Banking & Finance 2024 Comparisons

The mainstays of the Macau Special Administrative Region’s economy are the tourism and entertainment sectors.

The dominant forces in the growth and development of the Macau loan market – residential mortgage loans (RMLs) and commercial real estate loans (CRELs) – have fluctuated significantly. According to the Macao Economic Bulletin – jointly published by the Macau Economic Bureau, the Monetary Authority of Macau (AMCM) and the Statistics and Census Service – new RMLs approved in June of 2024 rose by 17.1% month-on-month to MOP1.20 billion, while new CRELs approved in June of 2024 decreased by 24.0% month-on-month to MOP2.20 billion. The outstanding value of CRELs fell by 5.0% year-on-year to MOP154.03 billion, and the outstanding value of RMLs fell by 3.9% year-on-year to MOP224.67 billion.

Considering the current economic situation, the financial sector has been viewed as a fitting candidate to assist Macau in developing a more diversified economy. The government has made it clear that a series of actions will be taken to nurture a more prominent bond market in Macau. It is worth noting that the Ministry of Finance of the People’s Republic of China and the Department of Finance of Guangdong Province have both returned to issuing government bonds in Macau.

While the economy has taken a hit, financial services and their regulatory framework are expected to embrace further developments in the near future, particularly in bonds, trusts and investment funds services.

The impact of global conflicts on Macau has been indirect. Consumer prices and inflation rates have remained steady and low.

The issuance and listing of bonds in Macau are primarily confined to certain types of corporate entities, particularly those originating from Mainland China.

Traditional financing terms and structures therefore remain relatively unaffected.

Credit activities are highly regulated in Macau and, in general terms, credit can only be provided by licensed banks and finance companies. Traditional banks aside, there is only one finance company that has been established in Macau. There has therefore been no significant growth in alternative credit providers.

Due to the economic surge in Macau over the past decade, traditional banks are actively promoting private banking and wealth management to serve high net worth individuals (HNWIs), which, in some cases, involves tailored lending and mortgage strategies.

More financial institutions have been extending their cross-jurisdictional abilities to companies and individuals engaged in businesses or transactions across the Pearl River Delta Metropolitan Region, including in neighbouring Hengqin Island, Hong Kong and Guangdong Province.

The authors expect that the number of Mainland China companies issuing bonds in Macau will increase over time. Banks in Macau have become increasingly experienced in bond-related services, particularly underwriting and the custody of corporate bonds, as well as the management of corporate bonds issuance and trading. Recently, the Department of Finance of Guangdong Province has announced that it will issue renminbi-denominated offshore bonds in Macau.

Environmental, social and corporate governance has been a major topic of discussion in recent times among public authorities and NGOs. It is expected that policy development on this topic and sustainability-linked lending will continue to be discussed in the coming years.

Only licensed banks, certain restricted licence banks and those financial institutions that have been properly constituted and authorised under the terms of the Macau Financial System Act (Law No 13/2023) or special legislation – ie, the Finance Companies Act (Decree-Law No 15/83/M) – are allowed to provide, on a habitual basis and with a view to profit, lending, guarantees and other commitments, financial leasing and factoring in Macau.

Authorisation is granted by the Chief Executive of Macau on advice from the AMCM and, in general terms, entities willing to incorporate a credit institution in Macau should submit their application through the AMCM, accompanied by relevant information. This information includes, inter alia:

• a feasibility study report and business plan, which should outline the economic and financial reasons for incorporating the institution, the  types of business operations planned and how the business operations of the institution align with the economic and financial policies pursued by the competent authorities of Macau;
• an explanation of corporate governance, risk management, internal controls, emergency recovery plans, as well as the mechanisms for preventing and combating money laundering and terrorist financing;
• a draft of the memorandum and articles of association;
• information about the shareholders, the extent of their shareholding in the credit institution, and an explanation of the adequacy of the shareholder structure to ensure the stability of the credit institution;
• information on any entities with a direct or indirect holding of 5% or more of the institution to be incorporated, including a list of other entities in which these entities are qualifying shareholders, as well as the organisational structure of the respective group;
• information on the members of the administrative and supervisory bodies;
• a description of the source of funding and the human, material, and technical resources; and
• any other information the AMCM deems necessary for proper evaluation of the application.

