Capital Markets and Portfolio Investment

The Australian Government takes a favorable stance towards foreign portfolio investment with no restrictions on inward flows of debt or equity. Indeed, access to foreign capital markets is crucial to the Australian economy given its relatively small domestic savings. Australian capital markets are generally efficient and able to provide financing options to businesses. While the Australian equity market is one of the largest and most liquid in the world, non-financial firms face a number of barriers in accessing the corporate bond market. Large firms are more likely to use public equity, and smaller firms are more likely to use retained earnings and debt from banks and intermediaries. Australia’s corporate bond market is relatively small, driving many Australian companies to issue debt instruments in the U.S. market. Foreign investors are able to obtain credit from domestic institutions on market terms. Australia’s stock market is the Australian Securities Exchange (ASX).

Money and Banking System

Australia’s banking system is robust, highly evolved, and international in focus. Bank profitability is strong and has been supported by further improvements in asset performance. Total assets of Australian banks at the end of 2020 was USD4.1 trillion and the sector has delivered an annual average return on equity of around 10 percent.

According to Australia’s central bank, the Reserve Bank of Australia (RBA), the ratio of non-performing assets to total loans was approximately one percent at the end of 2020, having remained at around that level for the last five years after falling from highs of nearly two percent following the Global Financial Crisis. The RBA is responsible for monitoring and reporting on the stability of the financial sector, while the Australian Prudential Regulatory Authority (APRA) monitors individual institutions. The RBA is also responsible for monitoring and regulating payments systems in Australia.

Further details on the size and performance of Australia’s banking sector are available on the websites of the Australian Prudential Regulatory Authority (APRA) and the RBA:  https://www.apra.gov.au/statistics  https://www.rba.gov.au/chart-pack/banking-indicators.html 

Foreign banks are allowed to operate as a branch or a subsidiary in Australia. Australia has generally taken an open approach to allowing foreign companies to operate in the financial sector, largely to ensure sufficient competition in an otherwise small domestic market.

Foreign Exchange and Remittances

Foreign Exchange

The Commonwealth Government formulates exchange control policies with the advice of the Reserve Bank of Australia (RBA) and the Treasury. The RBA, charged with protecting the national currency, has the authority to implement exchange controls, although there are currently none in place.

The Australian dollar is a fully convertible and floating currency. The Commonwealth Government does not maintain currency controls or limit remittances. Such payments are processed through standard commercial channels, without governmental interference or delay.

Remittance Policies

Australia does not limit investment remittances.

Sovereign Wealth Funds

Australia’s main sovereign wealth fund, the Future Fund, is a financial asset investment fund owned by the Australian Government. The Fund’s objective is to enhance the ability of future Australian Governments to discharge unfunded superannuation (pension) liabilities. As a founding member of the International Forum of Sovereign Wealth Funds (IFSWF), the Future Fund’s structure, governance, and investment approach is in full alignment with the Generally Accepted Principles and Practices for Sovereign Wealth Funds (the “Santiago principles”).

The Future Fund’s investment mandate is to achieve a long-term return of at least inflation plus 4-5 percent per annum. As of December 2020, the Fund’s portfolio consists of: 29 percent global equities, 7 percent Australian equities, 28 percent private equity (including 7 percent in infrastructure), and the remaining 36 percent in debt, cash, and alternative investments.

In addition to the Future Fund, the Australian Government manages five other specific-purpose funds: the DisabilityCare Australia Fund; the Medical Research Future Fund; the Emergency Response Fund; the Future Drought Fund; and the Aboriginal and Torres Strait Islander Land and Sea Future Fund. In total, these five funds have assets of AUD 47 billion (USD 37 billion), while the main Future Fund has assets of AUD 171 billion (USD 132 billion) as of December 31, 2020.

Further details of these funds are available at: https://www.futurefund.gov.au/ 

Capital Markets and Portfolio Investment

Capital markets in Bangladesh are still developing, and the financial sector remains highly dependent on bank lending. Current regulatory infrastructure inhibits the development of a tradeable bond market.

Bangladesh is home to the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE), both of which are regulated by the Bangladesh Securities and Exchange Commission (BSEC), a statutory body formed in 1993 and attached to the Ministry of Finance. As of February 2021, the DSE market capitalization stood at $54.8 billion, rising 35.8 percent year-over-year bolstered by increased liquidity and some sizeable initial public offerings.

Although the Bangladeshi government has a positive attitude toward foreign portfolio investors, participation in the exchanges remains low due to what is still limited liquidity for shares and the lack of publicly available and reliable company information. The DSE has attracted some foreign portfolio investors to the country’s capital market. However, the volume of foreign investment in Bangladesh remains a small fraction of total market capitalization. As a result, foreign portfolio investment has had limited influence on market trends and Bangladesh’s capital markets have been largely insulated from the volatility of international financial markets. Bangladeshi markets continue to rely primarily on domestic investors.

In 2019, BSEC undertook a number of initiatives to launch derivatives products, allow short selling, and invigorate the bond market. To this end, BSEC introduced three rules: Exchange Traded Derivatives Rules 2019, Short-Sale Rules 2019, and Investment Sukuk Rules 2019. Other recent, notable BSEC initiatives include forming a central clearing and settlement company – the Central Counterparty Bangladesh Limited (CCBL) – and promoting private equity and venture capital firms under the 2015 Alternative Investment Rules. In 2013, BSEC became a full signatory of the International Organization of Securities Commissions (IOSCO) Memorandum of Understanding.

