© Reuters. FILE PHOTO: A general view of skyline buildings in Hong Kong, China, on July 13, 2021. REUTERS/Tyron Siew/File Photo
Written by Georgina Lee
HONG KONG (Reuters) – Hong Kong’s central bank plans to test the use of its digital currency as part of a pilot project in the HK$1.8 trillion ($229 billion) mortgage market with the aim of cutting the one-month loan approval process by half, according to the report. for experimental participants.
The test comes amid fierce competition among banks to attract mortgage customers in the world’s cheapest housing market, with some lenders even offering huge cash discounts to attract customers.
Here’s a look at how the digital currency, the e-HK dollar (e-HKD), can be used in the mortgage business:
What is the E-HKD Pilot Program?
The Hong Kong Monetary Authority (HKMA) launched the e-HKD pilot program in May under which 16 companies were selected to examine the use of digital currency in 14 projects.
Two of the pilot participants, Fubon Bank (Hong Kong) and blockchain solutions provider, will examine the use of e-HKD in residential mortgage loans, which accounted for a fifth of the banking sector’s loan book in April.
How will the pilot test the use of E-HKD for mortgages?
The pilot participants said that the pilot project will look at the possibility of granting electronic loans to e-wallet homebuyers, both online and offline.
At the core of the project are the property title deeds, a mortgage to the supporting banks.
The project aims to convert records of the bond into digital tokens on the blockchain, helping to maintain a single source of truth about the bond that is incorporated into the loan approval process.
Title deed information is currently first collected from the customer and then verified against a separate title deed record.
Ripple said in an email that it expects to use e-HKD to remove the need for a significant amount of work currently being done by lawyers.
How will E-HKD reduce loan approval time?
In Hong Kong, it often takes a month, or sometime more, for the borrower to start withdrawing the loan from the time the application is submitted. The pilot aims to cut that wait 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, an e-HKD loan will be automatically issued because the title deed will be already locked on the blockchain, said the participants.
Fubon said it anticipates the technology could be used for both new loan applications and mortgage augmentations.
What are the benefits of digital property registration?
Traditionally, banks would check a property’s ownership history to rule out any outstanding issues and ensure there are no impediments to transfer before issuing a loan. These operations include law firms and the records stored in the cadastre.
By storing title deeds on the blockchain, it eliminates the need for verification and settlement processes across separate systems.
What’s next for E-HKD?
HKMA has not decided when the e-HKD will be officially launched. All participants in the trial are required to submit the results of their project to the Project Management Authority in Saudi Arabia by September.