The decision on the application for authorisation shall, inter alia, take into account:

• the suitability of the qualifying shareholders;
• the adequacy and feasibility of the business plan;
• the soundness and effectiveness of the corporate governance structure and the risk management system.
• the adequacy of the human, technical and financial resources required for the type and volume of transactions that the applicant proposes to conduct, including the effectiveness of the capital constraints and replenishment mechanisms;
• the appropriateness/alignment of the objectives of the applicants with regard to the economic and financial policies pursued by the official bodies in Macau;
• for foreign qualifying shareholders, the economic and financial situation of their residence, the regulatory capacity of the foreign authorities, as well as the effectiveness of the co-operation between these authorities and the AMCM; and
• any other prudential factors that contribute to maintaining the overall stability and effective operation of the financial system of Macau.

Any local or foreign entity in Macau that provides lending on a habitual basis and with a view to profit must abide by the regulations described in 2.1 Providing Financing to a Company. The applicability of the requirements described does not depend on the origin of the entities.

Nonetheless, it is common for foreign institutions not registered in Macau to grant loans, including syndicated loans. This form of lending is not considered habitual, so it does not contravene the rules established by the Macau Financial System Act.

There are no prohibitions imposed on granting security or guarantees to foreign lenders. However, in accordance with the Macau Commercial Code, companies cannot provide personal or real guarantees for the obligations of other persons, except if there is an own interest in the company, declared and reasoned in writing by the administration body.

Macau is a free port and there are no general exchange controls or restrictions on, and regarding, foreign currency exchange.

The use of the proceeds from loans or debt securities is determined by the agreements entered into by and between the lender and borrower, and, other than what has been agreed between the parties involved in the financing agreements, no restrictions exist on the borrower’s use of proceeds from loans or debt securities.

The concepts of agent and trust are both recognised in Macau. The agent is commonly referred to as the “mandatário” and, in the context of loans, the agent mostly appears in a syndicated loan arrangement as an administrative figure.

At times, a special irrevocable power of attorney arrangement may be considered.

Trusts were introduced into the Macau legal system by the enactment of Law No 15/2022 on 1 December 2022, the “Trust Law”.

Credit assignment and contractual position assignment are the main loan transfer mechanisms that exist under Macau law.

By credit assignment, the lender can assign to any third party, partly or wholly, the credit in question, without the consent of the borrower, unless otherwise stated in the law or by agreement, or unless the credit is, by its very nature, linked to the personal quality of the lender. In the absence of any contrary agreement, credit assignment also transfers the associated securities to the assignee, as long as the securities can be transferred by the assignor.

Through contractual position assignment, a party to a particular loan arrangement (in this case, the lender) can transfer its contractual position in its entirety to any third party, but the lender must have the consent of the other party (in this case, the borrower) to do this.

Debt buyback is not forbidden by law in Macau. However, when the market circumstances and contractual terms are favourable, a borrower would more commonly consider repayment of the loan in advance.

There are no particular rules under Macau law regarding “certain funds” with respect to public acquisition finance transactions.

As mentioned in 3.5 Agent and Trust Concepts, the Trust Law has been passed and entered into force on 1 December 2022, while Law No 13/2023 has been adopted to replace the Macau Financial System Act of 1993 (Decree-Law No 32/93/M, 5 July 1993). In addition, the government intends to speed up the drafting and legislation of laws and regulations concerning securities markets and investment funds.

The general legal interest rate in Macau is fixed at 9.75% annually. Any interest rate that exceeds three times the legal interest rate – ie, one higher than 29.25% annually – is considered as usury.

Without prejudice to a contrary written stipulation regarding methods for the determination and variation of interest rates, commercial interest rates are the same as the general legal interest rates, but 2% shall be added to the rate in the case of delayed repayment by a borrower.

Contracts depending on the underlying assets may be subject to registration requirements.

In accordance with the Macau Complementary Tax Law, there are no provisions for withholding taxes from payments made by local companies to foreign companies.

Banking operations are subject to stamp duty. The following are subject to such duty at a rate of 1% over the global amount of the profits determined:

• commissions relating to credit operations;
• banking service commissions and other banking profits, where these result from safe value activities; and
• intermediation of payments and administration of capital.

