MB Dec | BPI and CGD off (shore) 

The law that created the offshore financial system has existed for 30 years, always with banks in business. The last two are now closing their doors. Because of reputation, not business. Offshore banking ‘ceased to make sense’ . . . ? 

By: João Paulo Meneses 

For the first time since the creation of the offshore banking law in Macau no bank in 2018 will benefit from the conditions offered by Decree-Law 25/87 / M (4th May 1987). 

That is to say, the year that marks three decades of activity coincides with the last hurrah of the two remaining banks in Macau exclusively focused on international activity: BPI and Caixa Geral de Depósitos (CGD). 

First, in mid-2016, BPI informed the Monetary Authority of Macau (AMCM) that it had stopped accepting deposits and that it intended to terminate activity. It was followed, a few months later, by CGD. 

In addition to being the only two banks authorised to operate under this scheme, BPI and CGD are Portuguese banks. 

And this is no coincidence. 

In 30 years, only banks in Portugal took advantage of Macau’s offshore system. 

The explanation is relatively simple to recount: between 1987 and 1995, Portuguese banks in Macau had an exception regime in the Portuguese state budget, allowing a full exemption for the transfer of profits. 

This situation changed in 1995, with an amendment to the law that has made Macau’s offshore banking less attractive to Portuguese banks. Several ceased their activities at this time but not to the point of having left a deserted landscape – which will only happen from 2018. 

Neither BPI nor CGD wanted to officially explain what had led to the closure of their branches in Macau but Macau Business can reveal that the main reason is not financial but one of reputation: majority shareholder BPI (Spanish La Caixa) believes that maintaining branches in tax havens is negative for the bank’s image, and CGD did not want to have the burden of being the only bank conducting offshore business in Macau – even more so because CGD (the only shareholder of local BNU) is owned by the Portuguese Republic. This has attracted much criticism from left-wing parties in Portugal, now in power, who question the interests involved and usefulness of the option. 

AMCM explains to Macau Business that ‘withdrawal from the Macau market by the two offshore branches was decided by their head offices in Portugal due to changes in their groups’ overall business strategies’.’ 

The truth is that the offer, on the part of the financial system of the MSAR, is less diversified with these two closures. AMCM understands that ‘the SAR Government maintains its focus on the development of featured financial businesses, aiming at promoting the financial sector’s contribution to the proper diversification of the Macao economy. Macau’s financial institutions, including fully licensed banks, are actively engaged in both domestic and external financial activities.’ 

José Sales Marques, a local economist, points out that when these two banks were deployed “the world was very different, it was an attempt to diversify . . . After all that is happening regarding local, regional and international regulation, peer pressure that forces greater financial transparency and KYC (Know Your Client) – as well as agreements with third countries and blocks to providing automatic information for tax purposes – offshore banking ceased to make sense, at least in Macau, without any consequences for the rest of the banking system.” 

Figures before and after 

The numbers reveal that the two branches only began to be unattractive after the decisions taken in Lisbon to discontinue the activity. 

BPI closed 2013 with MOP772 million profit and 2015 with only MOP285 million. In 2013, it had almost MOP22 billion in deposits and two years later only MOP874 million – almost three times less. 

On 31st December 2016, BPI / Macau posted total assets of MOP876 million, 85 per cent less than in 2015.  Customer funds in the form of deposits amounted to MOP594 million, which compares with MOP874 the previous year. 

In November 2016, AMCM was informed by BPI headquarters that the branch would close at the end of 2017. As deposits expire, customers close their accounts, looking for more attractive options, or stay in BPI in Portugal. 

Regarding CGD, we know from the activity report for 2016 that the banking product at the end of that year was MOP10 billion, which corresponds to a reduction of 40 per cent ‘due to the fall in the margin financial’. 

Also, at the level of the net result there is a huge fall, since it goes from MOP11.9 million in 2015 to MOP5 million, almost 60 per cent less than two years prior. 

Finally, the net assets of CGD: MOP4.9 billion at the end of 2016 minus 24 per cent ‘due to the decrease of the deposits constituted at the seat of the bank.’ 

A final curiosity: CGD announced the closure after BPI and will do so more quickly: by the end of this month. BPI has been ‘in liquidation’ for a longer time, but the branch must also close by 31st December.