of the public banks and development of modern risk management are on the agenda. Distinguished Participants, Today we not only have a stronger banking sector, which forms a basis for macroeconomic stability, but we also see remarkable progress in the Turkish economy in general. With the stabilization program that was launched in May 2001, great progress toward macroeconomic stability was made, especially in the disinflation process and recovery in growth. As the inflation rate is regarded as a signal of the quality of economic management, the achievement in the inflation front in the Turkish economy is among the most significant examples of progress toward better macroeconomic fundamentals. Single digit inflation was reached after a period of more than thirty years of high and chronic inflation. Additionally, as inflation targets were attained in 2002, 2003 and 2004, and thanks to a sound communication policy, the public in general now believes in the determination of the policy makers to fight against inflation.