Macao banks seek new business on the mainland

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Last updated at: (Beijing Time) Tuesday, February 03, 2004

Macao banks seek new business on the mainland

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Banks in the Macao Special Administrative Region (SAR) are seeking new opportunities on the Chinese mainland for fresh impetus in their efforts to recuperate from the Asian financial crisis that took place a few years ago.

Although none of the local banks in the territory meets a reduced US$6 billion asset requirement under its Closer Economic Partnership Arrangement (CEPA) with the mainland, which took effect on January 1, business opportunities abound for the SAR's internationalized banking sector, Macao officials said.

Wan Sin Long, director of the Banking Supervision Department at the Monetary Authority of Macao (AMCM), said purchasing equity stakes in mainland banks, forming joint ventures and business co-operation are among the practical options for Macao banks.

The asset requirements effectively prevent Macao banks from directly setting up branches on the mainland.

"Some banks are examining (the possibility of) equity purchases and joint ventures," he said in an interview with China Daily.

Teng Lin Seng, chairman of AMCM, said earlier that buying into mainland banks is the most desirable means for Macao banks to enter the mainland market.

"This method is not only free from asset scale restrictions, but allows banks to use their existing networks in business development," he told a forum late last year.

Under the CEPA framework, the mainland has reduced the total asset requirement for Macao banks opening mainland branches to US$6 billion from US$20 billion previously. Still, even Macao's largest locally incorporated bank, Tai Fung Bank Ltd, is far from that figure.

But the region's 23 banks are thirsty for new investment opportunities. While their aggregate deposits now stand at some 120 billion pataca (US$14.5 billion), their total lending is just 20 billion pataca (US$2.4 billion).

"There are a lot of idle funds," Wan said.

Although the SAR's continued economic recovery is expected to generate new demand for funding, the banks would still have to look beyond the tiny region for investment opportunities, he said.

After weathering the shocks from the Asian financial crisis, the burst real estate bubble in the early 1990s and a seven-year economic downturn before its rebound on the mainland in 1999, banks in Macao have seen their asset quality and profitability improving notably in the past few years.

As they are still some distance away from directly entering the mainland market, the banks are hoping the growing circulation of the mainland's currency, renminbi, in the SAR can bring their way some quick business their counterparts in Hong Kong are starting to conduct.

Late last year, the People's Bank of China (PBOC), the nation's central bank, allowed Hong Kong banks to conduct renminbi business, including credit card, exchange, remittance and deposits on a trial basis, providing a channel for an estimated 700 billion yuan (US$84 billion) of renminbi banknotes circulating there to flow back to the mainland.

Renminbi is convertible under the current account but only partly convertible under the capital account.

Although the annual inflow of renminbi banknotes into Macao, as recorded at conversion into the local currency of pataca, is estimated at only 2-3 billion yuan (US$240-360 million), local banks have been eager to be able to follow Hong Kong's precedents.

"The demands from banks have been strong, and there have been calls from other circles since it has to do with the entire economy," Wan said.

The AMCM applied to the PBOC late last year seeking permission for banks in Macao to conduct renminbi business.

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