Bank profits drop to record low in November

The profits of local banks in November reached the lowest level of the first eleven months of 2014, a sign that the current plunge in gaming revenues is not only putting the economy on the path to its first recession in years but starting to take a toll on the financial system. The data published yesterday by the Monetary Authority of Macau (AMCM) shows how the gaming crisis in Macau could be affecting the banking system as companies see their business cooling down and individuals postponing some buying decisions. Until now, the sector was growing healthily with credit and profits rising at double-digit rates every month. In November, however, momentum slowed. The operating profit of Macau banks was MOP721 million in November, said AMCM. That’s not just the lowest figure recorded in all 2014 so far (Data for December is not yet available). It also reveals that banks here made 30 per cent less profits that month compared to the average of 2014 and took home MOP200 million less in results, according to Business Daily calculations. From January to November, the monthly average profit of the banking system here was MOP931 million. Compared to October, the monthly November drop is even higher (MOP360 million) as banks here profited MOP1,082 million in the former month. The operating result is the profit excluding the previous year’s profits or losses, one-off events, taxes or interest. Following the economy On a year-on-year basis, the slowdown of bank business is also evident. Profits in November were only 1.2 per cent higher than a year ago, an almost flat performance. In October, by contrast, profits went up by 19 per cent year-on-year. However, it’s still too early to know if November was an exception or the beginning of a similar trend suffered by the gaming industry and the economy at large. AMCM doesn’t yet have the data for credit and loans in November but if profits declined in that month it is likely both segments followed suit. The deceleration of the banking system was already happening in the last leg of 2014. New commercial real estate loans dropped 28 per cent in October from a year ago, while deposits decreased 12 per cent from September. Despite the slowdown in the fourth quarter of 2014, local banks will register a record year in profits. AMCM data shows that in accumulated terms the financial institutions here made MOP10.2 billion in operating profits between January and November of last year. That’s already 33.5 per cent above what’s recorded for the same period in 2013 (MOP7.9 billion). In the third quarter of 2014, Macau’s economy suffered its first decline in five years, with Gross Domestic Product (GDP) decreasing 2.1 per cent year-on-year due to the substantial drop in gaming revenues that represent more than half of the local economy.