Speech presented by the Monetary Authority of Macao

At

the Spring Cocktail Reception

(March 18, 2005)

The Honorable Secretary for Economy and Finance, Mr. Francis Tam;

The Honorable Director of the Economics Department of the Liaison Office of the Central People’s Government in MSAR, Mr. Zhou Zhikui;

The Honorable Chairman of the Audit Committee of AMCM, Mr. Leonel Alberto Alves;

The Honorable Chairman of the Macau Association of Banks, Mr. Zhang Hong Yi;

The Honorable President of the Macau Insurers’ Association, Mr. Jiang Yidao;

The Honorable President of the Macau Insurance Agents and Brokers Association, Mr. Lau Weng Hang;

The Honorable President of the Federation of Macau Professional Insurance Intermediaries, Mr. Lau Seak Lon;

The Honorable President of the Macau Financial Markets Association, Mr. Abraham Kot;

The Honorable Vice-President of the Macau Financial Markets Association, Mr. Ma Chi Keong;

Distinguished guests, friends from the press, dear colleagues;

On the occasion of this Cocktail Reception amidst the touch of Spring, on behalf of the Monetary Authority of Macao (AMCM), I would like to convey a warm and sincere welcome to Mr. Francis Tam, the Secretary for Economy and Finance, Mr. Zhou Zhikui, the Director of the Economics Department of the Liaison Office of the Central People’s Government in MSAR, our distinguished guests, and friends from the media. Taking advantage of this opportunity, I would also like to thank Mr. Francis Tam for his support and guidance, throughout; other fellow government agencies, the community, finance and other business sectors for extending their support and co-operation, as well as to my colleagues for their dedication and hardwork, in carrying out our duties and functions.

During the five years since the return of sovereignty, and under the guiding policy of “Consolidating the basics and through self-strengthening to achieve steady growth,” together with the tremendous support extended by the Central Government, the government of the Macao Special Administrative Region (MSAR) has adopted a series of effective measures for economic reform and stimulating economic growth. All these measures, which were executed after considering the actual situation and the comparative advantage of the MSAR, have started to deliver results. A strong rising trend was observed in the economy which is signified by high growth, low unemployment and low inflation.

In the past year, the banking sector seized the opportunity upon the turnaround of the overall economy and the upturn of the property sector to broaden scope of service, introduce new financial products, upgrade quality of service and facilitate business performance. On the other hand, the sector actively devoted resources to carve out nonperforming assets, sharpen risk management and cost control, and upgrade overall operational efficiency. As a result, the banking sector is becoming more internationalized, more diversified in terms of operations and products, and more high-tech driven. The general business situation of the sector, as a result, has improved. As at the end of 2004, the total assets of the banking sector reached MOP171.3 billion, representing an increase of 10% when compared with the previous year. The growth rate for deposit business has increased by 10.2% to the level of MOP142.8 billion. Total loan extended reached MOP52.6 billion, representing an increase of 8.1%. Loan to deposit ratio still remained at a level closed to 36.9%. Nonperforming loans dropped substantially from 11.6% in 2003 to a better level of 3.5% in 2004. Capital adequacy ratio reached 15.7%, which is beyond the benchmark set by the Basel Committee. Annual profit for the sector was MOP1.473 billion, an increase of 36.4%.

It is worthwhile to mention the steady development of renminbi business since its inception in Macao in November, 2004. As at the end of November, 2004, the balance of renminbi deposit totalled RMB49.63 million. By the end of January, 2005, the balance increased to RMB105 million.

As at the end of the year, the exchange reserves of the MSAR reached a total amount of MOP43.54 billion, representing an increase of 25.4% when compared with the previous year. As to the MSAR Reserve Fund, the balance was MOP10.89 billion as at the end of the year. We continued to follow a prudent investment strategy in managing the Reserves of the MSAR. Even under the low interest rate environment and the volatile financial market, we have managed a reasonable return for the exchange reserves of the MSAR.

In order to ensure the stability and the convertibility of the pataca, we continue to adopt the policies of free flow of fund, no exchange control, market driven interest rate movement and the peg with the Hong Kong Dollar, and through relevant monetary instruments.

As ever, financial stability and development are the two major objectives of ours when we carry out the duty of supervision within the frameworth of the current laws and regulations. With risks management and internal control mechanism as the focus, we expand the scope to include anti-money laundering and anti-terrorist financing while we carry out banking supervision through onsite inspection, offsite surveillance as well as other relevant tools and measures. In the past year, we observed that many banks have stepped up effort on controlling and managing operational risks. Besides, they have made reference to the guidelines in the process of establishing an early warning system, credit management committee as well as asset and liabilities management committee.

With the rise in property prices, the AMCM has reviewed the potential risks and related preventive measures adopted by banks for the mortgage business. According to the survey conducted by the AMCM in 2004, the banking sector is supportive of the intention to devise a policy in order to address the loan ratio for the mortgage business.