BSEC has taken steps to improve regulatory oversight, including installing a modern surveillance system, the “Instant Market Watch,” providing real time connectivity with exchanges and depository institutions. As a result, the market abuse detection capabilities of BSEC have improved significantly. A mandatory Corporate Governance Code for listed companies was introduced in 2012 but the overall quality of corporate governance remains substandard. Demutualization of both the DSE and CSE was completed in 2013 to separate ownership of the exchanges from trading rights. A majority of the members of the Demutualization Board, including the Chairman, are independent directors. Apart from this, a separate tribunal has been established to resolve capital market-related criminal cases expeditiously. However, both domestic and foreign investor confidence remains low.

The Demutualization Act 2013 also directed DSE to pursue a strategic investor who would acquire a 25 percent stake in the bourse. Through a bidding process DSE selected a consortium of the Shenzhen and Shanghai stock exchanges in China as its strategic partner, with the consortium buying the 25 percent share of DSE for taka 9.47 billion ($112.7 million).

According to the International Monetary Fund (IMF), Bangladesh is an Article VIII member and maintains restrictions on the unapproved exchange, conversion, and/or transfer of proceeds of international transactions into non-resident taka-denominated accounts. Since 2015, authorities have relaxed restrictions by allowing some debits of balances in such accounts for outward remittances, but there is currently no established timetable for the complete removal of the restrictions.

Money and Banking System

The Bangladesh Bank (BB) acts as the central bank of Bangladesh. It was established on December 16, 1971 through the enactment of the Bangladesh Bank Order of1972. General supervision and strategic direction of the BB has been entrusted to a nine–member Board of Directors, which is headed by the BB Governor. A list of the bank’s departments and branches is on its website: https://www.bb.org.bd/aboutus/dept/depts.php .

According to the BB, four types of banks operate in the formal financial system: State Owned Commercial Banks (SOCBs), Specialized Banks, Private Commercial Banks (PCBs), and Foreign Commercial Banks (FCBs). Some 61 “scheduled” banks in Bangladesh operate under the control and supervision of the central bank as per the Bangladesh Bank Order of 1972. The scheduled banks, include six SOCBs, three specialized government banks established for specific objectives such as agricultural or industrial development or expatriates’ welfare, 43 PCBs, and nine FCBs as of February 2021. The scheduled banks are licensed to operate under the Bank Company Act of 1991 (Amended 2013). There are also five non-scheduled banks in Bangladesh, including Nobel Prize recipient Grameen Bank, established for special and definite objectives and operating under legislation enacted to meet those objectives.

Currently, 34 non-bank financial institutions (FIs) are operating in Bangladesh. They are regulated under the Financial Institution Act, 1993 and controlled by the BB. Of these, two are fully government-owned, one is a subsidiary of a state-owned commercial bank, and the rest are private financial institutions. Major sources of funds for these financial institutions are term deposits (at least three months’ tenure), credit facilities from banks and other financial institutions, and call money, as well as bonds and securitization.

Unlike banks, FIs are prohibited from:

• Issuing checks, pay-orders, or demand drafts.
• Receiving demand deposits.
• Involvement in foreign exchange financing.

Microfinance institutions (MFIs) remain the dominant players in rural financial markets. According to the Bangladesh Microcredit Regulatory Authority, as of June 2019, there were 724 licensed micro-finance institutions operating a network of 18,977 branches with 32.3 million members. Additionally, Grameen Bank had nearly 9.3 million microfinance members at the end of 2019 of which 96.8 percent were women. A 2014 Institute of Microfinance survey study showed that approximately 40 percent of the adult population and 75 percent of households had access to financial services in Bangladesh.

The banking sector has had a mixed record of performance over the past several years. Industry experts have reported a rise in risky assets. Total domestic credit stood at 46.8 percent of gross domestic product at end of June 2020. The state-owned Sonali Bank is the largest bank in the country while Islami Bank Bangladesh and Standard Chartered Bangladesh are the largest local private and foreign banks respectively as of December 2020. The gross non-performing loan (NPL) ratio was 7.7 percent at the end of December 2020, down from 9.32 percent in December 2019. However, the decline in the NPLs was primarily caused by regulatory forbearance rather than actual reduction of stressed loans. Following the outbreak of COVID-19 in 2020, the central bank directed all banks not to classify any new loans as non-performing till December 2020. Industry contacts have predicted reported NPLs will demonstrate a sharp rise after the exemption expires unless the central bank grants additional forbearance in alternate forms. At 22.5 percent SCBs had the highest NPL ratio, followed by 15.9 percent of Specialized Banks, 5.9 percent of FCBs, and 5.6 percent of PCBs as of September 2020.

In 2017, the BB issued a circular warning citizens and financial institutions about the risks associated with cryptocurrencies. The circular noted that using cryptocurrencies may violate existing money laundering and terrorist financing regulations and cautioned users may incur financial losses. The BB issued similar warnings against cryptocurrencies in 2014.

Foreign investors may open temporary bank accounts called Non-Resident Taka Accounts (NRTA) in the proposed company name without prior approval from the BB in order to receive incoming capital remittances and encashment certificates. Once the proposed company is registered, it can open a new account to transfer capital from the NRTA account. Branch, representative, or liaison offices of foreign companies can open bank accounts to receive initial suspense payments from headquarters without opening NRTA accounts. In 2019, the BB relaxed regulations on the types of bank branches foreigners could use to open NRTAs, removing a previous requirement limiting use of NRTA’s solely to Authorized Dealers (ADs).

Foreign Exchange and Remittances

Foreign Exchange

Free repatriation of profits is allowed for registered companies and profits are generally fully convertible. However, companies report the procedures for repatriating foreign currency are lengthy and cumbersome. The Foreign Investment Act guarantees the right of repatriation for invested capital, profits, capital gains, post-tax dividends, and approved royalties and fees for businesses. The central bank’s exchange control regulations and the U.S.-Bangladesh Bilateral Investment Treaty (in force since 1989) provide similar investment transfer guarantees. BIDA may need to approve repatriation of royalties and other fees.

