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Liberalisation of Foreign Exchange Administration Policies

LIBERALISATION OF FOREIGN EXCHANGE ADMINISTRATION POLICIES (WITH EFFECT FROM 1 APRIL 2007)

Expanding the Scope of Licensed Onshore Banks¡¯ Foreign Currency Business

To provide greater flexibility to licensed onshore banks to undertake foreign currency business, the following foreign exchange administration rules are liberalized with effect from 1 April 2007:

(a) Abolish net open position limit of licensed onshore banks which was previously capped at 20% of the banks¡¯ capital base.

(b) Abolish the limit imposed on licensed onshore banks for foreign currency accounts maintained by residents.

(c) Allow investment banks in Malaysia to undertake foreign currency business subject to a comprehensive supervisory review on the capacity and capability of the investment banks.

Facilitating Investments in Ringgit Assets by Non-Residents in Promoting Malaysia as an Investment Destination

To widen the investor base for ringgit assets and financial products, the following foreign exchange administration rules are liberalised:

(a) Further flexibility for non-resident stockbroking companies and custodian banks to obtain ringgit overdraft facility from licensed onshore banks to avoid settlement failure due to inadvertent delays by:

(1) Removing the previous overdraft limit of RM200 million; and

(2) Expanding the scope on utilisation of the overdraft facility to include ringgit instruments settled through the Real Time Electronic Transfer of Funds and Securities (RENTAS) System and Bursa Malaysia. Previously, utilisation of the facility was confined only to shares traded on Bursa Malaysia.

(b) Abolish the limit on the number of residential or commercial property loans obtained by nonresidents. Under the previous policy, non-residents were allowed to obtain a maximum limit of three property loans from residents to finance the purchase or construction of residential or commercial properties in Malaysia.

(c) Allow licensed onshore banks to appoint overseas branches of their banking group as a vehicle to facilitate the settlement of any ringgit assets of their non-resident clients.

(d) Remove the restriction on Labuan offshore banks to transact in ringgit financial products on behalf of non-resident clients to enhance the role and scope of business of the Labuan offshore banks.

Enhancing Business Efficiency and Investment Opportunities for Residents

To reduce cost of doing business, enhance business efficiency as well as promote Malaysia as a centre of origination, the following foreign exchange administration rules are liberalised:

(a) Increase the limit of foreign currency borrowing that can be obtained by resident corporations from licensed onshore banks and non-residents as well as through issuance of onshore foreign currency bonds, to RM100 million equivalent in aggregate and on corporate group basis from the previous RM50 million equivalent. The proceeds may be used for domestic purposes or offshore investment.

(b) Allow residents to hedge foreign currency loan repayment up to the full amount of underlying

(c) Increased limit for resident individuals with domestic Ringgit borrowing to invest overseas to RM 1 million per calendar year from RM 100,000 previous.

(d) Increased limit for resident corporation with domestic Ringgit borrowing to invest overseas to RM 100 million per calendar year from RM 50 million previous.

(e) Allow resident corporation to utilize proceeds from initial public offer (IPO) on the Main Board of Bursa Malaysia abroad.

(f) Allow resident corporation to lend in foreign currency, the proceed from overseas listing to other resident corporations within the same group.

(g) Abolish restrictions on payments in foreign currency between residents for settlement of foreign currency financial products offered onshore

(h) Allow resident individuals to open and maintain joint foreign currency accounts for any purpose. Previously, such account were allowed only for education and employment purposes only.

(i) Increase the limit for residential investors to invest overseas as follows:

(1) 50% of net asset value (NAV) for unit trust companies (30% previously).

(2) 50% of resident clients' funds for fund management (30% previously).

(3) 50% of net asset value (NAV) of investment-linked funds marketed for insurance and takaful companies (30% previously).

For further information on the foreign exchange administration policies, details can be obtained from Bank Negara Malaysia?¡¥s website, http://www.bnm.gov.my/fxadmin

Source: BNM 2006 Annual Report

Posted Date: 17 Oct 2007

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