Non-performing loans reached 5.5% in November of last year, totaling MOP 55 billion, a record for the past two decades. Data released by the Monetary Authority of Macau (AMCM) show that the debt amount has been rising for 21 consecutive months.
The situation is so significant that one of the first actions of the new Secretary for Economy and Finance was a meeting with the leaders of AMCM and the Macau Bankers Association, during which Tai Kin Ip stated that banks, following their own credit policies, could continue offering flexible loan repayment plans to alleviate the financial pressure on SMEs.
Professor Markus Leibrecht, from the Faculty of Finance at the University of Macau, raises a warning: the current volume of non-performing loans is “relatively high,” and it is “notable” how quickly it has increased since 2019. “The level and extent [of the debt], as well as the speed of changes in interest rates, indicate a relatively high exposure to risk.” Leibrecht warns of “significant challenges in the near future.”
António Félix Pontes, economist and former president of AMCM, also considers the evolution of non-performing loans to be “concerning,” reflecting the “precarious economic situation of SMEs and some larger entities.” He emphasizes that the current level poses a systemic risk to the banking sector because it “introduces an element of uncertainty, with a potential negative impact on the confidence of depositors and investors,” with adverse effects on economic growth. “At the same time, it reduces the capacity for credit issuance, affecting the pace of development and increasing the cost—interest rates—of loans for individuals and businesses.” In summary, non-performing loans bring dark clouds to the economic environment… It’s a major headache for both banks and regulators,” Pontes concludes.
Worse for Non-Residents
As of September 30, 2024, 13 of the 30 banks with published accounts in the SAR reported losses, 20 of which had lower operating results compared to the previous year. The granting of real estate loans on the Mainland—by some of these banks—has contributed decisively to the “gloomy outlook” of non-performing loans, explains Pontes. The ratio of non-productive or overdue credit is still higher among non-resident clients (7%) than among residents (4%). The value of loans overdue by more than 90 days has increased by 2.9 percentage points annually, and by 5.2 points since the end of 2019.
By the end of November 2024, the ratio of debts on housing mortgage loans recorded an increase of 2.6 percentage points compared to the same period the previous year, reaching 3.4%. Meanwhile, the ratio of unpaid debts on commercial loans for real estate activities reached 4.8%, an increase of 2.4 points compared to the previous year. To relieve the pressure, Pontes suggests that banks “carry out a thorough analysis of the financial situation of loan beneficiaries,” including their historical repayment capacity. “Before granting loans, adequate guarantees should be obtained and, subsequently, they should be continuously monitored, paying particular attention to early warning signs and acting accordingly in an effective manner.”
Leibrecht advocates for both short- and long-term policy measures to mitigate potential risks, urging banks to “consider restructuring loans as a way to help businesses with liquidity problems. This means giving businesses more time to resolve debts,” he explains, highlighting options such as extending repayment terms, adjusting interest rates, or even debt forgiveness. Moreover, Leibrecht suggests that the Government should implement policies that financially strengthen banks; this is essential to ensure “sufficient capital to absorb losses and continue lending,” which is vital for maintaining a “stable interbank market.”
Risk Controlled
In a response to a written inquiry from Deputy Wong Kit Cheng in October, AMCM downplayed any potential dangers to the economic system, explaining that the outstanding loans were related to commercial loans secured by residential or commercial properties in China—or abroad—and that the guarantees were sufficient.
During the pandemic, measures such as the “interest-only payment plan” and the “adjustment of repayment plans for small and medium-sized businesses” were introduced to alleviate financial pressure. These measures ended on December 31, 2024, but according to AMCM, banks can continue offering support “while respecting the principle of prudent risk management.”
The Monetary Authority stated in that response that most of the non-performing loans to residents were commercial loans secured by properties, citing a doubtful collection ratio of 0.9%, which it considered to be a “low level” and “controllable risk.” Among loans to non-residents, “many were related to real estate projects, also secured by guarantees. Banks have appropriately provisioned for risks, and AMCM will continue to monitor the banks and maintain close communication in response to market changes.”
