THE REGULATION OF LOANS MADE BETWEEN A RESIDENT AND A NON-RESIDENT
The Financial Services Act 2013 (‘FSA’) prohibits borrowing or lending in a foreign currency (‘FC’) between a resident and a non-resident except with written approval of Bank Negara Malaysia (‘BNM’). BNM is empowered under Section 214 and Section 261 of the FSA to issue guidance/ notices to regulate the prohibited act of loaning between a resident and a non-resident in a FC.
In exercise of its powers, BNM issued a Foreign Exchange Policy Notice (‘FEP’) to regulate the borrowing in FC between a resident individual and a non-resident. A resident must obtain the written approval of BNM before borrowing in FC from a non-resident that is not approved by BNM under the FEP.
BNM approval has been given to a resident individual to borrow in FC up to RM10 million equivalent in aggregate from a non-resident. Approval is also given to a resident entity/company to borrow in FC up to RM100 million in aggregate from:
- a non-resident outside Resident Entity’s Group (Group includes ultimate holding entity or parent or head office, branches, subsidiaries etc);
- a non-resident Financial Institution (i.e. non-resident entity undertaking financial services); or
- a non-resident SPV used to obtain borrowing from any person outside Resident’s Entity’s Group.
Both approvals recognize the need to allow residents to borrow in FC and provides wide berth for a large variety of commercial and private transactions carried out in FC.
Furthermore, a resident entity/ company is allowed to borrow in FC in any amount from an entity within the Resident Entity’s Group or from the Resident Entity’s Direct Shareholder. A “Direct Shareholder” means a shareholder with at least 10% effective shareholding in a resident entity. This definition does not differentiate between a resident or a non-resident shareholder. This makes foreign shareholder loans easily accessible to the Malaysian subsidiaries or associates of these foreign persons.
 Financial Services Act 2013, Schedule 14, paragraph 2.
 Financial Services Act 2013, S214(2).
 Foreign Exchange Policy, Notice 2, available at https://www.bnm.gov.my/documents/20124/60360/Notice+2_Borrowing%2C+Lending+and+Guarantee.pdf
 Foreign Exchange Policy, Notice 2, Paragraph 4.
 Foreign Exchange Policy, Notice 2, Paragraph 10.
 Frequently Asked Questions (FAQ) for Borrowing by Resident (Notice 2), available at https://www.bnm.gov.my/documents/20124/60360/FAQs_Resident+Ringgit+and+FC+Borrowing.pdf
 Foreign Exchange Policy, Notice 2, Paragraph 9.
 Foreign Exchange Policy, Preamble & Interpretation, available at www.bnm.gov.my/documents/20124/60360/Preamble+and+Interpretation.pdf