Fitch Ratings says Macau's economic slowdown, largely the result of a decline in gaming revenue, will challenge its banks, as loan growth across all sectors has been rapid in the last few years and often driven by the gaming industry.
The banks' gaming exposure is small at only 3 percent of assets at end the end of 15Q1, but they have a higher exposure to property and China as well as a decent exposure to other sectors that would be affected by further weakening in gaming revenues, Fitch said in a report.
Fitch expects mortgage quality to remain benign, as long as unemployment remains low. Growth in Mainland China exposure - 21 percent of system assets at the of end 2014 - will continue to outpace that of property loans, driven by cross-border trade finance and syndicated loans for property projects, the majority of which are financed by Chinese-owned banks.
“Even in the event of asset quality deterioration, the Macau banks' Issuer Default Ratings are unlikely to be affected because all are underpinned by institutional support from much larger parents.”
“Key areas to watch include Chinese authorities' gaming and anti-corruption policies, banks' risk appetite and improving anti-money laundering practices, and a likely increase in volatility in liquidity flows across borders.”
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