KUALA LUMPUR: Bank Negara Malaysia (BNM) is further liberalising the foreign exchange administration rules by abolishing certain requirements that will take effect from Oct 1, as part of its efforts to reduce the cost of doing business in Malaysia.

According to its circular to the chief executive officers of licensed onshore banks, the central bank said that it would abolish five registration requirements and one reporting requirement, while granting greater flexibility for Islamic funds managed onshore, and for hedging of ringgit exposure by non-residents.

The abolition of the five registration requirements involves:

• Forward foreign exchange contracts by residents – The registration requirement on forward foreign exchange contracts exceeding RM50 million equivalent per contract for permitted capital account transactions and anticipatory current account transactions is abolished.

• Ringgit-denominated loans to non-residents for purchase or construction of immovable properties in Malaysia – The registration requirement on ringgit-denominated loans exceeding RM50 million extended by a resident to a non-resident to finance or refinance the purchase or construction of residential and commercial properties in Malaysia is abolished.

• Investment in foreign currency assets by residents – The registration requirement on investment in foreign currency assets exceeding RM50 million equivalent by a resident (individual or company on corporate group basis) without domestic ringgit borrowing is abolished.

• Foreign currency borrowing by residents

- The registration requirement on foreign currency borrowing in aggregate between RM50,000,001 and up to RM100 million equivalent by a resident company on corporate group basis from licensed onshore banks and non-residents is abolished.

- The registration requirement on foreign currency borrowing exceeding RM50 million equivalent by an Approved Operational Headquarters from licensed onshore banks and non-residents to finance its own operation is abolished.

- The registration requirement on foreign currency borrowing exceeding RM50 million equivalent by a resident company from another resident company within the same corporate group using proceeds from an initial public offering on foreign stock exchanges is abolished.

• Prepayment or repayment of foreign currency borrowing by residents – The registration requirement on prepayment exceeding RM50 million equivalent on permitted foreign currency borrowing from a non-resident lender is abolished. Repayment of foreign currency borrowing with no fixed tenure or repayment schedule is deemed to be a prepayment, and therefore, registration requirement is also abolished.

However, BNM said while the five registration requirements would be abolished, the approval requirements on these rules would remain unchanged.

It added that the requirement for the registration of financial guarantees issued by a resident to, or on behalf of, a non-resident, or a financial guarantee obtained by a resident from a non-resident, would continue to be applicable.

Meanwhile, the requirement on licensed onshore banks to submit a monthly report on the balances of foreign currency accounts of residents is also abolished with immediate effect.

To promote Malaysia as an Islamic financial centre and a centre for origination of syariah-compliant investment instruments, BNM will abolish the thresholds (50% of the net asset value (NAV) for unit trust companies and total funds attributable to residents with domestic ringgit borrowing for fund management companies) on investments of Islamic funds in foreign currency assets.

However, the investment in foreign currency assets by conventional funds managed by the unit trust and fund management companies continues to be subject to the existing thresholds of 50% of the NAV and the total funds attributable to resident clients with domestic ringgit borrowing.

To provide greater flexibility to non-resident investors in managing their ringgit exposure, the requirement for a non-resident to reinvest within seven working days, the proceeds arising from the sale of ringgit assets prior to the maturity of the forward foreign exchange contract in order to continue with the existing forward foreign exchange contract, is abolished.

With the abolition, a non-resident is allowed to continue with the existing forward foreign exchange contract entered with a licensed onshore bank for proceeds arising from the sale of ringgit assets sold prior to the maturity of the forward foreign exchange contract, as well as for income from the ringgit assets.

This is provided that the total amount of forward foreign exchange contract of the non-resident shall not exceed the total amount of ringgit assets held, including balances in his external account. The forward foreign exchange contract must be unwound or cancelled if the proceeds from the sale of ringgit assets are converted into foreign currency.

It is also provided that the maturity date of the forward foreign exchange contract shall not exceed the maturity date of the ringgit assets, where such assets have a defined maturity date.