01-05-2025
Labuan IBFC carving a new niche
KUALA LUMPUR: Labuan International Business and Financial Centre (Labuan IBFC) is banking on its Islamic digital asset ecosystem, captive insurance market and a planned climate credit exchange to carve out a 'niche' and remain globally competitive, even as it braces for slower leasing and trading activities in 2025 due to global uncertainties.
The special economic zone, which operates under the purview of the Labuan Financial Services Authority (Labuan FSA), added 168 new companies in the first quarter of this year – representing 25.7% of its full-year target of 653 to 654 entities.
This builds on the 9% growth recorded in 2024 when 627 companies were incorporated, up from 575 the previous year.
'This sets a positive tone for the months ahead,' said Labuan FSA director-general Nik Mohamed Din Nik Musa during the launch of the 'Labuan IBFC Market Report 2024' yesterday.
New incorporations in 2024 were primarily from the Asia-Pacific region (60%), followed by the Far East (21%), Europe (10%), the Americas (7%) and the Middle East and Africa (2%).
As at end-2024, Labuan IBFC hosted 4,785 companies – with 65% from the Asia-Pacific region.
However, Nik Mohamed Din cautioned that leasing and international trading activities are expected to soften in 2025, particularly those linked to oil and gas (O&G).
'We anticipate a slight moderation in the leasing, particularly because one will be the leasing of ships carrying O&G,' he said.
'Given that the price of O&G now is not as high as before, we foresee that trading for the demand of O&G will also moderate.'
He added that the Labuan International Trading Company segment, where 99% of activity involves oil and liquefied natural gas or LNG, will likely face a slowdown amid continued price volatility.
Leasing activities remained flat in 2024, with total leased assets amounting to US$36.8bil compared to US$36.6bil in 2023.
Aviation leasing accounted for the largest share at US$22.8bil or 62.1% of the total.
Revenue from leasing jumped 69.3% year-on-year to US$1.6bil, while pre-tax profit surged 152.3% to US$654.6mil.
Eight new leasing companies were licensed, bringing the total to 195.
Meanwhile, the Labuan banking sector continued to show resilience, backed by net interest income gains from high interest rates, though overall profitability fell by 27.3% due to a sharp rise in loan impairments.
The total loan portfolio declined 9% to US$19bil, while deposits fell 27.4% to US$4.9bil due to reduced resident deposits.
The banking sector's assets contracted slightly to US$47.7bil, though investments rose 78.6% to US$9.4bil as banks shifted towards bonds and securities.
Nik Mohamed Din said four new banking licences were issued in 2024, bringing the total to 72. 'Labuan banks demonstrated resilience and maintained stable net interest income,' he noted.
Islamic banking remained steady with assets above US$1.6bil, even as financing dipped 8.3%.
Nik Mohamed Din highlighted the Islamic Digital Asset Centre, launched in 2022, as a key driver of Labuan's competitive edge.
'We want to help Labuan create a complete ecosystem for the Islamic digital asset market,' he said.
He added that Labuan is developing a risk-sharing, profit-sharing environment within the Islamic capital market to support tokenised instruments aligned with syariah principles.
'We feel it is the way to distinguish Labuan from other countries – by creating a niche with Islamic tokens.'
Additionally, on the environmental, social and governance front, he said a new climate credit exchange is also in the pipeline.
'Next week, there will be the issuance of a common credit circular,' he said.
Meanwhile, Nik Mohamed Din said Labuan is positioning itself as one of Asia's most important captive insurance hubs, with over 70 entities already established in the jurisdiction.
He added that Labuan FSA is actively reviewing and updating regulatory frameworks to make its captive insurance offering more innovative and attractive to multinational companies seeking risk management solutions.
'So, the team is always looking at how we want to enhance the regulation, modernise it even further to make the structure more innovative, more attractive to companies around the world wanting to sell captive,' he said.
Labuan's captive insurance segment continued to expand, with licensed entities rising 16.4% to 71 in 2024, supported by regulatory enhancements and demand for alternative risk solutions.
Nik Mohamed Din noted that growth was driven by demand from the Asia-Pacific region, with captives offering greater cost efficiency, flexibility and control over underwriting and claims.
In 2024, Labuan IBFC posted a total pre-tax profit of US$2.56bil – a 35.8% drop from US$3.99bil the previous year, which itself was 34.1% lower than in 2022.
Despite the profit slump, total assets grew 7.5% to US$89.57bil from US$83.34bil in 2023.
Return on assets declined to 2.9%, down from 4.8% in 2023 and 7.4% in 2022.
Employment within Labuan IBFC rose for the third consecutive year to 5,006 in 2024, compared to 4,825 in 2023 and 4,224 in 2022.
