Application Requirements

An applicant should meet the following minimum criteria:

• Must be a bank or financial institution
• Possess a sound track record
• Accorded a good credit rating by acceptable rating agencies
• Supervised by a competent regulatory authority
• Conforms to generally accepted standards of international banking practices or BIS, as the case may be

An applicant is required to submit the prescribed Form L. The submission should include, but is not restricted to the following:

• The nature of business of the applicant
• The composition of its Board of Directors and senior management
• Audited financial statements for the last two years
• A three-year business plan, which should provide a detailed outline of its operations and strategies with regards to its Labuan entity
• Any other information relevant to the application

Licensing Requirements

The minimum requirements for the issuance of a licence are:

• A letter of awareness from a competent regulatory authority that supervises the applicant
• A letter of guarantee or undertaking or both from the parent company to be furnished to Labuan Financial Services Authority (Labuan FSA)
• Payment of an annual licence fee of MYR100,000
  

Operational Requirements

Upon issuance of the licence, the Labuan bank is required to:

• Comply with the statutory requirements under the Labuan Financial Services and Securities Act 2010
• Maintain a physical presence in Labuan
• Comply with the prudential and reporting requirements issued by Labuan FSA
• Carry on business in any currency other than the Malaysian currency, except as permitted by the relevant authorities
• Meet certain pre-determined criteria, should it prefer to co-locate 
• Conduct Islamic banking activities, which will allow it to open operational offices anywhere in Malaysia, and subject to the prior approval from Labuan FSA be exempt from maintaining an operational office in Labuan
• Adhere to any other requirements issued by Labuan FSA from time to time.

The total number of Labuan banks in operation was 57 as at end 2011 [2010: 56], comprising 42 banks and 15 investment banks. During the year, approval was granted to two new banks, namely a commercial bank and an investment bank originating from Australia and Ghana, respectively. The new banks in Labuan were set-up to complement the financial group structure and diversify products offerings, in line with the increased customer base and leveraging on growth opportunities in the region.

The Labuan banking sector has not been adversely affected by the global financial turmoil, given their small direct exposures to these economies. The banking sector’s asset base continued to grow as Labuan banks expand their business activities, particularly in providing loans and advances. Within the total of loans outstanding, the amount extended to non-residents continued to dominate the total market share, reflecting the strong interest from non-residents to obtain financing from Labuan banks. This is also in line with Labuan FSA aspirations to encourage the financial institutions to cater for international business out of the Labuan IBFC.

• Total assets increased by 13.0% to USD38.3 billion.
• Increase driven by demand in loans and advances of USD24.7 billion.
• Growing financing needs in the Asia Pacific economies in the region.

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 excluding the Malaysian Ringgit.

WHAT IS INVESTMENT BANKING?

Investment banking means the business of providing credit facilities, providing consultancy and advisory services relating to corporate and investment matters of making investments on behalf of any person. Other activities include undertaking foreign exchange transactions, interest rate swaps, dealings in derivative instruments or derivative financial instruments or any other similar risk management activities.

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 deposits or to provide withdrawals in cash; 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.

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.