Entry Requirement

An application may be accepted from:

• An investment bank or group engaging in investment banking activities licensed by the regulatory authority in the country of origin;
• A licensed bank or an established financial institution or financial service provider supervised by a competent regulatory authority;
• Any licensed institutions under the Banking and Financial Institutions Act 1969 (BAFIA) with prior approval of Bank Negara Malaysia; and
• Any person(s) with the necessary expertise and experience in investment banking industry.

Islamic Investment Banking

Islamic banking in Labuan IBFC in 2010 was represented by six full-fledged Islamic banks and nine Islamic windows of conventional banks, of which three were established during the year under review. They generated total deposits of USD402.9 million as at 31 December 2010, up 4.3% from last year’s total of USD386.4 million. Placements by non residents increased from 35.0% in 2009 to 53.8% in 2010. Total financing as at 31 December 2010 decreased to USD187.9 million (2009: USD226.4 million), with non-residents being the major borrowers accounting for most of the total Islamic financing at USD183.6 million.

As at 31 December 2010, total Islamic assets in the banking industry grew by 62.9% to reach USD1.3 billion (2009: USD794.7 million), resulting in a larger market share of 3.8% against the total banking industry (2009: 2.7%).

WHAT IS LABUAN BANKING ABOUT?

Labuan banking means the business of receiving deposits on current accounts, deposit accounts, savings accounts, including investment banking business, Islamic banking business and such other transactions and terms and conditions as specified by Labuan FSA; in any currency except the Malaysian Ringgit.

WHAT IS ISLAMIC BANKING?

Islamic banking is defined as banking business that is in accordance with Shariah principles.

WHO MAY APPLY FOR A LABUAN BANKING LICENCE?

Organisations that meet the following minimum criteria :

• Should be a bank or financial institution
• Should possess a sound track record
• Should be accorded a good credit rating by acceptable rating agencies
• Should be supervised by a competent regulatory authority; and conform to generally accepted standards of international banking practices or BIS

WHAT IS THE MINIMUM WORKING FUND FOR AN INVESTMENT BANK?

MYR10 million or its equivalent in any other currency.

HOW DO I OPEN A BANK ACCOUNT IN LABUAN?

Opening a banking account in Labuan is quick and easy, thanks to the island’s efficiency and impressive infrastructure. The process takes an average of only one to two days, and investors have a range of international banks to choose from, including HSBC, Citibank, Standard Chartered and Barclays as well as local Malaysian banks including Maybank, Public Bank and CIMB.

Should you wish to enquire about establishing an Labuan banking account specifically, please contact one of the licensed Labuan Trust Companies.

WHAT INCENTIVES ARE OFFERED TO LABUAN BANKS?

Right of first refusal for Malaysian business, which means if any Malaysian company were to obtain services from banks other than the domestic banks, the company should approach Labuan banks first.

WHAT ARE THE PRUDENTIAL REQUIREMENTS?

The prudential guidelines issued by Labuan FSA pertain to capital adequacy, liquidity management, asset quality, concentration of credit, connected parties lending and internal auditors. Labuan banks are also required to submit to Labuan FSA on a regular basis their statement of assets and liabilities, liquidity report and size of loans and deposits.

WHAT PRODUCTS AND SERVICES ARE CURRENTLY OFFERED BY LABUAN BANKS?

Foreign currency credit facilities:

• Short term and long term financing
• Project financing
• Syndication/loan arrangement
• Standby letter of credit/bank guarantee
• Foreign exchange trading.
• Trade financing facilities.
• Foreign currency deposits
• Investment banking/advisory services (fee-based income)
• Project evaluation/feasibility studies
• Capital restructuring
• Private banking/portfolio fund management
• Correspondent banking (for Malaysian banks)

ARE THERE ANY LIMITATIONS?

A Labuan bank is prohibited from accepting cash deposits and from opening an account for a customer whose identity is unknown. The reason is to avoid Labuan banks from being used as a conduit for money laundering or other unwarranted illicit purpose.

In order to reduce risk associated with cross-border cheque clearing, a Labuan bank is not allowed to accept money on deposit or loan from a customer that is repayable on demand by cheque, draft, order or any other instrument drawn on it.

As of January 19, 2010, a Labuan bank can now open one or more co-located offices in any part of Malaysia. However, it must maintain its office and operations on Labuan.

CAN MALAYSIAN RESIDENTS OBTAIN LOANS FROM LABUAN BANKS?

Yes, they can subject to the guidelines issued by Bank Negara Malaysia (BNM), as follows:

• For an aggregate loan amount not exceeding MYR1 million, no approval by, or notification of, BNM is necessary
• For an aggregate amount exceeding MYR1 million but not exceeding MYR5 million, the applicant is required to inform BNM within 2 weeks from Letter of Offer
• For an aggregate loan amount exceeding MYR5 million (equivalent in foreign currency), approval from BNM is required (ECM10)

DO BUYERS AND SELLERS HAVE TO BE OUTSIDE MALAYSIA FOR LABUAN TRADE FINANCING TRANSACTIONS?

With respect to trade financing, the buyers and sellers can be outside of Malaysia and the underlying goods to be exported to or imported from other countries may also include Malaysia

CAN A LABUAN BANK PROVIDE A GUARANTEE ON FOREIGN DIRECT BORROWING OF A RESIDENT?

Yes, a Labuan bank may provide a guarantee on foreign direct borrowing of a resident. Residents are freely allowed to obtain foreign currency credit facilities from the Labuan banks in the aggregate up to MYR5 million, beyond which the approval of Bank Negara Malaysia is required.