eddie yue : digital trade and finance in hong kong - reasserting global leadership keynote speech by mr eddie yue, chief executive of the hong kong monetary authority, at the international chamber of commerce - hong kong ( icchk ) digital trade forum " digital trade and finance in hong kong : reasserting global leadership ", hong kong, 30 november 2023. * * * good afternoon everyone. thank you for inviting me to speak today. it is a great pleasure to celebrate the 25th anniversary of the icchk with the very distinguished audience here today, and the hkma is very pleased to support today's event. at last year's icchk event, i shared our thoughts on how connecting digital islands can contribute to a more digitally integrated trade finance system, thereby addressing the pain points in trade finance and improving smes'access to financing. today, i would like to share our thoughts on a more holistic approach to digitising trade and finance in hong kong and how we can reaffirm our global leadership through accelerated digitalisation. the issue is particularly relevant to hong kong, where the trade industry and the financial services sector account for about 18 % and 21 % of the city's gdp respectively. by digitising trade and finance, we are essentially adding fuel to these two major growth engines and taking our city's economic development to the next level. in recent years, we have witnessed a remarkable transformation in the way business and trade are conducted. the emergence of novel technologies and their growing adoption have revolutionised industries, reshaped customer behaviour, and redefined the nature of commerce. as we stand on the edge of a new digital era, we need to ensure that hong kong maintains its competitiveness on the global stage, and it is critical that we embrace and accelerate the progress of digitalisation in trade and finance. the benefits of digitalisation are clear – enhanced efficiency, reduced human error, savings in costs, speed to market, and full traceability. digitalisation offers a multitude of opportunities to enhance hong kong's status in international trade and finance. to capitalise on these opportunities, we have identified five key elements in digitising trade and finance. just as the five elements in chinese culture or " – ( gold ) ( wood ) ( water ) ( fire ) ( earth ) ", these elements tend to strengthen, support and reinforce one another throughout our digitalisation journey. the first key element that comes into play is the government. the digitalisation of

market. the heavy reliance of the banks on property lending is well known : residential mortgage lending, in particular, accounts for 35 % of the total domestic loans of the retail banks. property prices have fallen sharply since the asian crisis, and the effect of sars was to produce a further downward spiral. in the three months from march to may, property prices are estimated to have fallen by 8 %. it is not surprising therefore that the figures for negative equity reported to the hkma by the banks have shown a significant increase from the 83, 000 cases ( representing $ 135 billion of loans ) recorded at the end of march. the negative equity problem affects the banks in various ways. most obviously, it poses an increased credit risk since loans in negative equity have a greater tendency to go into default ; and if they do, the banks will suffer a loss since the loans are no longer fully covered by the value of collateral. negative equity also has a deterrent effect on the demand for new loans since it makes property a less attractive asset to hold, and by locking in existing homeowners reduces market turnover. more generally, it has a pervasively depressing impact on consumer confidence and is thus a drag on the economy and on loan demand as a whole. what is encouraging however is that despite the current difficulties faced by homeowners most of them have made every effort to continue to service their loans. although the overall mortgage delinquency ratio has edged up in recent months, it remained at a relatively comfortable 1. 16 % at end - may. the arrears for loans in negative equity are higher, as you would expect, but even so the delinquency ratio of around 2. 5 % is reasonable under the circumstances. nonetheless banks need to keep a watchful eye on the situation, and adopt a proactive and helpful approach to restructuring mortgage loans when borrowers start to exhibit signs of financial distress. what they should be trying to avoid is a repeat of the problems with credit cards, where many borrowers chose bankruptcy as a way out of their problems. the dynamics of the two products are different, but the warning signs are there. as might have been expected, credit card charge - offs did increase during the sars crisis as rising unemployment prompted a renewed increase in bankruptcy petitions. but the latest news on this front is somewhat more encouraging. the number of petitions continued to rise going into the first week of june, but has since fallen back and the daily average for june