Macau banks have sufficient buffers to weather near-term nCov risks

Outlook hangs on parent banks’ abilities to provide support.

Macau banks have sufficient buffers to alleviate near-term asset quality and profitability pressures caused by the coronavirus outbreak, says Fitch Ratings.

Institutional support from their parent banks in China and Singapore will support Macau banks to weather the impetus of the nCov outbreak. Banks will also be supported by the relief measures introduced for residential mortgage loans and other types of personal and SME lending, Fitch said in a note.

Similar to Hong Kong, Macau banks are also more insulated from declines in property prices than they were during the SARS period after macro-prudential measures were implemented over the years and bank buffers were built up following the global financial crisis.

Nevertheless, bank earnings will remain weak in the near term, with China's GDP growth slowing to 5.2%-5.7% from a baseline of 5.9% in 2020, depending on the speed at which the virus is contained.

The suspension of all casino operations and relevant entertainment facilities for 15 days on 4 February will significantly impact the city’s GDP. Gaming revenue contributes around 70% of Macau’s GDP.

However, the impact on local banks' asset quality should be contained providing the hit to GDP is not prolonged.

“In previous downcycles, Macao banks managed to maintain their credit costs at tolerable levels, for example, their asset quality remained benign in 2015 even when there was a significant drop in gaming revenue,” the note read.

The outlook for Macau’s banks is based on their parent companies' abilities and propensity to provide timely and adequate support, the note concluded. 

Photo courtesy of Diego Delso (Wikimedia Commons)