Offshore Banking in Cyprus, International Banking Unit

by Elliot Clark on November 29, 2008

In the legislation of Cyprus offshore banking is defined as a service that is rendered by a banking entity that is under the ownership of Cyprus non-resident and renders services to non-residents. However this does not include the transactions that Cyprus non-residents conduct in the domestic banks of Cyprus including those conducted at foreign branches and subsidiaries.

According to the legislation Central Bank of Cyprus is an agency responsible for granting licenses to bank-holding companies. The terms for licensing are also set by Central Bank of Cyprus.

Since offshore banks are allowed to render commercial and investment banking services only to Cyprus non-residents, this allows Central Bank of Cyprus to separate offshore and onshore banking activities of a bank and set preferential regime for offshore banking sector not affecting the domestic banking sector.

Cyprus’s offshore banking sector operates through two types of entities:

International Banking Unit (IBU):

Cyprus Offshore Banking

Cyprus's Banking Sector Liabilities

IBU is a Cyprus registered banking unit that renders financial services to Cyprus non-residents in any currency other than Cyprus pound. IBU can be registered as a new financial institution or as a branch, subsidiary or a daughter company of a foreign financial 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 staffed by Cyprus residents. 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 requirements, interest rate ceilings and the 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.

Administered Banking Unit (ABU)

Offshore Banking in Cyprus

Cyprus's Banking Sector Assets

ABU is conducts all of its operations under its brand name, but through another Cyprus-based bank. ABU can be registered as a branch, subsidiary or a 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, offshore banking sector of Cyprus included 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.

The domestic banking sector is represented by 12 commercial banks. The 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 the domestic market, but also have foreign branches and subsidiaries. At the end of 2000 banking assets amounted to 12 billion US dollars (229% of GDP).

Household loans are mainly provided by credit cooperatives. Currently 360 such cooperatives operate in Cyprus and majority of them are small and medium-sized. In 2000 assets of credit cooperatives were one-third of banking assets.

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