Association of Banks: Macau could become an offshore financial hub

Macau has the conditions to develop into an offshore financial centre, which will be a significant driving force for the promotion of economic diversification in the city, a local banker has suggested.
Yet, this financial hub “definitely” will not compete with that of the neighbouring regions and instead there should be a “complementary relationship” between them, acting chairman of the Macau Association of Banks (ABM) Ip Sio Kai told the Macau Daily Times.
According to Ip, developing an offshore financial centre in Macau can follow these few directions: “To become a free port where Macau can gradually turn itself into something similar to the renminbi circulation hub and distribution centre in Hong Kong; to make use of the traditional relationship between Macau and the Portuguese-speaking countries and consolidate the economic and financial cooperation service platform with them in order to introduce the renminbi into these countries; and to become a financial intermediation platform for the Mainland enterprises in the ‘Go Out’ policy by providing supporting trade financing and renminbi clearing services”.
The ‘Go Out’ policy, also known as the ‘Going Global Strategy’, is an initiative launched in 1999 by the Chinese Government to encourage domestic enterprises to invest overseas.
Amid the continued appreciation of the renminbi and the depreciation of US dollar, questions have been raised in society whether the pataca should decouple from the Hong Kong dollar - which is pegged to the US dollar - and change to peg to the renminbi.
The Monetary Authority of Macau had previously confirmed the impossibility, claiming that the renminbi, unlike the US dollar, is not a freely convertible currency in the world.
Ip, who is also the deputy general manager of the Bank of China Macau Branch, said stronger renminbi has triggered a rising cost of Mainland imports and therefore it is “understandable” that some of the residents of Macau prefer to peg the pataca with the Chinese currency.

However, he pointed out that the ABM believes the current pegging system will remain unchanged.
“The facts proved that the current currency system of Macau has protected the freedom of entry and exit of funds and also financial stability,” the banker told the MDTimes.
“Any policy change needs to maintain Macau’s financial stability as a prerequisite and also go through comprehensive and detailed argumentation.”

Rising renminbi deposits

Since the financial crisis hit the globe in 2008 and 2009, Macau people’s investment and deposit attitude did not report a significant change, Ip said.
“Macau residents’ investment and wealth management preferences have always been relatively stable and steady, which are mainly traditional products such as stocks, foreign exchange and fund, and seldom involve derivative investments with great leverage,” he added.
Yet, with the increasing options of bank products and the Chinese currency going global in recent years, Ip disclosed that local people’s investment style has become “more rational” and renminbi deposits have shown “signs of accelerated growth”.
On the other hand, the acting chairman said real estate mortgage in the territory reported a “fast growth” in 2010, with a majority having been granted to local residents.
Despite the Government’s several measures to control the property market, Ip believed that they mainly target suppressing speculation and only have “minimal impact” on real home buyers.
“Various banks have followed the regulatory requirements, own credit risk policy and financial conditions to operate the credit business, and therefore the so-called excessive borrowing issue doesn’t exist,” he added.
According to Ip, various main operating indicators of the banking industry reached a record high in 2010. With new banks setting foot in Macau and some other banks adding branches, he said the size of the industry has further expanded.

Ip Sio Kai, acting chairman of the ABM: ‘The facts proved that the current currency system of Macau has protected the freedom of entry and exit of funds and also financial stability’

ABM chairman Ye Yixin announced in mid-February that the total earnings for the local banking industry were reported at MOP 3.9 billion and estimated that the real economic growth would reach 30 percent for the year 2010.
Ye said preliminary estimates suggested that as of the end of last year the local banking industry had total assets worth MOP 540.13 billion, a growth of 26.5 percent; loans worth MOP 245.71 billion, an increase of over 30 percent; and deposits totalled MOP 340 billion, up by over 10 percent.
The bad loan ratio remained low at 0.4 percent.
However, Ip said the industry is at the same time facing numerous challenges triggered by the “uncertain factors during the global economic recovery, soaring inflation and tense supply of human resources”.
He admitted that “the low interest rate environment, slow growth of domestic deposits and pressure on interest margins are difficult to change in the short-term”.
Looking to the future, Ip believed that Macau’s banking industry needs to “look farther and wider” and reinforce the linkage with external business.
“The internationalisation of the renminbi, the ‘Go Out’ policy as well as capital flows in the Mainland will significantly promote the formation of an offshore market and the expansion of cross-border renminbi business between Hong Kong and Macau, which will eventually bring unprecedented opportunities to the development of Macau’s banking industry,” he said.
Hence, renminbi-related business is expected to experience a “more favourable development prospect” in the future, he stressed.