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What is Offshore Banking Unit (OBU)?

Updated on April 8, 2024 , 8017 views

Offshore banking unit, as the name suggests, is the branch of the Bank or a financial institution based in a foreign country. The best example is the branch of a Switzerland-based Bank located in France or the United States. These branches offer loans and credits in the Eurocurrency financial Market. Here, Eurocurrency is defined as the amount stored in the financial institutions and the branches of the bank based outside of the home country (where the currency is issued).


The authorities and regulatory bodies do not impose any form of restriction on the offshore banking units, except for the deposits and loans processed within the country they are located. In other words, OBUs are not allowed to sanction the loan requests and deposits from people based in the country where the branch of the bank is located. Other than that, the offshore banking units get to enjoy a lot of flexibility in day-to-day operations.

Understanding the Offshore Banking Unit

The banking units located outside the national boundaries of a country are not new. In fact, the OBUs have been around since the 1970s. They are extensively found across different nations and continents, including Asia, Europe, and the Middle East. The offshore banking units can be the branches of the banks located outside the country or the independent establishments. If it is only a branch, then the Parent Company will direct and authorize all kinds of operations that take place in the OBU. There are also independent banks and institutions that might use the name of the parent company, but they have their unique accounts and operations. They are not governed and regulated by the parent company.

Investors can also create an account in the offshore banking unit so that they can prevent tax regulations and other strict regulations implemented in their home nation. While most government authorities restrict OBUs from processing any kind of deposits and loans from people residing in the same country, they may allow it occasionally. Investors can benefit from this opportunity. They can save money in the offshore banking units to avoid tax regulations. Some branches of the bank located offshore offer loans at low-interest rates. Besides, they may have a smoother and easier loan sanctioning process. The best part is that these banks do not impose any form of currency restrictions. Investors can deposit money in different currencies. This gives the high Net worth and experienced investors an opportunity to trade in multiple currencies and save their money in the offshore banking unit.

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How Offshore Banking Units Started?

The offshore banking unit started in the euro market. It became a trend in the European financial market. Many countries started to embrace the OBUs. India, Singapore, and Hong Kong happen to be the first few countries that house a large number of offshore banking units. These countries have become viable financial centers for international banks that are planning to open a branch abroad. Despite the strict tax policies, Australia became another country to support OBUs in the 1990s.

All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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