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Brunei : Brunei Darussalam Banking Profile 2011

2011/07/22

Brunei is served by ten banks, many of which are branches of major global players. Competition among the banks is very stiff as they battle to carve out a bigger chunk of Brunei's 300,000-population market for themselves.

In addition, there are four finance companies in operation to supplement the banks in providing financial services to Brunei residents.

The banks in Brunei are:

• Baiduri Bank Berhad
• Citibank NA
• HSBC
• Islamic Bank of Brunei (IBB) Berhad
• Islamic Development Bank of Brunei Berhad
• Malayan Banking Berhad
• RHB Bank Bhd
• Standard Chartered Bank
• Tabung Amanah Islam Brunei
• United Overseas Bank (UOB)

Finance companies are

• Baiduri Finance Berhad
• HSBC Finance (Brunei) Bh
• IBB Kredit Bhd
• Tabung Amanah Islam Brunei

Brunei banks have coped with the increasingly robust competition by introducing new products. But in venturing to advance their businesses, banks in Brunei also play a complementary role in the government's effort to revive the local economy.

For instance, the $20-million Working Capital Credit Fund is part of the measures under the short-term Economic Recovery Plan by the Economic Council's Secretariat.

The plan provides Small and Medium Enterprises (SMEs) with access to low-interest Government-backed loans to improve their liquidity and capability to take part in economic recovery projects, as well as to undertake productive economic activities.

In 2001, the Brunei banking and finance industry accounted for 5 per cent of the country's Gross Domestic Product (GDP), amounting to $389 million.

The government of His Majesty is committed toward expanding the industry even further by promoting the country as an International Offshore Financial Centre (IOFC), while boosting its stature as a major player in Islamic banking and insurance.

Brunei Darussalam has no central bank and the government via the Banking Acts and Finance Companies Act regulates the local banking industry.

The Ministry of Finance, through its Financial Institutions Division meanwhile regulates all banking activities to ensure "a stable and fiscally sound business environment" while its Brunei Currency Board is responsible for issuing and managing the local currency.

The Brunei Association of Banks meanwhile sets the prime lending rates in the Sultanate. The Brunei dollar is on par with the Singapore dollar, and both currencies are freely traded in the respective countries.

There is no foreign exchange control in Brunei as local banks allow non-resident accounts to be maintained and there is no restriction on borrowing by non-residents.

The Sultanate, offers financial investors four types of banking licences and has incorporated laws that protect investors against money laundering with a financial expert putting it succinctly, "If you're a criminal, Brunei is not for you."

The four types of banking licence comprise full international banking, international investment banking, international Islamic banking and a restricted banking licence.

The country's 340,000 residents who have a GDP per capita of US$13,500, is proof that Bruneians have strong purchasing power.

Furthermore, the government-run Brunei Investment Agency (BIA) has many revenue sources as it seeks to invest country's wealth, which comes from the country's oil and gas revenue, the workers' provident fund (TAP) and numerous other sources of income.

A local entrepreneur commented that all these reasons are "an attractive bait for fund managers considering setting up in Brunei".

It is probably due to these reasons that the Royal Bank of Canada (RBC) - the first institution to win the BIFC's foreign bank licence - opened a branch here in July 2002.

The positive outlook of Brunei's economic future - helped by the introduction of the ASEAN Free Trade Agreement (AFTA); close proximity to the large markets of China and Northeast Asia, as well as India and the Asian sub-continent; and bright prospects for strong economic growth within the region - makes the country a potential gold mine for financial investors.

The local banks, through their financial facilities, participate actively to promote domestic economic activity.

Coupled with "continuous support" from the government to realise local enterprise, the prospects for economic development in Brunei are expected to improve in the years to come.

With Islam as the main religion in the country, it is not surprising to note that Islamic banking is very big in Brunei.

Islamic banking means providing banking products and services based along the lines of Islamic Syariah laws - the simplest being the absence of trade in items prohibited in Islam like alcohol, gambling and non-halal foodstuff, as well as usury in all transactions.

As His Majesty the Sultan and Yang Di-Pertuan of Brunei Darussalam declared when launching the Islamic Bank of Brunei Berhad (IBB) in 1993, "the establishment of IBB is one of the ways of applying Islamic practices into the financial administration and management of the country."

The Islamic financial system employs the "concept of participation in the enterprise, utilising the funds at risk on a profit-and loss-sharing basis."

However, this does not mean that investments with Islamic financial institutions are pure speculation; careful investment policy, diversification of risks and prudent management could ensure profitable returns.

It is estimated that Islamic banking globally are managing between US$200 billion to US$500 billion in funds today.

The sector grows at a rapid pace because of its "valueoriented ethos that enables it to draw finances from both Muslims and non-Muslims alike

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