Tarisa Watanagase

The first female governor in the Bank of Thailand's (BOT) 64-year history and the third female central bank governor appointed worldwide, Tarisa Watanagase cuts a graceful if slightly beguiling figure in a striking baby-pink suit. But do not be fooled. A career central banker since 1975, Ms Tarisa has watched over the Thai banking sector in one capacity or another for more than three decades, during which time she has acquired a well-earned reputation as a fearless political bulldog.

During her stint as deputy governor of the BOT, Ms Tarisa fiercely defended attempts by the divisive Thaksin Shinawatra government to undermine the bank's independence - a performance that, in the eyes of many onlookers, marked her out for the top job. The subsequent ousting of Mr Thaksin and his government in the bloodless coup of September 2006 saw Ms Tarisa's boss, governor Pridiyathorn Devakula, elevated to the interim cabinet leaving Ms Tarisa to step into his shoes.

Despite ongoing political turmoil and a painful 3.5% slump in Thailand's gross domestic product growth, the country's banking sector has remained remarkably robust during the past two years. Although first-quarter profits at the major banks were hit hard by the recession, the system-wide gross non-performing loan ratio has remained steady and the sector is highly liquid. "The industry has strong fundamentals and the banking sector has gone through some significant developments in the way the banks manage themselves," says Ms Tarisa, who adds that these developments are now "bearing fruit".

Most notably, risk management has sat top of the industry agenda for some years and remains a major pillar of the BOT's new banking reform agenda, the Financial Sector Master Plan II, which aims to bolster the sector's risk management infrastructure through technical, operational and legislative changes. "The Bank of Thailand started a series of reform measures, trying to change the mindset that banks have to be their own risk owners and I think that that is materialising. You don't go into the bank and manage the risk for them," says Ms Tarisa. As a whole, the sector has also been strengthened in recent years by a rash of much-needed consolidation that saw the number of second-tier banks and finance companies practically halved, she says. "It is a happy story for us so far."

Global action

Nonetheless, the government cannot be complacent, she warns. "The global recovery is only just beginning. The global financial markets are going to be volatile and there will be supervisory changes led by the G-20." For the most part, however, the central bank governor believes that these global regulatory changes will have a minimal impact on the Thai banking sector, which is both strongly capitalised, with a systemwide Bank for International Settlements ratio of some 16%, and primarily deposit-base funded. "The measures that are coming out along the lines of the G-20 mandate will concentrate more on the issue of liquidity risk and over-leverage, but that has not been a problem in our case," adds Ms Tarisa.

Increasingly, however, the opinions of Asian supervisors are afforded greater prominence within such global policy-making forums, she observes. "We have seen more co-ordination with the G-20, so right now the most important forum is the G-20 rather than the G-8, and we are getting more opportunities to take part and to voice our opinions," she says. "Going forward, I think that will be something that we see more of because this part of the world is going to be one of the main locomotives of the global economy."

Towards harmonisation

Meanwhile, negotiating an exit from loose monetary policy will prove the immediate challenge not merely for Thailand but for the south-east Asian economic bloc as a whole. "It is a challenge, but I think that all central bankers are aware of that challenge and I don't think that it is an impossible task," says Ms Tarisa. Managing close co-ordination within south-east Asia will be critical, she says, but co-ordination must not stop here. Ensuring that the region moves towards the closer harmonisation of macro-prudential policy will also be vital, she adds.

In particular, the deposit insurance and asset-guarantee schemes rolled out by many regional governments during the crisis present some cross-border risk and should be handled with care in order to avoid prompting a sudden exodus of funds from one regional economy to another, she says. "If one is to lift or change conditions of guarantees, obviously close co-ordination is needed to avoid distortion and moral hazard, and to ensure a level playing field cross-border. Financial services don't have a border and money can move around easily," she warns.

Regional co-ordination has already been given a boost by the crisis, says Ms Tarisa, who conferred with her peers in neighbouring south-east Asia as the global economic slump swept eastwards in late 2008. "That co-ordination was the best thing that came out of this," she adds.