According to Cyprus definition offshore banking includes banking entity that is under the ownership of Cyprus non-resident and renders service to Cyprus nonresidents. This does not include transactions that domestic banks of Cyprus conduct for Cyprus nonresidents through foreign branches and subsidiaries.
According to the legislation Central Bank of Cyprus licenses offshore banking companies. The terms for licensing are also set by Central Bank of Cyprus. The fact that banking institutions can render financial services only to Cyprus nonresidents allows the government to impose incentives to offshore sector.
Since offshore banks are allowed to render commercial and investment banking services only to Cyprus non-residents, this allows Central Bank of Cyprus to set preferential regime for offshore banking sector not affecting domestic banking.
Offshore banking sector of Cyprus is represented by two types of entities:
a) International Banking Unit (IBU):
IBU is Cyprus registered entity that is registered in Cyprus and renders financial service to Cyprus 
nonresidents globally in any currency except Cyprus pound. IBU can be registered as branch, subsidiary or a daughter company of the foreign institution.
IBU operates according to the rules set by the central bank and is obliged to conduct all of its operations through Cyprus-based office formed through Cyprus residents. IBU is exempted from minimum reserve requirements, interest rate ceilings and quota on the ownership of foreign assets.
For granting IBU license applications are received at Central Bank of Cyprus based on predetermined rules. Generally Central Bank of Cyprus favors banking institutions with good international banking reputation and long growth/profitability record.
It is noteworthy that IBU is obliged to conduct offshore banking operations through local office composed of local staff.
IBU enjoys wide range of benefits granted by Central Bank of Cyprus. IBUs are exempted from credit/monetary requirements that are levied on domestic banking sector. IBU is exempted from minimum reserve, interest rate ceiling and maximum percentage of foreign asset requirements.
b) Administered Banking Unit (ABU)
ABU conducts all its operations under its name but through another Cyprus-based bank. ABU can be registered as branch, subsidiary or daughter company of the foreign institution.
ABU is not required to have Cyprus-based office, since its operations are undertaken by another bank.
In 2000 Cyprus offshore banking sector was represented by 31 banking units: 29 IBUs and 2 ABUs. Out of 29 IBUs 24 were registered as branches or daughter companies and 5 as subsidiaries. Both ABUs were registered in 1998. In November 2000 total assets of IBUs and ABUs were 10 billion US Dollars.
Domestic banking sector is represented by 12 commercial banks.
Banking sector is concentrated, since two largest Cyprus banks (Bank of Cyprus and Popular Bank) own 65% of total deposits. Cyprus banks are mainly concentrated on domestic market, however also have foreign branches and subsidiaries. At the end of 2000 banking assets amounted to 12 billion dollars (229% of GDP).
Household loans are mainly provided by credit cooperatives. Currently 360 such cooperatives operate in Cyprus majority of which are small and medium sized. In 2000 assets of credit cooperatives were one-third of banking assets.
Comments on this entry are closed.