Apart from the adverse economic effects, the NBR’s intervention to help the domestic currency appreciate against the CHF to a level similar to that recorded prior to the Swiss National Bank removing the 1.2 EUR/CHF floor would also impact public policy. Such an intervention would result in changing the benchmark currency on the foreign exchange market from EUR to CHF, contradicting not only the economic reality, but also the EU membership legally binding Romania to adopt the single currency at a certain point in time. As for the possibility of the NBR imposing a ban on CHF-denominated loans, such a decision would have entailed the restriction of CHF-denominated capital flows, thus violating one of the fundamental prerequisites of Romania’s accession to the EU: full capital account liberalisation, completed in 2006. Besides, even assuming such a measure had been possible, it would have affected trade with and investment from Switzerland, as well as the financing of CHF hedged borrowers (exporters, as well as employees of companies with Swiss capital, whose incomes are expressed in CHF). The relevant presence of Swiss capital in Romania is pointed out by the direct investment from Switzerland, which totals around EUR 2 billion, as well as by the number of companies with Swiss capital (over 2,000). These companies’ annual turnover is worth about EUR 7 billion, while the number of employees has ranged between 50,000 and 60,000 (nearing the number of CHF borrowers).
As we advance into the second phase of our Financial Sector Masterplan, the policy of gradually deregulating and liberalising the banking system will be complemented with the objectives of bringing increased benefits to the overall economy. While foreign banks will benefit from this process, it becomes equally important that there is reciprocity in the relationship. It is acknowledged that foreign banks have contributed to the development and vibrancy of our financial sector. They have made large capital investments and facilitated transfer of skills and technology to Malaysia. But the foreign banks have in turn benefited and flourished in the stable economic environment and significant economic growth Malaysia has achieved. Therefore, while greater operational flexibility will be accorded to the existing foreign banks so that they can better serve the needs of the growing economy, foreign banks will also need to become more integrated into the domestic economy. This includes ensuring affordable access to banking products and services by all segments of the society and not to focus only on specific locations. Therefore, the potential to establish additional branches will be balanced with the requirement to distribute the branch network to include non-urban areas. While the focus of foreign banks have been for the most part in urban areas, it should be noted that the  BIS Review 10/2005  1  record has shown that domestic banking institutions with large presence in the non-urban areas have been among those institutions that have sustained strong performance.