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Banks and financial services companies are expecting growth to continue as the economy prospers

MACAU'S ECONOMIC boom has benefited both banks and financial services companies.

Banco Nacional Ultramarino (BNU) reported generating ample revenue from its retail banking business last year. It also took part in several major financing projects in the gambling and entertainment industry.

Vitor Igreja,  head of the retail banking division at BNU, said: 'We foresee certain retail credit products, such as mortgage loans and credit card business, may achieve higher growth as the economy of Macau is expected to prosper.

'The average income of  Macau citizens will increase and more people may consider buying properties or upgrading their living standards. Consumer spending will also increase, therefore benefiting the bank's credit card business. We expect a steady annual growth rate in business during the next two to three years.'

Competition among the 23 banks operating in the former Portuguese enclave is keen, given that the  economy  is small and the population numbers about half a million.

Mr Igreja said BNU would compete by refining and enhancing its products and services to meet customers' requirements. For example, more personal insurance and investment products were being added to the bank's products list.

Some financial service companies, however, prefer to focus on offshore banking because this generates better returns than onshore banking, despite the economic boom.

One such company is Banco Delta Asia (BNA) of Delta Asia Financial Group.

Chairman Stanley Au Chong-Kit, a member of Macau's  legislative assembly,  expressed concern that the economy relied too much on its gaming and entertainment sector.

'Macau has only one engine propelling its economy: gambling and entertainment. What if China suddenly tightens the screw on mainland tourists coming to Macau?' he asked.

'Macau is also going to face a lot of competition in the gambling business. I presume countries like South Korea, Taiwan, Singapore and Japan will want to develop casinos [too].'

He  said the  government should  stimulate diversification by  helping small and medium enterprises, which are the mainstay of the economy.

Mr Au recently led a 70-man team on a study tour to Taiwan to learn how it was able to diversify away from manufacturing to service-oriented business.

Mr Au said the economic boom in Macau was not benefiting banks enough.

'I think the economic boom does not benefit banks too much because it is focused on gambling and [the] construction business. The boom has not filtered to other sectors of the economy.

'We benefit a little bit but not too much. As far as business is concerned, it is not too great. Interest spread in the past two years has been too narrow. The property financing business is not as profitable and is too risky. As far as we are concerned, banking in both Hong Kong and Macau are oversaturated,' he said.

Delta Asia Financial Group reported business growth of about 50 per cent during the past three years.

Mr Au attributed this growth to its offshore banking business and the Offshore Companies Act.

Macau introduced its Offshore Companies Act in September 1999, just before Portugal's handover of Macau to China, to reverse the economic downtrend by attracting foreign companies with tax incentives.

Under this act, offshore companies can be incorporated in Macau and are allowed to trade outside the enclave.

Mr Au said there were now about 500 offshore companies whose banking transactions benefited firms such as BDA.

A number of international banks, including HSBC, Hang Seng Bank and the Bank of Taiwan, have opened branches in Macau not because of the booming gaming and entertainment industry but to service Macau offshore companies which they already serve in Hong Kong or Taipei.  BDA competes with them by offering accessory services such as accounting and secretarial support. Offshore banking is Delta Asia Financial Group's most lucrative service. Since 2002, it has opened a representative office in Tokyo to liaise with high net worth clients and a financial consulting office in Zhuhai.

'We have plans to further expand in China and open branches in North America or Europe,' Mr Au said.

For onshore banking,  BDA is planning to introduce a new line of business called bancassurance, offering clients life insurance and managed pension funds. Taking advantage of the low interest rate regime in Macau, the company will also continue to introduce new investment products such as equity-linked notes which have been popular.

Looking ahead, BNU's Mr Igreja said banks  would focus on retail and commercial banking, credit products, fee-based services and more personalised investment products.

'With the existence of Cepa [the Closer Economic Partnership Arrangement with China], it is believed that the external commerce of Macau will gain much momentum, and may attract more foreign investment.

'The structure of the industries in Macau may be further diversified, helping the continuation of the economic growth. Under this scenario, banks may have more business opportunities to serve the  needs of corporations,' he said.

Bank on it

A number of international banks have come into Macau, such as HSBC, Hang Seng Bank and Bank of Taiwan.

Competition among banks is keen, given the small economy.

Some financial service companies prefer to focus on offshore banking because this generates better returns.



High hopes for finance sector