The Hong Kong Monetary Authority (HKMA) has published a set of new guidelines to banks on credit risk management for personal lending business in a bid to encourage local banks to adopt latest financial technology.
The central bank’s new directives allows the banks to leverage the new technology such as big data and consumer behavioural analytics to manage credit risks related to personal lending business.
Avoiding traditional credit checks, the bank can now establish a portfolio as “New Personal-Lending Portfolio” (NPP) and apply different standards for online and mobile loan applicants.
However, the portion of NPP should not exceed more than 10% of the bank’s capital base.
Initially, the amount of credit extended to individual borrowers should be smaller than that of conventional credit products.
The HKMA stated that banks should carry out the lending business in a responsible manner and offer customers suitable information, such as key product features and their repayment obligations under the loan product.
The HKMA noted that it will review the effectiveness of the new risk management practices after some time and will consider the future scope of application of the new arrangements.
HKMA deputy chief executive Arthur Yuen HKMA said: “The new guidelines will enable banks to be more innovative and adopt more financial technology in personal lending business in order to improve digital customer experience. This is also a major development in banking supervision.”