Bank Negara Liberalises Foreign Exchange Administration Policies
28 March 2019
On 27 March 2019, Bank Negara Malaysia (‘BNM’) announced
several measures to liberalise the foreign exchange administration framework through the issue of Supplementary Notice (No. 5) on Foreign Exchange Administration Rules
(‘Supplementary Notice No. 5’).
1.0 Hedging of foreign currency obligations
1.1 A resident is now allowed to buy foreign currency against ringgit with a licensed offshore bank–
- on spot basis up to the aggregate of its six months foreign currency obligations; or
- on forward basis up to the aggregate of its twelve months foreign currency obligations,
at the time when it enters into the contract to buy foreign currency against ringgit.
1.2 Paragraph 5 of Supplementary Notice (No. 2) which, inter alia
, allowed a resident to sell ringgit on a spot or forward basis up to its six months foreign currency obligations is revoked.
1.3 The above measure took effect from 27 March 2019.
2.0 Payment in foreign currency between residents
2.1 A resident entity which is a Small and Medium Enterprise and
a net importer (‘Resident Payee’) is permitted to receive payment in foreign currency from a resident entity with foreign currency export earnings (‘Resident Payor’) for settlement of domestic trade in goods and services subject to the following conditions –
- the payment is made using –
- the Resident Payor’s foreign currency funds in its Trade Foreign Currency Account; or
- proceeds from an approved foreign currency export trade financing facility in accordance with Part A of Notice 2 of the Foreign Exchange Administration Rules issued on 28 June 2013 (‘2013 Notices’),
and is not sourced from conversion of ringgit by the Resident Payor;
- the payment is made directly into the Resident Payee’s Trade Foreign Currency Account; and
- the Resident Payor and Resident Payee have complied with the requirements in the Appendix to Supplementary Notice No. 5 (comprising mainly documentation and declarations).
The funds which are allowed to be received under paragraph 2.1 above are referred to as ‘Eligible Foreign Currency Payable’.
2.2 The expression ‘Small and Medium Enterprise’ has the meaning given to it in the “Guideline for New SME Definition” issued by SME Corporation in October 2013 as amended from time to time; and
a ‘net importer’ refers to a resident entity with foreign currency import obligations which either does not have foreign currency export earnings or has annual foreign currency export earnings which are less than its foreign currency import obligations.
2.3 A Resident Payor which is allowed to make payment in foreign currency to a Resident Payee under the 2013 Notices may retain in its Trade Foreign Currency Account held with a licensed onshore bank, foreign currency proceeds from its export of goods up to the higher of -
- 25% of the export proceeds; or
- subject to paragraph 2.4 below, the Resident Payor’s aggregate of six months –
- foreign currency obligations; and
- Eligible Foreign Currency Payable to Resident Payee,
that exist on the date of receipt of the export proceeds.
2.4 The threshold in paragraph 2.3(b) above only applies if the aggregate amount of existing balance in the Resident Payor’s Trade Foreign Currency Account and proceeds retained under paragraph 2.3(a) above is insufficient to meet the aggregate of the Resident Payor’s six months foreign currency obligations and Eligible Foreign Currency Payable to Resident Payee that exist on the date of receipt of the export proceeds.
2.5 Paragraph 2 of Supplementary Notice No. 4 is amended by the requirements in paragraphs 2.3 and 2.4 above.
2.6 The measures set out in paragraphs 2.1 and 2.3 above will come into effect on 2 May 2019.
3.0 Foreign currency obligations
3.1 Supplementary Notice No. 5 clarifies that the expression ‘foreign currency obligations’ refers to–
- foreign currency import payment with a non-resident;
- foreign currency loan repayment; and
- other current account transactions in foreign currency with a non-resident.
In this regard, it also revokes paragraph 5 of Supplementary Notice No. 2 which had, inter alia
, defined the term ‘foreign currency obligation’.
4.0 Frequently Asked Questions
4.1 A set of Frequently Asked Questions
was issued by BNM together with Supplementary Notice No. 5. Amongst others, the Frequently Asked Questions state that –
- any resident company that needs to hedge foreign currency obligations beyond twelve months may apply to BNM for approval; and
- any other resident company which is not a Small and Medium Enterprise may apply to BNM for approval to receive payments in foreign currency from resident exporters for domestic trade.