Offshore Banking Unit, IBU, ABU, ACU, DBU, Asian Currency Unit

Offshore banking unit (OBU) is a branch or subsidiary in offshore banking center (OBC) that is specifically established according to the legislation of OBC to accept deposits and provide loans to the non-residents of OBC, but at the same time OBUs are prohibited to provide banking services to the residents of OBU in order to eliminate potential competition between domestic and offshore banking sectors. In all other aspects OBUs are free to conduct any legal operations and offer any legal banking service.

A typical commercial bank has both domestic banking unit (DBU) and offshore banking unit. Domestic banking unit is designed to serve residents, while offshore banking unit conducts offshore banking services. DBU and OBU are integral parts of a typical commercial bank, simply their accounting records are kept separately.

Generally offshore banking units are exempted from some monetary controls, legal obligations, capital requirements and investment controls imposed by financial supervisor. For instance, in Singapore local OBUs known as Asian Currency Unit (ACU) are exempted from minimum reserve requirement and investment controls that Monetary Authority of Singapore (Singapore central bank) imposes on domestic banking sector that is represented by domestic banking units. Similar scheme is applicable in Cyprus, where offshore banking sector is represented by International Banking Unit (IBU) and Administered Banking Unit (ABU). IBUs and ABUs are exempted from minimum reserve, interest rate ceiling and maximum percentage of foreign asset requirements.

Since the end of 1960s offshore banking centers appeared in many European, Mideast, Asian and Caribbean countries. Offshore banking units became a widespread tool for conducting such operations. The most popular centers for US banks are Bahamas, Cayman Islands, Hong Kong, Panama and Singapore. They offer attractive political, economic and regulatory environment.

Offshore banking units experienced rapid growth during second half of 20th century. Until 1990s OBU assets showed explosive growth rates, however after 90s they became moderate. For instance, Singapore proved to be one of the most attractive OBCs for international clients. During 80s ACU assets rose by 22% each year, however growth rate decreased to only 3.7% in 1980s. In 1993 combined assets of Asian Currency Units were 66.2% of the banking sector and were considerably larger than combined assets of Domestic Banking Units. Asset growth was indeed impressive, if we take into consideration that in 1970 assets of Asian Currency Units were only 28% of assets of Domestic Banking Units and in 1987 they were 596% of DBU assets.

Tagged as: Banking Unit