Nonetheless, there are statutory exemptions, including when the loan is granted by credit institutions authorised to operate in Macau.

If a foreign lender or non-money centre bank has a physical presence in Macau that meets the criteria of a permanent establishment, it may be subject to tax on its business profits derived from Macau. It is important to assess whether the activities carried out within Macau constitute a potential permanent establishment and consider the potential tax implications accordingly.

The assets typically available as collateral to lenders are real estate property (eg, urban and rural properties), movable property (eg, cars, ships, aircraft, company shares and quotas, and IP) and receivables (eg, deposits, income, proceeds from insurance claims, and rights to payment).

The applicable formalities and perfection requirements generally conform to those that are applied to the constitution or acquisition of the assets, ranging from a simple agreement between the parties, to a public deed with the intervention of a notary public, possibly with the additional requirement of completing the registration of the security with the competent public authorities (eg, the Real Estate Assets Registry or the Commercial and Movable Assets Registry).

The essential consequence of not completing the above requirements renders the respective security invalid and/or unenforceable against any third party.

The timing and costs involved in arranging any of the above security measures vary and will depend on the complexity of the respective formalities and perfection requirements.

The Macau Commercial Code permits that a floating charge be granted over all present and future assets of a company, provided that certain prerequisites are fulfilled.

There are no general or associated limitations or restrictions on downstream, upstream and cross-stream guarantees. However, in accordance with the Macau Commercial Code, companies cannot provide personal or real guarantees for the obligations of other persons, except if there is an own interest in the company, declared and reasoned in writing by the administration body.

The general rule is that companies cannot provide personal or real guarantees for the obligations of other persons, except if there is an own interest in the company, declared and reasoned in writing by the administration body. Therefore, unless the target being acquired satisfies the above requirements, any guarantees, security or financial assistance for the acquisition of its own shares would be null and void.

Besides the general rule mentioned in 5.4 Restrictions on the Target, restrictions are imposed on credit institutions (eg, banks) to limit their exposure to the holders of qualifying holdings – ie, any person, individual or corporate that has, directly or indirectly, a qualifying holding in them – or to companies over which this person has direct or indirect control. Additionally, the aggregate exposure of all holders of qualifying holdings and companies may not exceed, at any time, 40% of their Tier-1 capital.

Such operations require approval from two thirds of the members of the credit institution’s board of directors and a favourable opinion from its supervisory board, and the AMCM shall also be notified of the respective terms within ten days, counted from the date of the respective approval.

Specific limits are also imposed on:

• exposures to the security of the company’s own shares;
• the members of its board of directors and supervisory board, their spouses (as long as they are not judicially separated or married under the regime of separate property), children, parents, stepchildren, step-parents, sons-in-law, daughters-in-law, parents-in-law, or companies under their control or the board of directors or supervisory board to which they belong; and
• each employee.

The typical forms of security are released through the same requirements and formalities applicable to the perfection of the constitution of securities, which may require a deed of discharge and release, as well as cancellation of the respective registration with the competent public authorities, depending on the type of security and assets granted in the security.

The general rule governing the priority of competing security interests is the date of perfection of security (eg, registration of the security with the competent public authorities, when registration is required). Contractual prioritisations/subordination made within the legal limits are allowed in Macau and are enforceable between parties. However, for contractual subordination provisions to fully survive the insolvency of a borrower, there must be sufficient funds to satisfy more senior creditors before the parties to the contractual subordination provisions. Otherwise, the priority of the creditors will be corrected in accordance with the legal priority.

Privileged Credit

Despite the above, the concept of privileged credit is set forth by the Macau Civil Code, which defines it as “the faculty that the law, considering the credit involved, grants to certain creditors, independently from registration, of being paid in detriment of other creditors.”

Unlike secured credit (eg, through a mortgage or pledge), privileged credit does not need to be registered, and it is the highest-ranked form of credit, having first priority over other obligations of the debtor.

According to the Macau Civil Code, privileged credit is of two types:

• general movable privileged credit, which covers the entire value of the assets when the assets are seized or frozen; and
• special privileged credits, which covers the amount of determined assets.

