Banco Delta Asia still in rough seas as diplomatic storm blows away

PUBLISHED : Tuesday, 20 March, 2007, 12:00am
UPDATED : Tuesday, 20 March, 2007, 12:00am

A MODERN BANK barred from the US financial system is sort of like an angler who has been grounded: he can still stand on shore and cast his rod but most of the fish are beyond reach.

Banco Delta Asia, the tiny Macau-based lender that for the past 18 months was at the centre of a nuclear stand-off between the United States and North Korea, last week earned the dubious distinction of becoming only the sixth bank worldwide to be cut off by the Treasury Department from doing business with US-based financial institutions.

Washington accused the bank of facilitating transactions related to alleged North Korean counterfeiting of US currency, manufacturing of fake cigarettes and trading in illegal drugs. For its part, bank chairman Stanley Au Chong-kit said it never knowingly accepted illicit funds.

The diplomatic impasse now appears to have been breached. Last week's Treasury action - coupled with a deal announced yesterday by US officials in Beijing that would release some US$24 million in North Korea-linked funds frozen in Banco Delta Asia accounts - has shifted the political winds.

Negotiators from China, Japan, North Korea, Russia, South Korea and the US have moved on, and are now in Beijing to discuss closing down North Korean nuclear reactors.

But locally, the difficult question of what to do with Banco Delta Asia remains.

The bank has been operated under the stewardship of a three-member, government-appointed committee since the US first announced its investigation in September 2005.

Mr Au, a member of the Chinese People's Political Consultative Conference who was once a candidate for chief executive of Macau, remains the owner of the bank. Last week, he claimed assurance from the Macau government that it would 'return the control of the bank by the end of March'.

Indeed, the formal ban announced by the US Treasury and the subsequent resolution of the US$24 million in frozen funds cleared the way for the government caretaker committee to relinquish control.

But ignoring for a moment the likelihood that Macau will hand control of the bank back to Mr Au, a more pressing question is why he would want it. Banco Delta Asia had approximately US$390 million in total deposits just before the September 2005 announcement which triggered a run on the bank and forced the Macau government to inject liquidity in an effort to keep the lender afloat. By July of last year, despite the official intervention, deposits had fallen to US$205 million.

Moreover, being cut off from the US financial system, severely limits the ability of a bank to process international payments and transactions. Faced with such prospects, many chose to close shop.

Consider the record of Banco Delta Asia's five predecessors on the US blacklist.

Myanmar Mayflower Bank and Asia Wealth Bank, two Myanmese institutions, were shut down by the ruling military government in 2005 after being barred from the US network the previous year.

VEF Banka of Latvia was put up for sale by its shareholders almost immediately after a US Treasury ruling in July last year that accused it of money laundering.

Of the five, only the Commercial Bank of Syria and subsidiary Syrian Lebanese Commercial Bank (of Lebanon) continue to operate, despite a US finding in March last year accusing both institutions of financing terrorist activities and laundering proceeds of illegal sales of Iraqi oil. Both lenders are state-owned, and the Syrian government denies the charges. Last month, Commercial Bank set up a US$200 million government investment holding company.

As for Banco Delta Asia's situation, under Macau law the government can maintain some level of official oversight, force a sale of the bank, return control to Mr Au, temporarily close its service counters, suspend its banking licence or launch winding-up proceedings.

Significantly, the US has said it would consider lifting the ban on Banco Delta Asia if its concerns were addressed, 'including if [the bank] were to be brought under the long-term control of responsible management and ownership'.

And Banco Delta Asia might yet make for an attractive takeover target.

Several small and medium-sized Hong Kong banks have established a presence in Macau, where deposits grew 25 per cent last year and loans grew 15 per cent. The bank is well established, having operated in Macau since 1935. Banco Delta Asia has eight local branches and still retains about 30,000 customers on its books.

Then again, the process of meeting US demands in order to lift the ban, although not unprecedented, is likely to require a good deal of time and effort. There are plenty of other fish in the sea.

Jake van der Kamp is on holiday