Bangladesh maintains a de facto managed floating foreign exchange regime. Since 2013, Bangladesh has tried to manage its exchange rate vis-à-vis the U.S. dollar within a fairly narrow range. Until 2017, the Bangladesh currency – the taka – traded between 76 and 79 taka to the dollar. The taka has depreciated relative to the dollar since October 2017 reaching 84.95 taka per dollar as of March 2020, despite interventions from the Bangladesh Bank from time to time. The taka is approaching full convertibility for current account transactions, such as imports and travel, but not for financial and capital account transactions, such as investing, currency speculation, or e-commerce.

Remittance Policies

There are no set time limitations or waiting periods for remitting all types of investment returns. Remitting dividends, returns on investments, interest, and payments on private foreign debts do not usually require approval from the central bank and transfers are typically made within one to two weeks. Some central bank approval is required for repatriating lease payments, royalties and management fees, and this process can take between two and three weeks. If a company fails to submit all the proper documents for remitting, it may take up to 60 days. Foreign investors have reported difficulties transferring funds to overseas affiliates and making payments for certain technical fees without the government’s prior approval to do so. Additionally, some regulatory agencies have reportedly blocked the repatriation of profits due to sector-specific regulations. The U.S. Embassy also has received complaints from American citizens who were not able to transfer the proceeds of sales of their properties.

The central bank has recently made several small-scale reforms to ease the remittance process. In 2019, the BB simplified the profit repatriation process for foreign firms. Foreign companies and their branches, liaison, or representative offices no longer require prior approval from the central bank to remit funds to their parent offices outside Bangladesh. Banks, however, are required to submit applications for ex post facto approval within 30 days of profit remittance. In 2020, the Bangladesh Bank relaxed regulations for repatriating disinvestment proceeds, authorizing banks to remit up to 100 million taka (approximately $1.2 million) in equivalent foreign currency without the central bank’s prior approval. The central bank also eased profit repatriation and reinvestment by allowing banks to transfer foreign investors’ dividend income into their foreign currency bank accounts.

The Financial Action Task Force (FATF) notes Bangladesh has established the legal and regulatory framework to meet its Anti-Money Laundering/Counterterrorism Finance (AML/CTF) commitments. The Asia/Pacific Group on Money Laundering (APG), an independent and collaborative international organization based in Bangkok, evaluated Bangladesh’s AML/CTF regime in 2018 and found Bangladesh had made significant progress since the last Mutual Evaluation Report (MER) in 2009, but still faces significant money laundering and terrorism financing risks. The APG reports are available online:  http://www.fatf-gafi.org/countries/#Bangladesh  

Sovereign Wealth Funds

In 2015, the Bangladesh Finance Ministry announced it was exploring establishing a sovereign wealth fund in which to invest a portion of Bangladesh’s foreign currency reserves. In 2017, the Cabinet initially approved a $10 billion “Bangladesh Sovereign Wealth Fund,” (BSWF) to be created with funds from excess foreign exchange reserves but the plan was subsequently scrapped by the Finance Ministry.

Capital Markets and Portfolio Investment

The Indonesia Stock Exchange (IDX) index has 713 listed companies as of December 2020 with a daily trading volume of USD 642.5 million and market capitalization of USD 486 billion.  Over the past six years, there has been a 43 percent increase in the number listed companies, but the IDX is dominated by its top 20 listed companies, which represent 55.5 percent of the market cap.  There were 51 initial public offerings in 2020 – one more than in 2019.  During the fourth quarter of  2020, domestic entities conducted 66 percent of total IDX stock trades.

Government treasury bonds are the most liquid bonds offered by Indonesia.  Corporate bonds are less liquid due to less public knowledge of the product and the shallowness of the market.  The government also issues sukuk (Islamic treasury notes) as part of its effort to diversify Islamic debt instruments and increase their liquidity.  Indonesia’s sovereign debt as of March 2021 was rated as BBB by Standard and Poor’s, BBB by Fitch Ratings and Baa2 by Moody’s.

OJK began overseeing capital markets and non-banking institutions in 2013, replacing the Capital Market and Financial Institution Supervisory Board.  In 2014, OJK also assumed BI’s supervisory role over commercial banks.  Foreigners have access to the Indonesian capital markets and are a major source of portfolio investment.  Indonesia respects International Monetary Fund (IMF) Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Money and Banking System

Although there is some concern regarding the operations of the many small and medium sized family-owned banks, the banking system is generally considered sound, with banks enjoying some of the widest net interest margins in the region.  As of December 2020, commercial banks had IDR 9,178 trillion (USD 640 billion) in total assets, with a capital adequacy ratio of 23.9 percent.  Outstanding loans fell by 2.4 percent in 2020 compared to growth of 6.08 percent in 2019, due to the COVID-19 pandemic induced recession.  Gross non-performing loans (NPL) in December 2020 increased to 3.06 percent from 2.53 percent the previous year.  Rising NPL rates were partly mitigated through a loan restructuring program implemented by OJK as part of the COVID-19 recovery efforts.

OJK Regulation No.56/03/2016 limits bank ownership to no more than 40 percent by any single shareholder, applicable to foreign and domestic shareholders.  This does not apply to foreign bank branches in Indonesia.  Foreign banks may establish branches if the foreign bank is ranked among the top 200 global banks by assets.  A special operating license is required from OJK in order to establish a foreign branch.  The OJK granted an exception in 2015 for foreign banks buying two small banks and merging them.  To establish a representative office, a foreign bank must be ranked in the top 300 global banks by assets.

