May 09, 2018

HKMA issued guidelines to banks on credit risk management for personal lending business. The guidelines allow banks to adopt innovative technology to manage credit risk related to personal lending business, in a bid to improve customer experience in the digital environment. The guidelines were developed after consultation with banks and technology firms.

Under the new guidelines, banks may carve out a portion of their personal lending portfolio as New Personal-Lending Portfolio, in respect of which adherence to conventional lending practices will not be required. Instead of collecting borrowers’ income proof to assess their repayment ability, banks may adopt new credit risk management techniques and practices enabled by innovative technology, such as big data and consumer behavioral analytics, to approve and manage the related credit risks.

To ensure proper management of the associated risks, banks should set a limit for the New Personal-Lending Portfolio, which should not exceed 10% of their capital base. At the initial stage, the amount of credit extended to individual borrowers should generally be smaller than that of conventional credit products. In applying the new credit risk management techniques and practices, banks should conduct the lending business in a responsibly and provide customers with adequate information, including key product features and their repayment obligations under the loan product, to enable them to make informed borrowing decisions and avoid over-indebtedness. HKMA will review the effectiveness of the new risk management practices at a suitable juncture and consider the future scope of application of the new arrangements.

Keywords: Asia Pacific, Hong Kong, Banking, Credit Risk Management, Personal Lending Portfolio, Fintech, Credit Risk, HKMA

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