The ranking of privileged movable credit is as follows:

• the Macau SAR (ie, the State) has a privileged movable credit to secure direct and indirect taxes regarding the year in which the assets were frozen or seized and for the previous two years;
• credit of the debtor related to medical treatment or of persons who are dependent on the debtor, related to a period of six months as from the request for payment;
• credit for expenses absolutely necessary to the existence of the debtor or of persons who are dependent on the debtor as from the request for payment;
• credit emerging from a labour contract or related to the termination or cessation of a labour contract in relation to a period of six months as from the request for payment; and
• the funeral expenses of the debtor.

As far as special privileged credit is concerned, under the Macau Civil Code, it is stated that:

• the court fees spent in the common interest of the creditors to maintain, enforce or liquidate assets have preference over these assets;
• the credit of a victim that covers civil liability has preference over the compensation owed by the insurer of such civil liability that the liable party has incurred;
• the credit of the author of intellectual property emerging from a publishing contract has preference over the copies of the property existing in the power of the publisher; and
• the real estate taxes and those payable for the transfer of assets have preference over, respectively, the income of these assets and these assets.

Liquidation of Assets

Whenever there is a liquidation of assets, the ranking of privileged assets is as follows:

• credit related to court fees;
• credit of the Macau SAR for taxes;
• credit of a victim that implies civil liability;
• credit for intellectual property;
• credit of the debtor related to medical treatment or of persons who are dependent on the debtor, related to a period of six months as from the request for payment;
• credit for expenses absolutely necessary to the existence of the debtor or of the persons who are dependent on the debtor as from the request for payment;
• credit emerging from the labour contract or related to the termination or cessation of the labour contract in relation to a period of six months as from the request for payment; and
• the funeral expenses of the debtor.

All the aforesaid privileged credits have priority over the secured credits.

The principle of “first in time, first in right” generally applies in Macau. The priority of security interests is determined based on the order of registration or perfection. Typically, the first security interest registered or perfected will have priority over subsequent security interests. In order to establish priority and protect a lender’s security interest, it is advisable to register the security interest with the relevant public registry or authority. In Macau, the Commercial and Movable Assets Registry is responsible for registering security interests over movable assets, while real estate mortgages are registered with the Real Estate Assets Registry.

To structure around priming liens, lenders may consider various methods, including the following:

• Obtaining subordination agreements: lenders can negotiate subordination agreements with existing lienholders, where the existing liens are subordinated to the lender’s security interest – this agreement establishes the priority of the lender’s security interest over the existing liens.
• Taking additional collateral: lenders may require additional collateral from the borrower that is not subject to existing liens – by securing additional assets, the lender can create a separate security interest with a higher priority.
• Perfecting security interests promptly: timely registration or perfection of the security interest is crucial to establish priority – lenders should ensure that all necessary steps are taken promptly to record their security interests with the relevant registries.

A secured lender can enforce its collateral in accordance with the terms and conditions set out in the loan agreement, with collateral entered by and between the secured lender and borrower. Typically, securities and guarantees can be enforced judicially or, when certain circumstances are met, out of court.

Once there is a default, the secured lender may enforce its security against the borrower. With certain securities – such as a mortgage, promissory notes and other types of executive titles – the proceedings can be initiated without going through declarative proceedings and the secured lender can submit an application to the court already listing the assets of the borrower and requesting that such assets be seized.

The choice of a foreign law as the governing law of the contract and the submission to a foreign jurisdiction are, in general, upheld under Macau law.

Particular attention has to be paid to the relevance of the choice of a foreign law and the exclusivity of the Macau court’s jurisdiction (eg, location of the collateral).

Waiver of immunity for civil matters is only valid if made in accordance with local legislation and international, regional and bilateral agreements, particularly with respect to the nature of the underlying collateral, person and entity.

The courts of Macau recognise a judgment from foreign courts through a special proceeding called “Revision and Confirmation of Foreign Judgments”, unless regulated otherwise in an international treaty applicable in the Macau jurisdiction, an agreement under judiciary co-operation, or special law (meaning any law, decree or government decision that falls outside that general rule/provision).

