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By Jailani Hasan
LABUAN, May 5 -- The Labuan International Business and Financial Centre (IBFC) remains resilient while demonstrating respectable growth across sectors, despite facing unprecedented challenges due to the COVID-19 pandemic.
In this regard, Labuan Financial Services Authority (Labuan FSA) had played a vital role in ensuring that the industry embraces technological advancements, providing regulatory reliefs wherever required by the market, and introducing new business models to better align businesses to the new norms.
Notwithstanding the pandemic and the changes in the tax landscape, Labuan IBFC and its ecosystem remained as an attractive market for wholesale financial intermediation within the region, with more than 800 licensed financial institutions currently operating in the economic zone.
In a statement to Bernama in conjunction with the release of the Labuan IBFC Market Report 2020 today, the Labuan FSA said the encouraging growth was also evident in the performance of investment banking, reinsurance, fund management, digital financial services and leasing.
“Labuan FSA’s enhanced digital infrastructure -- including the facility for online company incorporations, e-payment system, e-client onboarding and regulatory submissions -- has enabled the industry to operate with minimal disruption in times of uncertainty,” it said.
Due to a combination of factors, including the COVID-19 pandemic and the introduction of economic substance regulation, the number of non-licensed companies moderated by about 30 per cent in 2020.
Coupled with higher deregistration, total active Labuan companies stood at 5,802.
In the wholesale banking sphere, the global market uncertainty in 2020 had adversely affected Labuan banks’ financing and investments, with significant provisioning for possible loan defaults and investment impairments.
Total loan portfolios contracted by 2.7 per cent to US$25 billion, particularly in resident loans due to the non-deductibility requirement imposed on resident borrowers under the revised Labuan tax framework.
However, the Labuan market is seeing increasing potential in the digital banking space, where four out of eight recipients of new banking licences granted in 2020 are conducting their business via the digital platform.
Meanwhile, the insurance sector remained resilient, largely driven by captive and reinsurance business, and had demonstrated better performance and profitability.
Total premiums underwritten increased by 6.7 per cent to US$1.6 billion, with total gross premiums recording 8.7 per cent growth in 2020.
“This steady growth is attributed to the heightened understanding on the business merits of self-insurance solutions in Asia,” it said.
However, the Labuan FSA noted the domino effect of the economic slowdown and imposition of travel restrictions, which had knock-on effects on the Labuan aviation leasing business.
“While the total industry leased assets declined by 9.9 per cent to US$40.7 billion, stabilisation in global oil prices coupled with increasing oil and gas activities saw this sector growing by 196.5 per cent to US$1.5 billion in 2020,” it said.
Meanwhile, it said the number of establishments offering digital financial services (DFS) has doubled, with 30 new DFS licences granted.
In tandem with the market trend, the Labuan DFS’ activities also expanded -- from simple digital trading platforms for fiat or digital currencies, to more complex digital banking and digital assets.
With the expansion of digital and virtual transactions, Labuan FSA is emphasising the criticality of the industry’s cyber resilience.
“To this end, Labuan FSA will be issuing digital governance regulations to ensure the needed business prudency for the centre’s expanding DFS business,” it added.
Moving forward, the Labuan FSA has charted a three-year roadmap (2021-2023) to enhance the Labuan IBFC’s sustainability and relevancy.
The strategic plan comprises four key priorities, namely, expanding and strengthening Labuan IBFC’s financial ecosystem; regulatory and supervisory modernisation; visibility enhancement and branding strategy; and enhancing organisational reputation and delivery efficiencies.
“Labuan FSA is committed to intensifying business growth by realigning policies and guidelines in tandem with new market development, including enhancing business in the digital space.
“As Labuan IBFC matures into the next phase, and with the co-existence of over 800 licensees conducting a wide spectrum of business activities, it is important for the centre to promote the intra-Labuan business as more synergies between market players are realised,” it added.