In 2008, Labuan IBFC maintained positive growth across all key business sectors, despite the more challenging global environment, and new measures were recorded to improve the flexibility and business-friendliness of its tax and legal framework, becoming effective in 2009 and beyond.
Company Incorporation
In 2008, company incorporation in the Labuan IBFC grew by 9.1% to 6,868 originating from a total of 85 countries, of which about 60% are from Asia Pacific region, mainly for investment holding purposes, special purpose vehicles, international financial activities and trading activities. The number is expected to increase further with the enhancement of its delivery process, reduction of annual fees from RM2,600 to RM1,500 and the upgrading of the online registration system and business approval process.
International Financial Services
After 10% growth to more than 300 registered financial institutions, the scope of Labuan IBFC products and services now includes banking, investment banking, leasing, insurance and insurance-related, both conventional and Islamic, broken down as follows:
Six new banking licenses were issued in 2008. The soundness of the Labuan banking industry is reflected in the quality of assets, strong capitalisation and earnings growth - the gross non-performing loans ratio reduced from 2.0% to 1.9%, an average risk-weighted capital ratio and core capital ratio at 15.9% was mainatained with total assets increasing by 7.5% to USD29.0bn; earnings grew by 28.2%.
Leasing
27 new leasing companies were approved in 2008. Leased assets grew by 22.9% to USD17.4 billion, underpinned by activities in oil and gas and aviation.
Insurance
During the year, 16 new licensees were approved, comprising two insurers, two reinsurers, two captives, nine insurance brokers and one underwriting manager. The insurance sector in Labuan achieved a significant growth in 2008 recording gross premiums of more than USD1bn. The net claims to earned premium income ratio of the industry improved significantly to 56.5% from 72.9% in 2007.
Foreign representation in the insurance sector continued to increase from 66.5% in 2007 to 69.5% in 2008. Similarly, the non-resident insurance business remained to have a higher share of 57% in 2008. This reflects favourably the out-out business conducted through Labuan IBFC.
The insurance industry maintained an aggregate solvency surplus of USD627.7m and margin of solvency of five times above the minimum regulatory requirement.
Captive insurance, a recognised niche business, saw premiums increase by 47% to USD186.9m. There were 32 captives insurers in Labuan IBFC as the end of 2008.
Islamic Financial Services
Retakaful gross contributions increased by 48.2% to USD162.3m, driven by four full-fledged retakaful operators and nine retakaful windows.
Five new Islamic private funds were established in 2008, with an approved fund size of USD1.5bn increasing the total Islamic private funds to USD2.8bn or one-third of the total size of private funds in Labuan IBFC.
The Islamic banking sector, comprising 6 Islamic banks and 3 banks with Islamic windows, saw total deposits grow to USD337.3m from USD250m in 2007.
LOFSA’s Financial Performance
For the year ended 31 December 2008, LOFSA recorded an increase in total income of MYR26.9m from MYR22.6m while total reserves stood at MYR29m at the year end.
Strategic Initiatives implemented in 2008 and future outlook
In order to enhance LOFSA’s regulatory function and corporate governance, a separate marketing entity, Labuan IBFC Incorporated Sdn Bhd was established to undertake more focused marketing activities for the Labuan IBFC.
Labuan companies can now elect to be taxed under the Income Tax Act 1967 or the Labuan Offshore Business Activity Tax Act 1990, to reinforce the business-friendliness and flexibility of Labuan IBFC.
As part of the strategy to further facilitate the use of Labuan as the platform for investment into Malaysia and the region, LOFSA has also simplified the procedures for Labuan companies to deal with residents and invest into a domestic company.
Future Outlook
LOFSA is committed to maintaining Labuan IBFC as a preferred international business and financial centre of high integrity and repute and improving the facilitative environment.
Legislation for a new improved legal framework is expected to be tabled in the coming Parliament session. LOFSA will complete upgrading the on-line company registration system in 2009 improving its speed and user-friendliness.
With effect from 1 June 2009, Labuan holding companies will be accorded the extra flexibility to have a physical presence in Kuala Lumpur. Similarly, Labuan banking institutions and insurance companies that meet the predetermined criteria will also be allowed to have a physical presence onshore from 2010 and 2011, respectively.
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