anselmo l s teng : risk management in financial services opening speech by mr anselmo l s teng, chairman of the monetary authority of macao, ashk ( actuarial society of hong kong ) regional conference, macao, 28 january 2008. * * * president ng, distinguished guests, dear delegates, ladies and gentlemen, 1. welcome to macao! i would like to say thank you, on behalf of the macao sar government, to members of the actuarial society of hong kong for choosing macao, where east and west meet, as venue for this regional conference. i am sure you will find fascination in the sophisticated mix of chinese and south european culture provided by this unique city. i am honoured to be invited to make an opening remark in this occasion. what i intend to do through out the next twelve minutes or so is first to give you an up - date about macao and its latest economic development, as well as an introduction of its financial sector ; then i ’ ll move on to say a few words on the main theme of this conference. 2. macao is no doubt in the lime light. this enclave is a small but open economy with a relatively simple economic structure and a developing financial sector. it is governed under the principle of “ one country, two systems ” in the context of our basic law. it is a free port, an independent tariff area ; there is free flow of merchandize, financial assets and capital. the pataca, our legal tender, is linked to the hong kong dollar at 1. 03 patacas to 1 hong kong dollar. benefited from the satisfactory performance of the tourism sector, macao ’ s economy continued to show remarkable growth in the first three quarters of 2007. real gdp soared 30. 9 % year - on - year in the third quarter, sustaining the growth of 25. 7 % and 31. 6 % in the first and the second quarter respectively. the opening of new tourist facilities successfully attracted more visitors, evidenced by the double - digit growth of visitor arrivals and service exports. large - scale investment projects in the private sector continued to contribute to macao ’ s robust economy. for the year 2007, visitor arrivals reached 27 million, equivalent to a hefty growth of 22. 8 % over a year earlier. mainly due to the fast growing pace in recent years, macao ’ s economy has virtually reached its full employment level as the unemployment rate hovered in a

through reinsurance, and to have the tools to establish an adequate level of premiums ”. 6. in macao, banks and insurance companies, as a result of innovation in products and services, improved technology and other developments in the industry, have a larger pool of risk management tools and practices available. of course, they are faced with continuous challenges as they manage risk, especially when they need to remain profitable and competitive. however, if financial innovation can be used properly, on one hand, to add value to the customers in terms of products and pricing, and to improve profitability on the other, while identifying and understanding during the process how risk profiles can change as a result, then good risk management can be deemed to have been in place. this complex process falls within the technical expertise of professional actuaries. in fact, professional actuaries are the key players in the process. 7. viewing from a more macro perspective, the volatility of financial markets around the world underlines the imperative nature of risk management in maintaining stability of our global financial system. last year, there were worries over certain financial products, particularly subprime loans related, which might throw international financial markets into turmoil. unfortunately, it has turned out to be a “ cassandra ” one. excess liquidity and recklessness of participants were causing misallocation of resources which would certainly give rise to inflated financial assets and their subsequent bust. last tuesday, the fed announced to cut fed fund rate by 75 basis points to alleviate the battered markets. this action will certainly give short term relief. however, how long the effect will last is still a question. this time, the pain comes not from the cost of borrowing but from the ability to lend. as we all know, gargantuan international banks are writing down the value of their siv ’ s and bringing them back to their balance sheets. such a move has already taken away tens of billions of dollars from their capital which will tremendously weaken their capacity to lend. coupled with their suspicion they have conceived in respect of the viability of their counterparts, we shall witness some stagnation in the lending market for quite some time in the future. such structural retrenchment in liquidity has little to do with cost of borrowing. as a result, there may be continued upheavals in financial markets. 8. as financial institutions offer more sophisticated products and services, there will be more associated risks in their on - going risk management framework. this is