On March 16, 2020, OJK issued Regulation Number 12/POJK.03/2020 on commercial bank consolidation.  The regulation aims to strengthen the structure, and competitiveness of the national banking industry by increasing bank capital and encouraging consolidation of banks in Indonesia.  This regulation increases minimum core capital requirements for commercial banks and Capital Equivalency Maintained Asset requirements for foreign banks with branch offices by least IDR 3 trillion (USD 209 million), by December 31, 2022.

In 2015, OJK eased rules for foreigners to open a bank account in Indonesia.  Foreigners can open a bank account with a balance between USD 2,000-50,000 with just their passport.  For accounts greater than USD 50,000, foreigners must show a supporting document such as a reference letter from a bank in the foreigner’s country of origin, a local domicile address, a spousal identity document, copies of a contract for a local residence, and/or credit/debit statements.

Growing digitalization of banking services, spurred on by innovative payment technologies in the financial technology (fintech) sector, complements the conventional banking sector.  Peer-to-peer (P2P) lending companies and e-payment services have grown rapidly over the past decade.  Indonesian policymakers are hopeful that these fintech services can reach underserved or unbanked populations and micro, small, and medium-sized enterprises (MSMEs).  As of June 2020, fintech lending reached IDR 113.46 trillion (USD 7.6 billion) in loan disbursements, while payment transactions using e-money in 2020 are estimated to have increased by 38.5 percent to IDR 201 trillion (USD 14 billion) year-on-year.

Foreign Exchange and Remittances

Foreign Exchange

The rupiah (IDR), the local currency, is freely convertible.  Currently, banks must report all foreign exchange transactions and foreign obligations to the central bank, Bank Indonesia (BI).  With respect to the physical movement of currency, any person taking rupiah bank notes into or out of Indonesia in the amount of IDR 100 million (USD 6,600) or more, or the equivalent in another currency, must report the amount to the Directorate General of Customs and Excise (DGCE).  Taking more than IDR 100 million out of Indonesia in cash also requires prior approval of BI.  The limit for any person or entity to bring foreign currency bank notes into or out of Indonesia is the equivalent of IDR 1 billion (USD 66,000).

Banks on their own behalf or for customers may conduct derivative transactions related to derivatives of foreign currency exchange rates, interest rates, and/or a combination thereof.  BI requires borrowers to conduct their foreign currency borrowing through domestic banks registered with BI.  The regulations apply to borrowing in cash, non-revolving loan agreements, and debt securities.

Under the 2007 Investment Law, Indonesia gives assurance to investors relating to the transfer and repatriation of funds, in foreign currency, on:capital, profit, interest, dividends and other income;

funds required for (i) purchasing raw material, intermediate goods or final goods, and (ii) replacing capital goods for continuation of business operations;

additional funds required for investment;

funds for debt payment;

royalties;

income of foreign individuals working on the investment;

earnings from the sale or liquidation of the invested company;

compensation for losses; and

compensation for expropriation.

U.S. firms report no difficulties in obtaining foreign exchange.

In 2015, the government announced a regulation requiring the use of the rupiah in domestic transactions.  While import and export transactions can still use foreign currency, importers’ transactions with their Indonesian distributors must use rupiah.  The central bank may grant a company permission to receive payment in foreign currency upon application, and where the company has invested in a strategic industry.

Remittance Policies

The government places no restrictions or time limitations on investment remittances.  However, certain reporting requirements exist.  Banks should adopt Know Your Customer (KYC) principles to carefully identify customers’ profile to match transactions.  Indonesia does not engage in currency manipulation.

As of 2015, Indonesia is no longer subject to the intergovernmental Financial Action Task Force (FATF) monitoring process under its on-going global Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) compliance process.  It continues to work with the Asia/Pacific Group on Money Laundering (APG) to further strengthen its AML/CTF regime.  In 2018, Indonesia was granted observer status by FATF, a necessary milestone toward becoming a full FATF member.

Sovereign Wealth Funds

The Indonesian Investment Authority (INA), also known as the sovereign wealth fund, was legally established by the 2020 Omnibus Law on Job Creation.  INA’s supervisory board and board of directors were selected through competitive processes and announced in January and February 2021.  The government has capitalized INA with USD 2 billion through injections from the state budget and intends to add another USD 3 to 4 billion in state-owned assets.  INA aims to attract foreign equity and invest that capital in long-term Indonesian assets to improve the value of the assets through enhanced management.  According to Indonesian government officials, the fund will consist of a master portfolio with sector-specific sub-funds, such as infrastructure, oil and gas, health, tourism, and digital technologies.

Capital Markets and Portfolio Investment

Foreigners may trade in securities and derivatives. Malaysia houses one of Asia’s largest corporate bond markets and is the largest sukuk (Islamic bond) market in East Asia. Both domestic and foreign companies regularly access capital in Malaysia’s bond market. Malaysia provides tax incentives for foreign companies issuing Islamic bonds and financial instruments in Malaysia.

Malaysia’s stock market (Bursa Malaysia) is open to foreign investment and foreign corporation issuing shares. However, foreign issuers remain subject to Bumiputera ownership requirements of 12.5 percent if the majority of their operations are in Malaysia. Listing requirements for foreign companies are similar to that of local companies, although foreign companies must also obtain approval of regulatory authorities of foreign jurisdiction where the company was incorporated and valuation of assets that are standards applied in Malaysia or International Valuation Standards and register with the Registrar of Companies under the Companies Act 1965 or 2016.

Malaysia has taken steps to promote good corporate governance by listed companies. Publicly listed companies must submit quarterly reports that include a balance sheet and income statement within two months of each financial quarter’s end and audited annual accounts for public scrutiny within four months of each year’s end. An individual may hold up to 25 corporate directorships. All public and private company directors are required to attend classes on corporate rules and regulations.

