COVID-19 has hit Hong Kong’s economy hard with GDP expected to decline by 6% in 2020, with unemployment set to rise and many businesses being forced to close. With consumer confidence severely impacted by COVID-19’s impact on the local economy consumers have shown a reluctance to take on additional borrowing, with uncertainty around how long it will take for things to return to relative normality.
Hong Kong initially reacted well to COVID-19 and was one of the first places to relax lockdown restrictions to allow restaurant dining and hospitality to resume. However, new restrictions were implemented at the end of July in response to a rising tide of new cases.
Fewer consumers are taking on new loans in 2020 due to changing consumer sentiment. This is stemming from the COVID-19-related economic downturn, rising tensions between the US and China, which is impacting exports, as well as the ongoing political situation involving the legalisation of a National Security Law.
An increasing number of virtual banks started operating in Hong Kong in 2020 encouraging the continuous development of virtual and digital lenders. Hong Kong’s journey to virtual banking started in 2019, when the Hong Kong Monetary Authority (HKMA) started granted the first virtual banking licences to eight separate applicants.
Both consumer credit and mortgages/housing are expected to be hard hit by the economic downturn in 2020 in terms of gross lending. With rising unemployment stemming from COVID-19 and a more cautious and calculated approach to spending this is impacting spending on big-ticket items and especially property.
Providing COVID-19 is contained then consumer lending should rebound strongly in 2021. Even if the economy has not fully recovered, stimulus and relief packages should be seen from the government and institutions as they look to fend off a more significant economic downturn.
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