With 2006 marking LOFSA's tenth year, the regulator says that growth of offshore companies has been steady in Labuan since 1996, with a continuous inflow of approximately 500-600 companies being incorporated annually.

The recent thrust of policies has been directed at further strengthening Labuan’s capacity and diversity of business activities to enhance its global stature and competitiveness, while preserving its reputation as a credible offshore centre for quality and genuine institutions.

Recent measures implemented by LOFSA have therefore been aimed at maintaining a market-oriented and investor-friendly environment within a pragmatic legislative framework and competitive taxation structure.

In 2005, the number of offshore companies registered in the Labuan IOFC rose by 532, bringing the total of registered offshore companies to 5,152 as at end-December 2005. Of these, 3,067 were operating companies. The offshore companies originated from almost 80 countries, reflecting the international stature of the Labuan IOFC.

Offshore insurance activities continued to be a key business activity in the Labuan IOFC. A total of 12 new licences were approved in 2005, bringing the total number of licencees to 112. There was also progress in captive insurance, an area of focus for LOFSA, with the approval of eight new captive insurers in 2005, bringing the total number to 29. Shares held by foreigners increased from USD105.9 million in 2004 to USD134.4 million in 2005, in line with LOFSA’s objective of attracting more foreign investments as a strategy towards enhancing the capacity of the insurance industry in Labuan.

The offshore banking industry in Labuan IOFC remained vibrant, with a total of 59 offshore banks operating during the year under review. Out of this, ten are investment banks. The offshore banking industry recorded profits before tax of USD241.5 million for the year under review.

There was also greater participation of non-resident businesses in both deposits and loans, in line with LOFSA’s efforts of encouraging more “out-out” business in the Labuan IOFC.

There was additionally expansion in other offshore business activities. The establishment of nine new offshore leasing companies in 2005 brought the total number of offshore leasing companies - whose transactions mainly emanated from the leasing of aircrafts, vessels and equipment relating to oil and gas- to 69.

In offshore fund management, in 2005 three new private funds were given consent and one had its license revoked due to non-compliance, bringing the total number of registered private funds to 18. Two of these funds are Shariah-compliant. The fund management industry was serviced by 17 fund managers.

Eleven offshore companies were incorporated in Labuan in 2005 to raise foreign debt. Of these, eight were listed on the Labuan International Financial Exchange (LFX) with a cumulative market capitalisation of USD2.4 billion, which brought the total number of listings on the LFX to 31, with an aggregate market capitalisation of USD12.5 billion. Listings for the year under review included debt and equity-linked instruments and Islamic debt certificates (Sukuk), as well as first preference shares. The Malaysian Government and domestic corporations, including Government-Linked Companies, formed the major group of issuers.

Efforts continued to be directed at further developing Islamic banking in Labuan, in line with the strategic move to promote Islamic finance in the Labuan IOFC, to strengthen Malaysia’s position as an international Islamic financial hub. In 2005, there were three full-fledged Islamic offshore banks and three Islamic investment banks operating in Labuan. As at end-2005, the total Islamic banking assets of the industry, including those of conventional offshore banks with Islamic windows, accounted to USD708.9 million (2004: USD678.7 million), and represented 3.9% of the total assets of the offshore banking industry (2004: 3.4%).

Twenty trust companies operated in Labuan during the year under review to provide registration, secretarial and other services to the offshore companies.

LOFSA recorded a total income of RM18.5 million for the year ended 31 December 2005 (2004: RM17.7 million). The surplus recorded was RM3.3 million (2004: RM3.8 million).

For the next five years till 2010, LOFSA’s broad goal is to develop Labuan IOFC as an ‘out-out’ regional offshore financial centre. The focus is to increase the percentage of non-resident ownership of offshore companies and non-resident business to 70% from the present 50%. The number of offshore companies operating in the Labuan IOFC is expected to grow at least 10% per annum.

By 2010, total loans and deposits in the offshore banking sector is targeted to increase by 15%. Gross premiums for offshore insurance and assets leased are expected to increase by the same quantum.

Capital market activities will also be further encouraged. Growth in corporate advisory services for cross-border merger and acquisition exercises and passive investment transactions and its ancillary funding requirements will be given emphasis. To increase the aggregate size of assets under management (AUM) domiciled in Labuan IOFC, the various forms of fund management such as fund of funds, and private equity will be encouraged, together with the introduction of innovative asset classes derived from the various regional markets.

Promotion of Islamic finance will remain a core agenda, to support the overall effort to develop a comprehensive Islamic financial system in Malaysia and to position itself as an international Islamic financial centre. It is hoped that the share of offshore Islamic assets will increase to 10% of the total market assets.