Legislation also regulates equity buybacks, mandates book entry of all securities transfers, and requires that all owners of securities accounts be identified. A Central Depository System (CDS) for stocks and bonds established in 1991 makes physical possession of certificates unnecessary. All shares traded on the Bursa Malaysia must be deposited in the CDS. Short selling of stocks is prohibited.

Money and Banking System

International investors generally regard Malaysia’s banking sector as dynamic and well regulated. Although privately owned banks are competitive with state-owned banks, the state-owned banks dominate the market. The five largest banks – Maybank, CIMB, Public Bank, RHB, and AmBank – account for an estimated 75 percent of banking sector loans. According to the World Bank, total banking sector lending for 2019 was 120.8 percent of GDP, and 1.5 percent of the Malaysian banking sector’s loans were non-performing for 2019.

Bank Negara prohibits hostile takeovers of banks, but the Securities Commission has established non-discriminatory rules and disclosure requirements for hostile takeovers of publicly traded companies.

Foreign Exchange and Remittances

Foreign Exchange

In December 2016, the central bank, began implementing new foreign exchange management requirements. Under the policy, exporters are required to convert 75 percent of their export earnings into Malaysian ringgit. The goal of this policy was to deepen the market for the currency, with the goal of reducing exchange rate volatility. The policy remains in place, with the Central Bank giving case-by-case exceptions. All domestic trade in goods and services must be transacted in ringgit only, with no optional settlement in foreign currency. The Central Bank has demonstrated little flexibility with respect to the ratio of earnings that exporters hold in ringgit. Post is unaware of any instances where the requirement for exporters to hold their earnings in ringgit has impeded their ability to remit profits to headquarters.

Remittance Policies

Malaysia imposes few investment remittances rules on resident companies. Incorporated and individual U.S. investors have not raised concerns about their ability to transfer dividend payments, loan payments, royalties or other fees to home offices or U.S.-based accounts. Tax advisory firms and consultancies have not flagged payments as a significant concern among U.S. or foreign investors in Malaysia. Foreign exchange administration policies place no foreign currency asset limits on firms that have no ringgit-denominated debt. Companies that fund their purchases of foreign exchange assets with either onshore or offshore foreign exchange holdings, whether or not such companies have ringgit-denominated debt, face no limits in making remittances. However, a company with ringgit-denominated debt will need approval from the Central Bank for conversions of RM50 million or more into foreign exchange assets in a calendar year.

The Treasury Department has not identified Malaysia as a currency manipulator.

Sovereign Wealth Funds

The Malaysian Government established government-linked investment companies (GLICs) as vehicles to harness revenue from commodity-based industries and promote growth in strategic development areas. Khazanah is the largest of the GLICs, and the company holds equity in a range of domestic firms as well as investments outside Malaysia. The other GLICs – Armed Forces Retirement Fund (LTAT), National Capital (PNB), Employees Provident Fund (EPF), Pilgrimage Fund (Tabung Haji), Public Employees Retirement Fund (KWAP) – execute similar investments but are structured as savings vehicles for Malaysians. Khazanah follows the Santiago Principles and participates in the International Forum on Sovereign Wealth Funds.

Khazanah was incorporated in 1993 under the Companies Act of 1965 as a public limited company with a charter to promote growth in strategic industries and national initiatives. As of December 31, 2020, Khazanah’s “realizable” assets stood at RM95.3 billion as compared to RM136 billion in 2019. Its profit from operations fell to RM2.9 billion in 2020 as compared to RM7.4 billion in 2019. Dividend income from investee companies rose to RM5.2 billion from RM3.8 billion According to its Annual Review 2020 presentation, Khazanah’s priorities, going forward, include further enhancing commercial returns, delivering impactful value through strategic investments, becoming a responsible organization through embedding ESG considerations across all investment activities, building a strong digital and technology foundation. https://www.khazanah.com.my/our-performance/khazanah-annual-review-2021/ 

Capital Markets and Portfolio Investment

The Philippines welcomes the entry of foreign portfolio investments, including local and foreign-issued equities listed on the Philippine Stock Exchange (PSE).  Investments in certain publicly listed companies are subject to foreign ownership restrictions specified in the Constitution and other laws.  Non-residents are allowed to issue bonds/notes or similar instruments in the domestic market with prior approval from the Central Bank; in certain cases, they may also obtain financing in Philippine pesos from authorized agent banks without prior Central Bank approval.

Although growing, the PSE (with 271 listed firms as of end-2020) lags behind many of its neighbors in size, product offerings, and trading activity.  Efforts are underway to deepen the equity market, including introduction of new instruments (e.g., real investment trusts) and plans to amend listing rules for small and medium enterprises (SME).  The securities market is growing, and while it remains dominated by government bills and bonds, corporate issuances continue to expand due to the favorable interest rate environment and recent regulatory reforms.  Hostile takeovers are uncommon because most companies’ shares are not publicly listed and controlling interest tends to remain with a small group of parties.  Cross-ownership and interlocking directorates among listed companies also decrease the likelihood of hostile takeovers.

The Bangko Sentral ng Pilipinas (BSP/Central Bank) does not restrict payments and transfers for current international transactions in accordance to the country’s acceptance of International Monetary Fund Article VIII obligations of September 1995.  Purchase of foreign currencies for trade and non-trade obligations and/or remittances requires submission of a foreign exchange purchase application form if the foreign exchange is sourced from banks and/or their subsidiary/affiliate foreign exchange corporations falls within specified thresholds (currently USD 500,000 for individuals and USD 1 million for corporates/other entities).  Purchases above the thresholds are also subject to the submission of minimum documentary requirements but do not require prior Central Bank approval.  Meanwhile, a person may freely bring in or carryout foreign currencies up to USD 10,000; more than this threshold requires submission of a foreign currency declaration form.

