The large increase in bankruptcies in Hong Kong is a matter of concern. Greater sharing by banks of consumer credit data could help address the problem.
The rapid increase in the number of bankruptcy cases has attracted much attention recently, and rightly so: one report has put the increase in the first half of this year compared with the same period last year at 56.7%. Those who have commented on the matter pointed to a number of reasons. Among these are the economic slowdown, which has prolonged the burden of negative equity that many people have been carrying. Other reasons put forward include the shortening in 1998 of the discharge period in the bankruptcy legislation from seven years to four; the indiscriminate issuing of credit cards by banks; and changing public attitudes towards bankruptcy.
I believe that there is an element of truth in all these reasons and that a combination of all of them has produced the rather alarming trend that has been observed. Of particular concern, as pointed out in the report by Credit Information Services, is the fact that a large number of bankruptcy cases did not have any history of difficulties in the servicing of the relevant loans. They also on average involve larger amounts than those bankruptcy cases with such a history. This suggests the possibility that they were premeditated and that consequently the provisions of the bankruptcy legislation might have been subjected to abuse. If so, I am sure the relevant authorities will not look kindly on such abuse and will tackle it proactively.
Insofar as the Hong Kong Monetary Authority is concerned, we will keep in close touch with the Hong Kong Association of Banks and the relevant Government departments to see how we can be of assistance. Specifically, we have in June this year written to the authorized institutions under our supervision that are active in credit card business and recommended that they critically review their policies and practices on credit card lending to see whether they remain appropriate in the current market environment. We advised, among other things, that they should not normally dispense with income proof in considering applications for credit cards. We also advised that banks should re-assess the effectiveness of their credit scoring models and other forms of credit analysis in predicting bankruptcies.
We are currently following up this matter with the individual institutions to check what action they have taken, and we will continue to monitor the situation through seeking monthly information about credit card receivables, arrears and charge-offs. The delinquency ratio and the charge-off ratio have been edging up since the beginning of this year, having fallen significantly last year. In May this year, the delinquency ratio was 0.98% compared with 0.76% at the end of 2000 (charge-off ratio: 4.4% compared with 3.7%). Although these figures are relatively low, the trend is definitely a matter of concern.
One fundamental problem, however, is the limited scope in Hong Kong for the sharing of information on consumer credit. Even the most cautious banker cannot accurately assess his risks without sufficient information. To the extent that he seeks to compensate for this uncertainty by charging a higher rate of interest across the board, the rest of us, who have a good credit history, suffer. Secrecy of personal data must, of course, be respected. But in the light of present circumstances there ought to be scope for greater sharing of positive data on consumer credit, in order to assist the banks in assessing credit risk with greater ease. Acquiring a credit card in Hong Kong is a lot easier than in many other jurisdictions. In the United States, for example, you need a credit history, which is widely shared among credit providers, before you can obtain a credit card. (One colleague of ours who has had a posting in our New York office had an interesting and time-consuming experience obtaining a credit card when he was first posted there.) The positive information to be shared should include, for example, the total indebtedness of the borrower and the number of credit cards he or she already possesses. The Privacy Commissioner has recently launched a public consultation on proposed amendments to the "Code of Practice on Consumer Credit Data". With the endorsement of the Banking Advisory Committee, we have written to the Privacy Commissioner to support greater sharing of positive data.
9 August 2001
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