29/09/2019 11:58 AM

By Massita Ahmad

SINGAPORE, Sept 29 -- The Labuan International Business and Financial Centre (IBFC),  which was established 29 years ago, has continued to become a financial and business jurisdiction of choice in Asia.

The centre, which offers a wide range of business and investment structures to facilitate cross-border transactions, business dealings and wealth management needs, registered an overall commendable performance in the first half of 2019.

 The Labuan IBFC has recorded a 23 per cent increase in total deposits in the Labuan banking system amounting to US$10 billion, via the 55 banking licence holders registered with the Labuan Financial Services Authority (FSA) in the first half of this year.

During the period, the jurisdiction was also being utilised by Malaysian and foreign bankers to facilitate loan and asset growth related to the Asian region with 62.5 per cent of loans and 48.5 per cent of deposits coming from foreign sources.

"Clearly this indicates that there is continued confidence in Labuan IBFC as a jurisdiction of choice for Asian-related banking services," said Labuan FSA director-general Danial Mah Abdullah in an exclusive interview with Bernama on its first-half performance here.

According to Mah, there are now 217 licensees in the insurance and re-insurance sector in the Labuan IBFC and that "this growth is further bolstered by the higher retention ratio of 64.5 per cent compared to 59.1 per cent at the same time last year."

"And with foreign premiums standing close to 60 per cent of all premiums written in Labuan IBFC, this again highlights the role the jurisdiction is playing in managing the risk of the growing Asian economies," said Mah.

"As an extension of this prominence in risk management is our growth in captive insurance, with four new captives approved in Labuan IBFC between January to June 2019, totalling 51 captives registered in the jurisdiction as of June 2019,” he said.

This represents a growth of 8.5 per cent year-on-year and is significant when contrasted with the fact that for the whole of 2018, six captives were approved, he said. 

In addition, he noted that both the wealth management and digital sectors also continue to grow in the Labuan IBFC with the total number of active foundations reaching 178, a growth of 15 per cent year-on-year, while the number of digital licensees to date stands at over 20.

"We can expect more licences to be issued in the second half of the year," said Mah.

The jurisdiction recorded significant growth in the first half of the year despite having to make some adjustments, especially with the roll-out of the economic substance requirements for all licensed activities being conducted in the financial centre. 

Mah said the players and service providers are getting used to the new requirements, noting that having a physical office with a minimum number of staff on the payroll, one of the requirements, will take some time. 

"These changes affect all IFCs so Labuan IBFC is not alone in undergoing these changes, but having said that we are still ahead of the more traditional offshore centres," he said.

Mah highlighted that although the Labuan IBFC is considered as a mid-shore centre, many of the requirements which are being introduced in other jurisdictions have already taken effect in the Labuan IBFC.

On the impact of the crisis in Hong Kong on the Labuan IBFC, Mah said he hopes to see holistic economic growth in Asia, believing in win-win situations for all Asian centres.

"The growth in Labuan IBFC has been consistent over the last 10 years and we believe overall there is a “flight to quality” among users of IFCs globally that is and will continue to benefit Labuan IBFC,” he said. 

Mah said it is hard to estimate how much of the growth is organic and inorganic, including from the spill-over from the challenges Hong Kong is currently undergoing.

"Also, it is important to understand that IFCs as centres of wholesale financial intermediation and services rely on one another in order to operate within the global marketplace," he said. 

In Asia, there are effectively only three such centres, namely the Labuan IBFC, Singapore and Hong Kong.

"Thus, you can imagine that all three centres play an important role in the intermediation of trade, finance and business in the region, hence should the situation in Hong Kong continue to be challenging, the fear is that it will negatively impact the growth of Asia as a whole, and that in turn will affect all IFCs in Asia,” he said.

On the Labuan IBFC’s stance in competing with Singapore for a share of the regional business flow and intermediation, Mah said: "Singapore is not a competitor to Labuan IBFC, we have never considered Singapore a competitor.

"In fact, the reverse is true, only with the continued growth of Singapore as an IFC can Labuan IBFC benefit as we play a complementary role to that of Singapore and other centres in Asia," he said.

Looking ahead, the director-general is optimistic for the whole year of 2019 for the Labuan IBFC, "barring any unforeseen circumstances which will drastically change the economic situation globally and in Asia."

In 2018, there were 58 company secretaries -- trust and corporate service providers -- in Labuan, an increase of 150 per cent from 23 in 2008.

"This represents an annual growth rate of 10 per cent. So clearly these entities believe in the jurisdiction and its potential to invest and set up businesses in Labuan IBFC," said Mah.

Declared as an IBFC on Oct 1, 1990, the Labuan IBFC contributed 51.4 per cent to the Island's Gross Domestic Product (GDP) followed by the oil and gas sector.

The Labuan IBFC is now considered as one of the commendable IBCs in the Asia Pacific region.

Confidence in the Labuan IBFC remains strong and the centre has been posting an average of about 10 per cent growth year-on-year with more than 70 per cent of the companies originating from Asia.

In 1996, the total number of companies incorporated was only 937, but today the number has grown to over 15,700 with more than 900 licensed institutions comprising banks, insurance and insurance-related companies, trust companies, leasing companies, and wealth management vehicles such as foundations and trusts.



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