Credit is generally granted on market terms and foreign investors are able to obtain credit from the liquid domestic market.  However, some laws require financial institutions to set aside loans for preferred sectors such as agriculture, agrarian reform, and MSMEs.  Notwithstanding, bank loans to these sectors remain constrained; for example, lending to MSMEs only amount to 5.9 percent of the total banking system loans despite comprising 99 percent of domestic firms. The government has implemented measures to promote lending to preferred sectors at competitive rates, including the establishment of a centralized credit information system and enactment of the 2018 Personal Property Security Law allowing the use of non-traditional collaterals (e.g., movable assets like machinery and equipment and inventories).  The government also established the Philippine Guarantee Corporation in 2018 to expand development financing by extending credit guarantees to priority sectors, including MSMEs.

Money and Banking System

The Bangko Sentral ng Pilipinas (BSP/Central Bank) is a highly respected institution that oversees a stable banking system.  The Central Bank has pursued regulatory reforms promoting good governance and aligning risk management regulations with international standards.  Capital adequacy ratios are well above the eight percent international standard and the Central Bank’s 10 percent regulatory requirement.  The non-performing loan ratio was at 3.7 percent as of end-2020, and there is ample liquidity in the system, with the liquid assets-to-deposits ratio estimated at about 53 percent.  Commercial banks constitute more than 93 percent of the total assets of the Philippine banking industry.  As of September 2020, the five largest commercial banks represented 60 percent of the total resources of the commercial banking sector.  The banking system was liberalized in 2014, allowing the full control of domestic lenders by non-residents and lifting the limits to the number of foreign banks that can operate in the country, subject to central bank prudential regulations.   Twenty-six of the 46 commercial banks operating in the country are foreign branches and subsidiaries, including three U.S. banks (Citibank, Bank of America, and JP Morgan Chase).  Citibank has the largest presence among the foreign bank branches and currently ranks 12th overall in terms of assets.  Despite the adequate number of operational banks, 31 percent of cities and municipalities in the Philippines were still without banking presence as of end-2019 and 4.6 percent were without any financial access point. The level of bank account penetration – the percentage of adults with a formal transaction account – stands at 34.5 percent, nearly halfway to the central bank goal of 70 percent by 2023.

Foreign residents and non-residents may open foreign and local currency bank accounts.  Although non-residents may open local currency deposit accounts, they are limited to the funding sources specified under Central Bank regulations.  Should non-residents decide to convert to foreign currency their local deposits, sales of foreign currencies are limited up to the local currency balance.  Non-residents’ foreign currency accounts cannot be funded from foreign exchange purchases from banks and banks’ subsidiary/affiliate foreign exchange corporations.

Foreign Exchange and Remittances

Foreign Exchange

The Bangko Sentral ng Pilipinas (Central Bank) has actively pursued reforms since the 1990s to liberalize and simplify foreign exchange regulations.  As a general rule, the Central Bank allows residents and non-residents to purchase foreign exchange from banks, banks’ subsidiary/affiliate foreign exchange corporations, and other non-bank entities operating as foreign exchange dealers and/or money changers and remittance agents to fund legitimate foreign exchange obligations, subject to provision of information and/or supporting documents on underlying obligations.  No mandatory foreign exchange surrender requirement is imposed on exporters, overseas workers’ incomes, or other foreign currency earners; these foreign exchange receipts may be sold for pesos or retained in foreign exchange in local and/or offshore accounts.  The Central Bank follows a market-determined exchange rate policy, with scope for intervention to smooth excessive foreign exchange volatility.

Remittance Policies

Foreign exchange policies do not require approval of inward foreign direct and portfolio investments unless the investor will purchase foreign currency from banks to convert its local currency proceeds or earnings for repatriation or remittance.  Registration of foreign investments with the Central Bank or custodian banks is generally optional.  Duly registered foreign investments are entitled to full and immediate repatriation of capital and remittance of dividends, profits, and earnings.  The Central Bank particularly requires foreign exchange for divestment purposes to be directly remitted to the account of non-resident investor on the date of purchase, with limited exemptions.  To repatriate capital from investments that did not fully materialize, non-resident investors can exchange excess local currencies provided at least 50 percent of inwardly remitted foreign exchange have been invested onshore, except for certain conditions.

As a general policy, government-guaranteed private sector foreign loans/borrowings (including those in the form of notes, bonds, and similar instruments) require prior Central Bank approval.  Although there are exceptions, private sector loan agreements should also be registered with the Central Bank if serviced through the purchase of foreign exchange from the banking system.

The Philippines strengthened its Anti-Money Laundering Act (AMLA) on January 29, 2021. The amended law expands covered entities and empowers the Anti-Terrorism Council to designate covered persons.

Sovereign Wealth Funds

The Philippines does not presently have sovereign wealth funds.

Capital Markets and Portfolio Investment

The Securities and Exchange Commission (SEC) governs the CSE, unit trusts, stockbrokers, listed public companies, margin traders, underwriters, investment managers, credit rating agencies, and securities depositories.  Foreign portfolio investment is encouraged.  Foreign investors can purchase up to 100 percent of equity in Sri Lankan companies in permitted sectors.  Investors may open an Inward Investment Account (IIA) with any commercial bank in Sri Lanka to bring in investments.  As of August 30, 2020, 289 companies representing 20 business sectors are listed on the CSE.  As stock market liquidity is limited, investors need to manage exit strategies carefully.

