BANGKOK, July 7 (Reuters) - Thailand's financial system is resilient and domestic financial markets continue to function normally despite higher volatility stemming from global financial markets, the central bank said on Thursday.

Banks held ample levels of capital and loan loss provisions, and were capable of extending liquidity to support continued economic recovery, while securities and insurance companies were financially robust, the Bank of Thailand said in a statement Link on the meeting of the monetary policy committee and the financial institutions policy committee on July 4.

Stress tests showed the current levels of key risks remain distant from those that would trigger serious problems for banks and other financial firms, it said.

However, risks to be closely monitored included liquidity and debt serviceability problems of households and businesses due to the higher cost of living and input costs, as well as implications of expected rises in the policy interest rate, the BOT said.

"These risks could potentially undermine financial stability going forward and, therefore, should be closely monitored," it said.

Reporting by Orathai Sriring Editing by Ed Davies