Hong Kong’s central bank plans to test the use of its digital currency in a pilot project in its HK$1.8 trillion ($229 billion) mortgage market, aiming to halve the loan approval process, which takes a month, according to pilot project participants.
The test comes amid fierce competition between banks to attract mortgage customers in the world’s least affordable housing market, with some lenders even giving steep cash discounts to lure customers.
Here is how the digital currency, e-HKD (e-HKD), can be used in the mortgage industry:
WHAT IS THE E-HKD PILOT PROGRAM?
The Hong Kong Monetary Authority (HKMA) launched the e-HKD pilot program in May, in which 16 companies were selected to examine the use of digital currency in 14 projects.
Two of the pilot program participants, Fubon Bank (Hong Kong) and blockchain solution provider Ripple, will examine the use of e-HKD in residential mortgages, which accounted for one-fifth of the banking industry’s loan book in April. .
HOW WILL THE PILOT PROJECT TEST THE USE OF E-HKD IN MORTGAGES?
The pilot project will examine the possibility of providing e-HKD loans to home buyers in an electronic wallet, both online and offline, pilot project participants said.
At the heart of the project are title deeds, which serve as collateral for bank mortgages.
The project aims to transform title deed records into digital tokens on the blockchain, which will maintain a single source of title truth that is integrated into the loan approval process.
Currently, title information is first collected from the customer and then verified against a separate title deed registry.
Ripple said in an email that it expects the use of e-HKD to remove the need for a substantial amount of work currently done by lawyers.
HOW WILL E-HKD REDUCE TIME TO LOAN APPROVAL?
In Hong Kong, it often takes a month or more for a borrower to start taking out a loan in good time. The pilot project aims to cut this delay in half.
Under the proposed use of e-HKD in the mortgage market, when conditions such as loan-to-value ratio and property value are met on the bank’s digital platform, the e-HKD loan will be automatically unlocked because the title deed would already be clinched on the blockchain, participants said.
Fubon said he expected the technology could be used for both new loan applications and mortgage top-ups.
WHAT ARE THE BENEFITS OF A DIGITAL PROPERTY REGISTER?
Traditionally, banks review the ownership record of a property to rule out any outstanding issues and confirm that there are no impediments to transfer before granting a loan. These processes involve law firms and files kept in the cadastre.
By storing title deeds on the blockchain, there is no longer any need for verification and reconciliation in separate systems.
WHAT’S NEXT FOR E-HKD?
The HKMA has not yet decided on the official launch date of e-HKD. All participants in the pilot project must present the results of their project to the HKMA by September. (Reporting by Georgina Lee; writing by Himani Sarkar)
2023-06-06 20:57:22
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