In accordance with its IMF Article VIII obligations, the government and the Central Bank of Sri Lanka (CBSL) generally refrain from restrictions on current international transfers.  When the government experiences balance of payments difficulties, it tends to impose controls on foreign exchange transactions.  Due to pressures on the balance of payments caused by the COVID-19 economic crisis, Sri Lanka took several measures to restrict imports and limit outward capital transactions.

The state consumes over 50 percent of the country’s domestic financial resources and has a virtual monopoly on the management and use of long-term savings.  This inhibits the free flow of financial resources to product and factor markets.  High budget deficits have caused interest rates to rise and resulted in higher inflation.  On a year-to-year basis, inflation was approximately 5.1 percent in March of 2021, and the average prime lending rate was 9.91 percent.  Retained profits finance a significant portion of private investment in Sri Lanka with commercial banks as the principal source of bank finance and bank loans as the most widely used credit instrument for the private sector.  Large companies also raise funds through corporate debentures.  Credit ratings are mandatory for all deposit-taking institutions and all varieties of debt instruments.  Local companies can borrow from foreign sources.  FDI finances about 6 percent of overall investment.  Foreign investors can access credit on the local market and are free to raise foreign currency loans.

Money and Banking System

Sri Lanka has a diversified banking system.  There are 25 commercial banks:  13 local and 12 foreign.  In addition, there are seven specialized local banks.  Citibank N.A. is the only U.S. bank operating in Sri Lanka.  Several domestic private commercial banks have substantial government equity acquired through investment agencies controlled by the government.  Banking has expanded to rural areas, and by end of 2020 there were over 3,619 commercial bank branches and over 6,176 Automated Teller Machines throughout the country.  Both resident and non-resident foreign nationals can open foreign currency banking accounts.  However, non-resident foreign nationals are not eligible to open Sri Lankan Rupee accounts.

CBSL is responsible for supervision of all banking institutions and has driven improvements in banking regulations, provisioning, and public disclosure of banking sector performance.  Credit ratings are mandatory for all banks.  CBSL introduced accounting standards corresponding to International Financial Reporting Standards for banks on January 1, 2018, and the application of the standards substantially increased impairment provisions on loans.  The migration to the Basel III capital standards began in July of 2017 on a staggered basis, with full implementation was kicking in on January 1, 2019 and some banks having had to boost capital to meet full implementation of Basel III requirements.  In addition, banks must increase capital to meet CBSL’s new minimum capital requirements deadline, which is set for December 31, 2022. A staggered application of capital provisions for smaller banks unable to meet capital requirements immediately will likely be allowed.

Total assets of the banking industry stood at LKR 14,666 billion ($75.2 billion) as of December 31, 2020.  The two fully state-owned commercial banks – Bank of Ceylon and People’s Bank – are significant players, accounting for about 33 percent of all banking assets.  The Bank of Ceylon currently holds a non-performing loan (NPL) ratio of 4.98 percent (up from 4.79 percent in 2019).  The People’s Bank currently holds a NPL ratio of 3.85 percent (up from 3.68 percent in 2019).  Both banks have significant exposure to SOEs but, these banks are implicitly guaranteed by the state.  The six-month debt moratorium issued by the CBSL for distressed borrowers will expired in March 2021, the impact of this is yet to be reflected on the banking sector NPL

In October 2019, Sri Lanka was removed from the Financial Action Task Force (FATF) gray list after making significant changes to its Anti-Money Laundering/Countering the Finance of Terrorism (AML/CFT) laws.  CBSL is exploring the adoption of blockchain technologies in its financial transactions and appointed two committees to investigate the possible adoption of blockchain and cryptocurrencies.

Sri Lanka has a rapidly growing alternative financial services industry that includes finance companies, leasing companies, and microfinance institutes.  In response, CBSL has established an enforcement unit to strengthen the regulatory and supervisory framework of non-banking financial institutions.  Credit ratings are mandatory for finance companies as of October 1, 2018.   The government also directed banks to register with the U.S. Internal Revenue Service (IRS) to comply with the U.S. Foreign Accounts Tax Compliance Act (FATCA).  Almost all commercial banks have registered with the IRS.

Foreign Exchange and Remittances

Foreign Exchange

Sri Lanka generally has investor-friendly conversion and transfer policies.  Companies say they can repatriate funds relatively easily.  In accordance with its Article VIII obligations as a member of the IMF, Sri Lanka liberalized exchange controls on current account transactions in 1994 and, in 2010-2012, the government relaxed exchange controls on several categories of capital account transactions.  A new Foreign Exchange Act, No. 12 of 2017, came into operation on November 20, 2017 and further liberalized capital account transactions to simplify current account transactions.  Foreign investors are required to open Inward Investment Accounts (IIA) to transfer funds required for capital investments but there are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment through an IIA in any foreign currency designated by CBSL.

Remittance Policies

No barriers exist, legal or otherwise, to remittance of corporate profits and dividends for foreign enterprises since 2017 when Sri Lanka relaxed investment remittance policies with the new Foreign Exchange Act.  Remittances are done through IIAs.  There are no waiting periods for remitting investment returns, interest, and principal on private foreign debt, lease payments, royalties, and management fees provided there is sufficient evidence to prove the originally invested funds were remitted into the country through legal channels.  Exporters must repatriate export proceeds within 120 days.

Sovereign Wealth Funds

Sri Lanka does not have a sovereign wealth fund.  The government manages and controls large retirement funds from private sector employees and uses these funds for budgetary purposes (through investments in government securities), stock market investments, and corporate debenture investments.

