Bad loans have hit a 20-year high; sector claims there is no cause for alarm

The local banking sector has continued on an escalation of non-performing loans over the year of 2024, with November hitting the highest level in 20 years, a report on the monetary and financial statistics released by the Monetary Authority of Macao (AMCM) noted.

According to the same report, the non-performing loan ratio increased from 5.4% at the end of October to 5.5% at the end of November last year.

In total, non-performing loans accounted for MOP54.88 billion at the end of November last year, making it the 21st consecutive month of growth.

The last time there was a drop in the non-performing loan ratio was back in February 2023, when the rate dropped marginally from 1.7% to 1.6%. At this time, the total sum on the line was MOP20.04 billion.

When compared year-over-year with 2023, bad loans have grown in amount by 87.6%, from MOP29.26 billion (2.6% ratio) to MOP54.88 billion.

The same report from AMCM also shows that while bad loans to residents have remained stable for the three months ending in November 2024, those related to non-residents of Macau have been consecutively growing, representing MOP34.33 billion (7% ratio) at the end of November.

Despite the poor outcomes, the banking sector has said that the figures are not yet alarming and that banks are acting on the problem, Ip Sio Kai, the chairman of the Macau Association of Banks and deputy general manager of the Bank of China Macau Branch, told public broadcaster TDM.

Ip stated that while the situation does not pose a significant impact on the capacity of the banking institutions to provide financial services to clients, the sector is concentrating efforts on reducing the non-performing loans through the cancellation of the loans (covered by the Bank), followed by direct negotiation with the clients for the recovery of the assets related to the non-performing loans.

The same official noted that the sums of non-performing loans are likely to continue to grow “under the current economic situation.” He explained that this is mostly due to the lack of capacity of the SMEs to repay the loans they have contracted in the last few years, taking advantage of the support measures enforced by the government.

Ip remarked that if the Interest Subsidy Plan, previously enforced by the government, is canceled or restructured, some SMEs whose receipts have not yet recovered will face added difficulties as they might have to repay not only the remaining unpaid loan amounts but also additional interest.

Also, speaking to TDM, economist José Luis Sales Marques shared similar opinions with Ip, noting that this growth of bad loans reflects the difficulties of companies in fulfilling their obligations on the loans they have contracted.

He also agreed that, from the point of view of the banking sector, the ratios and amounts on the line are not likely to constitute a significant danger for the banking institutions.

Nonetheless, Sales Marques noted that this fact reveals information about the performance of the local economy and so deserves attention and close follow-up.