IMF published its staff report under the 2018 Article IV consultation with the People's Republic of China-Macao Special Administrative Region (SAR). The IMF Directors concurred that the financial sector remains sound with healthy liquidity and asset quality. They welcomed the steps taken to strengthen supervision and regulatory cooperation across jurisdictions. Given the large size of the financial sector and the significant short-term foreign liabilities, Directors called for continued supervisory caution, including for sound fintech adoption. Directors agreed that the current housing macro-prudential stance and related measures appear broadly appropriate and that systemic risks in the housing market seem broadly contained.
The staff report highlights that balance sheets of the banking system continue to suggest that the sector remains sound, but ongoing attention to large short-term foreign liabilities and to the quality and liquidity of foreign assets is needed. Foreign banks are the bulk of the financial system and they constitute 24 foreign branches and subsidiaries and four local banks. The large scale of the banking system (about 400% of GDP in total assets) calls for continued supervisory caution. Domestic operations remain strong regarding liquidity and asset quality, helped by moderate private-sector leverage. The external side of the banking sector balance sheet shows large foreign liabilities, over 65% short-term, increasing funding risks. Regarding risks to foreign assets, given the significant bank exposure to the Mainland (about 30% of external assets), recent efforts by the Monetary Authority of Macao (AMCM) and PBC to strengthen financial supervisory and regulatory cooperation, with plans to set up an information exchange framework, are welcome.
The authorities reported on satisfactory results from regular stress tests on banks’ assets, including from shocks to the real estate portfolio and the Mainland exposure. The current housing macro-prudential stance and related fiscal measures appear broadly appropriate. With new measures in place in 2017 and 2018, systemic risks in the housing market appear broadly contained. Further actions should take into account evolving market conditions, including the recent growth deceleration and leveling-off in residential property prices. If residential property prices resume strong growth and pose a risk to financial stability, the authorities could consider tightening macro-prudential and/or fiscal-based measures. The authorities are encouraged to replace the residency-based differentiation in the loan-to-value (LTV) framework with alternative measures. Housing affordability concerns should be addressed by a broad set of supply policies, including advancing regulatory policy within a transparent framework that supports private sector supply and boosts well-targeted public housing supply.
The report notes that the AMCM could further strengthen the framework for sound fintech adoption. Measures could be taken to further increase cyber resilience in financial institutions and fintech firms, to promote regtech to reduce regulatory costs, and incentivize fintech firms to participate in a regulatory sandbox. Enhanced cross-border supervisory collaboration could help prevent regulatory arbitrage and avoidance. Recent efforts toward cooperation in financial regulation by the AMCM and PBC, including to coordinate work on fintech in Macao SAR, provide an opportunity for progress.
Related Link: Staff Report
Keywords: Asia Pacific, Macao, Banking, Article IV, Fintech, FSAP, Macro-Prudential Policy, Systemic Risk, AMCM, PBC, IMF
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
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