Capital Markets and Portfolio Investment

The Thai government maintains a regulatory framework that broadly encourages and facilitates portfolio investment. The Stock Exchange of Thailand, the country’s national stock market, was established under the Securities Exchange of Thailand Act B.E. 2535 in 1992. There is sufficient liquidity in the markets to allow investors to enter and exit sizeable positions. Government policies generally do not restrict the free flow of financial resources to support product and factor markets. The Bank of Thailand, the country’s central bank, has respected IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Credit is generally allocated on market terms rather than by “direct lending.” Foreign investors are not restricted from borrowing on the local market. In theory, the private sector has access to a wide variety of credit instruments, ranging from fixed term lending to overdraft protection to bills of exchange and bonds. However, the private debt market is not well developed. Most corporate financing, whether for short-term working capital needs, trade financing, or project financing, requires borrowing from commercial banks or other financial institutions.

Money and Banking System

Thailand’s banking sector, with 15 domestic commercial banks, is sound and well-capitalized. As of December 2020, the non-performing loan rate was low (around 3.25 percent industry wide), and banks were well prepared to handle a forecast rise in the NPL rate in 2021 due to the pandemic. The ratio of capital funds/risk-weighted assets (capital adequacy) was high (20.1 percent). Thailand’s largest commercial bank is Bangkok Bank, with assets totaling USD 100 billion as of December 2020. The combined assets of the five largest commercial banks totaled USD 492.6 billion, or 70.82 percent of the total assets of the Thai banking system, at the end of 2020.

In general, Thai commercial banks provide the following services: accepting deposits from the public; granting credit; buying and selling foreign currencies; and buying and selling bills of exchange (including discounting or re-discounting, accepting, and guaranteeing bills of exchange). Commercial banks also provide credit guarantees, payment, remittance and financial instruments for risk management. Such instruments include interest-rate derivatives and foreign-exchange derivatives. Additional business to support capital market development, such as debt and equity instruments, is allowed. A commercial bank may also provide other services, such as bank assurance and e-banking.

Thailand’s central bank is the Bank of Thailand (BOT), which is headed by a Governor appointed for a five-year term. The BOT serves the following functions: prints and issues banknotes and other security documents; promotes monetary stability and formulates monetary policies; manages the BOT’s assets; provides banking facilities to the government; acts as the registrar of government bonds; provides banking facilities for financial institutions; establishes or supports the payment system; supervises financial institutions manages the country’s foreign exchange rate under the foreign exchange system; and determines the makeup of assets in the foreign exchange reserve.

Apart from the 15 domestic commercial banks, there are currently 11 registered foreign bank branches, including three American banks (Citibank, Bank of America, and JP Morgan Chase), and four foreign bank subsidiaries operating in Thailand. To set up a bank branch or a subsidiary in Thailand, a foreign commercial bank must obtain approval from the Ministry of Finance and the BOT. Foreign commercial bank branches are limited to three service points (branches/ATMs) and foreign commercial bank subsidiaries are limited to 40 service points (branches and off-premise ATMs) per subsidiary. Newly established foreign bank branches are required to have minimum capital funds of 125 million baht (USD 3.99 million at 2020 average exchange rates) invested in government or state enterprise securities, or directly deposited with the Bank of Thailand. The number of expatriate management personnel is limited to six people at full branches, although Thai authorities frequently grant exceptions on a case-by-case basis.

Non-residents can open and maintain foreign currency accounts without deposit and withdrawal ceilings. Non-residents can also open and maintain Thai baht accounts; however, in an effort to curb the strong baht, the Bank of Thailand capped non-resident Thai deposits to 200 million baht across all domestic bank accounts. However, in January 2021, the Bank of Thailand began allowing non-resident companies greater flexibility to conduct baht transactions with domestic financial institutions under the non-resident qualified company scheme. Participating non-financial firms which trade and invest directly in Thailand are allowed to manage currency risks related to the baht without having to provide proof of underlying baht holdings for each transaction. This will allow firms to manage baht liquidity more flexibly without being subject to the end-of-day outstanding limit of 200 million baht for non-resident accounts. Withdrawals are freely permitted. Since mid-2017, the BOT has allowed commercial banks and payment service providers to introduce new financial services technologies under its “Regulatory Sandbox” guidelines. Recently introduced technologies under this scheme include standardized QR codes for payments, blockchain funds transfers, electronic letters of guarantee, and biometrics.

Thailand’s alternative financial services include cooperatives, micro-saving groups, the state village funds, and informal money lenders. The latter provide basic but expensive financial services to households, mostly in rural areas. These alternative financial services, with the exception of informal money lenders, are regulated by the government.

Foreign Exchange and Remittances

Foreign Exchange

There are no limitations placed on foreign investors for converting, transferring, or repatriating funds associated with an investment; however, supporting documentation is required. Any person who brings Thai baht currency or foreign currency in or out of Thailand in an aggregate amount exceeding USD 15,000 or the equivalent must declare the currency at a Customs checkpoint. Investment funds are allowed to be freely converted into any currency.

The exchange rate is generally determined by market fundamentals but is carefully scrutinized by the BOT under a managed float system. During periods of excessive capital inflows/outflows (i.e., exchange rate speculation), the central bank has stepped in to prevent extreme movements in the currency and to reduce the duration and extent of the exchange rate’s deviation from a targeted equilibrium.

Remittance Policies

Thailand imposes no limitations on the inflow or outflow of funds for remittances of profits or revenue for direct and portfolio investments. There are no time limitations on remittances.

Sovereign Wealth Funds

Thailand does not have a sovereign wealth fund and the Bank of Thailand is not pursuing the creation of such a fund. However, the International Monetary Fund has urged Thailand to create a sovereign wealth fund due to its large accumulated foreign exchange reserves. As of December 2020, Thailand had the world’s 13th largest foreign exchange reserves at USD 258.1 billion.