Sole Survivors

Despite the performance of the crumbling gaming industry, the collapse in government taxes and the world’s fastest economic slowdown, banks in Macau continue to deliver a solid performance with profits going up by double digits. Growing deposits from non-residents, more loans to small and medium enterprises and more cross-border businesses are fuelling the local financial industry. The Monetary Authority of Macau (AMCM), the city’s ‘central bank’, describes the performance of banks here as ‘outstanding’.
In fact, the financial system always goes hand in hand with the rest of the economy. And here is no exception. But the impact of the economic slowdown this time in banks was lessened as the government has launched several programs to support the creation of small businesses and local companies are expanding to Hengqin. This, in turn, has provided more clients for banks and reduced its exposition to Macau.

Double digits
The Macau economy contracted 24.5 per cent in the first quarter. But the profits of local banks surged by double digits. From January to April, operating profits in the sector reached MOP4,025 million, a monthly average of MOP1,006 million and 11 per cent increase on the 2014 average. The performance still represents a slowdown compared to 2014 or previous years, but is still much better than casinos or real estate companies, for example.
Even last year, when the economy and the gaming industry declined, Macau banks were able to achieve ‘outstanding results’, AMCM wrote in its annual report. Operating profits for the first time surpassed the MOP10 billion mark (the total amount was MOP10.875 billion). The growth rate of profits was 28.4 per cent year-on-year, the second best performance since 2010. ‘Supported by the MSAR Government’s policies to promote economic diversification and the further deepening of cross-border economic co-operation, as well as the continuous efforts by banks to implement effective risk management processes and internal control measures, the banking sector achieved outstanding results’.

Multiples
Banks here make treble the profits today than they did five years ago and two times more than in 2012. From 2010 to 2014, for example, the growth rate of the industry’s profits was 30 per cent per year. Not as impressive as the casino industry in those years, but much more stable.
According to official data, the total assets of banks here have grown 50 per cent since 2012 and continue to break records. By the end of 2014, it had reached MOP1,174 billion and by the end of April was already MOP1,298 billion, a 10 per cent increase in only four months.
AMCM says the local banking system will face several challenges this year as the Macau economy undergoes a ‘consolidation’ phase, with the global economy expected to be ‘unstable due to the divergence in monetary policies of major economies, increasing volatilities in commodity prices, as well as the managed slowdown of the Mainland’.
However, contrary to other sectors – take the gaming industry, for example – banks here have the opportunity to diversify risk and revenues outside Macau. Examples are the ‘One centre, one platform’ policy adopted by the government and the cross-border economic co-operation between the city and the Mainland through CEPA, the ‘Outline of the Plan for the Reform and Development of the Pearl River Delta’, the ‘Overall Development Plan of Hengqin’, the ‘Framework Agreement on Co-operation between Guangdong and Macau’ and the ‘Guangdong Free Trade Zone’, AMCM says. China’s long-term development programmes including the ‘Go Abroad’ and ‘One belt, one road’ initiatives, will create immense business opportunities for banks here.