The following conditions also need to be fulfilled:

• No doubts about the authenticity of the document containing the foreign judgment, or its meaning, should arise.
• The foreign judgment is final, and no appeal is possible under the applicable laws.
• The foreign judgment was not obtained fraudulently and was not issued on one of the matters for which the Macau courts consider themselves (by law) to have exclusive jurisdiction. The courts of Macau consider themselves as having exclusive jurisdiction to decide upon ownership rights cases over immovable assets located in Macau (lex rei sitae), as well as bankruptcies of companies with their registered main office in Macau.
• No identical suit is pending before a court in Macau and no identical suit has already been judged by a Macau court.
• Due process and equitable rights were granted to the parties by the foreign courts.
• The foreign judgment obtained does not violate any public policy of Macau.

The decision of the arbitral tribunal is enforceable in the Macau courts of general jurisdiction under the same terms as a decision rendered by a court. With regard to recognition in the Macau SAR of arbitral decisions made abroad, the general rule established for court decisions is also applicable to arbitral awards. Given this, for a foreign arbitral decision to be executed in Macau, the decision shall first be revised and confirmed by a Macau court, except if there is an agreement between both jurisdictions exempting this, as provided in the Law No 19/2019.

There are no matters that might significantly impact a foreign lender’s ability to enforce its rights under a loan or security agreement in Macau, except that all the documents to be submitted to the Macau courts are required to be translated into either of the two official languages: Portuguese or Chinese.

The declaration of insolvency determines the closure of the company’s current accounts, the immediate maturity of all debts, the cessation of the accrual of interest or other charges on the obligations of the company, and the termination of any actualisation of the obligations to which the company is subject.

The declaration of insolvency also precludes the initiation or continuation of any proceedings against the company.

Under the Macau Civil Procedure Code, payment is immediately made to the creditors with real estate collateral, upon liquidating the assets, and if such creditors are not paid in full, they are then included among the common creditors.

The rules for the order of payments are distributed throughout the Macau Civil Code, and a systematic approach can be used to interpret the rules and determine the order for income assignment, pledge, mortgage, privileged credit and lien, as well as the relationship between the creditor and the company.

The duration of insolvency proceedings in Macau can vary significantly depending on the complexity of the case, the size of the company, the co-operation of the parties involved, and other factors. In some cases, the process can take several months to a few years to complete. The exact timeline will depend on the specific circumstances and the efficiency of the legal system.

The recovery rates for creditors in insolvency proceedings can also vary. In Macau, the goal of insolvency proceedings is to ensure the fair distribution of the insolvent company’s assets among its creditors. However, the actual recovery for creditors will depend on several factors, including the value of the company’s assets, the priority of creditor claims, the existence of secured creditors, and the overall financial situation of the company.

Under Macau law, there is no alternative to insolvency proceedings. However, under this process, it is possible to have an agreement between the creditors or for the bankrupt party to request that the court reduce the credit, which, if accepted by the court, will be proposed to the creditors, who may vote on such a request.

Further to 7.1 Impact of Insolvency Processes, the borrower, security provider or guarantor should note that, as a general rule, any transactions executed by the company in question after the judicial ruling of insolvency are not enforceable against the insolvent estate.

Securities granted in bad faith, with the purpose of deliberately avoiding payment to creditors, can also be annulled or declared null and void. For example, any real estate securities granted one year before the date of the judicial ruling of insolvency, where the granting of such only occurred after the debts had been incurred, and any real estate securities granted 90 days before the judicial ruling of insolvency, where the granting of such occurred simultaneously with the incurrence of debts, can be declared null and void by the court.

At present, there is no specific legislation on project finance in Macau. Therefore, the general legislation regarding financing and lending is applicable to each project being financed.

Integrated resort complexes and infrastructure are major targets for project finance in Macau, and the future development trends of project finance depend on the emergence of these types of project.

Public-private partnerships have been embraced by the government in numerous areas, such as water, electricity, airport operation, transport, education and telecommunications.

The general legislation applicable to a public-private partnership is the Macau Administrative Procedure Code, and the specific legislation applicable is Law No 3/90/M, establishing the general principles to be observed in the concessions of public works and public services.

