Malaysia Loosens Exchange Controls

Malysia, which earned the opprobrium of the industry when it imposed exchange controls during the Asian Flu of 1997 98, today loosened them a little. The central bank, Bank Negara Malaysia (BNM), has announced a liberalization designed to make it

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Malysia, which earned the opprobrium of the industry when it imposed exchange controls during the Asian Flu of 1997-98, today loosened them a little.

The central bank, Bank Negara Malaysia (BNM), has announced a liberalization designed to make it easier for both residents and non-residents to raise ringgit funds. It has abolished the restriction on foreign-owned banks preventing them extending more than 50 per cent of all rinngit credit to non-resident companies (NRCC).In addition, the amount of ringgit credit that can be extended freely by residents to a NRCC is being raised from RM 10 million to RM50 million.

NRCCs are also being given the flexibility to compute their gearing ratio either on per corporate group basis or on single entity basis. While compliance with the 3:1 gearing ratio for domestic debt and eligible capital funds remains, the computation of domestic debt and eligible capital funds is being liberalized. In addition, the 3:1 gearing ratio is only applicable and computed on the amount of domestic borrowing that is in excess of the RM50 million limit.

The overnight limits on foreign currency account maintained by local resident exporters is also being liberalized. The maximum overnight limit of Foreign Currency Accounts (FCA) maintained by resident exporters with onshore commercial banks and Islamic banks is being raised to RM50 million from RM10 million.

The rules on hedging are being liberalized in stages. In addition to current rules allowing forward sales of export proceeds, residents will now be allowed to sell forward their foreign currency receivables for any purpose to authorized dealers provided the transaction is supported by firm and underlying commitment to receive such currency receivables and the tenure of the contract does not exceed 12 months.

The threshold for completing Form P for payments to non-residents by residents is increased to RM50,001 from RM10,001 or its equivalent foreign currency. Payments for overseas investment, including extension of loan to a non-resident, continue to require prior approval if the amount exceeds RM10,000 equivalent. However, the requirement to complete Form KPW X for exports in excess of RM100,000 f.o.b. is being abolished.

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