The AMCM has been working with international bodies and supervisory authorities in the region for the purpose of reinforcing our effort to combat money laundering. While finetuning the related regulatory framework, we have also endeavoured to promote the concept and importance of anti-money laundering to the public. In the year, an expert team of the International Monetary Fund was invited to the MSAR to perform assessment on the legal and regulatory framework and their implementation. The conclusion of the assessment was positive and we have also received valuable recommendations.

Through years of preparation and consultation, in June of 2004, the Basel Committee on Banking Supervision issued the new framework for capital adequacy, Basel II, which is to be implemented by the end of 2006. In preparation for this, the AMCM conducted assessment on the current situation of Macao and consulted the banking sector at various stages. It would be premature for Macao to fully implement the new capital adequacy framework. Nevertheless, we have carried out feasibility study on the framework and mapped out preliminary implementation strategy.

In 2004, the performance of the insurance market was also in line with economic development. Total gross premium income registered a 19.4% growth to MOP1.89 billion in 2004. Non-life insurance business achieved a remarkable growth, as compared to previous years, of 15.1% with total premium of MOP450 million. Driven by the demand in investment-linked insurance products, total premium of the life sector reached MOP1.44 billion, representing a growth of 20.8% over 2003.

The private pension fund scheme, which is an integral component of the social security system, is playing an important role to maintain social security and enhance quality of life of the inhabitants. The AMCM has made use of appropriate channels to implement and promote the scheme subsequent to its inception in Macao. On one hand, we laid out the legal framework, guidelines, management practice and supervisory standard; on the other hand, we promoted to the general public about the importance, the legal framework and the operational procedures of the scheme. Through this effort, the scheme has gained more understanding by the community. In the year of 2002 and 2003, there was a total of 32 and 97 registered scheme respectively. By the end of 2004, the figure of registered scheme increased by almost fivefold to 161, of which 40 from schools and the remaining 121 from various types of organisation. The overall workforce covered by the scheme stood at 4,685 in the year 2002, 26,000 in the year 2003 and 34,000 in the year 2004. The magnitude of the increase reached almost sevenfold over the course of two years. Assets under fund management totalled MOP770 million in the year 2002, MOP1.5 billion in the year 2003 and MOP2 billion in 2004, representing a growth of 2.6 times within a period of two years.

On the side of insurance supervision, while our initiatives are to facilitate stable market development, ensure fair market competition and protect the legitimate interest of the consumers, we also devote to finetune the relevant legislations and their implementation. In the year of 2004, we enacted the “Tariff Rates for the Third Party Liability Insurance for Pleasure Boats,” completed the drafting of the law for “Travel Industry Compensation Fund” and initiated project related to amendment of the terms of the insurance contract. As to the Motor Vehicles Insurance (Third Party Risks) Ordinance, we have met with the Macau Insures’ Association to discuss potential problems and appropriate ways to revise the Ordinance.

Apart from reinforcing financial supervision, the AMCM also dedicated efforts to foster economic and financial development. In early 2004, the AMCM took part in a series of activities related to CEPA and economic promotion. By the month of October 2004, the AMCM, along with the Macau Association of Banks and the Macau Insurers’ Association, organized a delegation of the Macao financial sector to visit Beijing and Shanghai. The delegation was warmly received by the State Council of the People’s Republic of China and the leader of the Shanghai Municipal Government. Besides, we took the opportunity to meet with the top management of the counterparts in the Mainland. Basically, the delegation has reaped fruitful outcome from the visit. As ever, in the year of 2004, the AMCM continued to conduct half yearly conventional meetings with the People’s Bank of China Guangzhou Branch, the China Banking Regulatory Commission, the Hong Kong Monetary Authority and the Securities and Future Commission respectively. Basically, the objective of the conventional meeting is to enable the parties to keep abreast of each other’s latest economic and financial development. Besides, the parties can share supervisory measures that are recognized to be effective subsequent to implementation, as well as sharing the situation of organizations under cross-border supervision.

Looking ahead, in May this year, the International Association of Insurance Fraud Agencies will conduct its 2005 annual meeting in Macao. This is an important meeting for the international insurance industry. Macao has the honor to be the host jurisdiction for the event. In order to conduct the meeting smoothly and successfully, the AMCM would solicit the support of fellow government agencies and the insurance sector.

During the past 5 years since the return of sovereignty, the MSAR government has established a solid foundation for growth and development. For the new year, with further progress in the implementation of CEPA and the Cross Border Industrial Zone, as well as the deepening of the "Pan-Pearl River Delta Regional Cooperation Agreement", which, together, and resulting with the existing favorable factors and economic development policies, it is expected that the growth of the Macao economy will sustain. I believe that all of us here will take advantage of the favorable opportunity to expand business horizon, upgrade service excellence, strengthen capabilities, improve risks management, enhance internal control mechanism and operational efficiency. Of course, the Monetary Authority of Macao will play its role as ever along the way.

Finally, I would like to wish all of you happiness, health and prosperity.

Thank you.