As mentioned in 8.1 Recent Project Finance Activity, the general legislation regarding financing and lending described in 2.1 Providing Finance to a Company is applicable to each project being financed.

Macau’s Land Law stipulates that all lands of Macau, except for private lands that have been legally confirmed before the establishment of the Macau Special Administrative Region, belong to the People’s Republic of China (PRC) and are managed, used, developed, leased or granted by the government of the Macau Special Administrative Region to individuals or legal persons for use or development. Foreign entities, without specific authorisation, are generally not allowed to directly own real property. However, there are exceptions and special provisions for certain sectors or projects, such as public interest projects or projects of strategic importance to Macau’s development.

Macau law does not explicitly restrict foreign lenders from holding or exercising remedial rights on liens over real property. However, it is important to note that the enforcement of liens and related rights is subject to the specific provisions of Macau’s Civil Procedure Code. The enforcement process and the extent of the rights of foreign lenders would be governed by this code and related regulations.

As mentioned in 8.1 Recent Project Finance Activity, the general legislation regarding financing and lending described in 2.1 Providing Financing to a Company is applicable to each project being financed. Furthermore, the form of the project company can be chosen within the typical legal forms and there are no general restrictions on foreign investment.

Project finance transactions would typically be managed by forming a special purpose vehicle (SPV), involving a range of financing tools, such as bank financing, export credit agency financing and project bonds.

In accordance with the Basic Law of Macau, the land and natural resources within the region are regarded as state property, except for private land recognised as such according to the laws in force before the establishment of the Macau SAR. The government is responsible for the management, use and development of state property and for leasing or granting it to individuals or legal persons for use or development. The revenues derived therefrom shall be exclusively at the disposal of the government of the region.

The environmental, health and safety laws applicable to projects are also applicable in general circumstances.

The guidelines and fundamental principles governing environmental policy in Macau are set out in Law No 2/91/M, dated 11 March 1991 (the “Macau Environmental Law”), which seeks to enhance the protection and sustainable development of the environment. As a general principle, the Macau Environmental Law prescribes that everyone has the right to an ecologically balanced environment, as well as a duty to collectively promote an improved quality of life.

In order to achieve this goal, all projects and constructions that may affect the environment or the health of citizens must be subject to a preliminary environmental impact assessment. Moreover, the Macau Environmental Law prescribes that violations of environmental legislation will be punished with civil liability, administrative fines or criminal liability (Article 268 of the Macau Criminal Code prescribes this for pollution-related crimes), depending on the degree of the violation in question. Also, injunctions may be granted in order to put a stop to environmental infringements. The regulatory authority in charge of monitoring environmental protection matters is the Environment Protection Services Bureau. However, police authorities are also legally entitled to impose preventative measures with respect to time period restrictions.

Regarding water and marine pollution, in particular, Decree-Law No 46/96/M defines the technical conditions that must be satisfied in order to ensure the global functioning of the public water distribution system, the preservation of public health, and the safety of the users and the installations, whereas Decree-Law No 35/97/M provides for the protection of the marine environment from pollution. The latter further prohibits the discharge of any solid or liquid residues – in particular, petroleum or chemical substances – that may contaminate marine water, beaches or coastal areas, and affect their flora and fauna.

As an employer, a contractor has to comply with the conditions prescribed under Law No 2/2023 (the “Law on Occupational Safety and Health in the Construction Industry”) and Decree-Law No 34/93/M (the “Legal Regime of Noise at Work”), in order to provide safe, clean and environmentally friendly working conditions for employees. Failure to comply with those rules may result in the application of fines, according to the provisions set out by Law No 2/2023 and Decree-Law No 48/94/M (the “Sanctions Regime for Non-compliance with the Legal Regime of Noise at Work”).

Regarding the working environment in general, an employer must comply with the rules provided under Decree-Law No 37/89/M (the “General Regulation of Work Safety and Hygiene of Offices, Services and Commercial Establishments”), in order to provide a safe and clean working environment for its employees. Failure to comply with those rules may result in the employer being fined, according to the provisions set out by Decree-Law No 13/91/M (the “Sanctions for Non-compliance with the General Regulation of Work Safety and Hygiene of Offices, Services and Commercial Establishments”).