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At mid-2021 Nova Credit estimated bankruptcy rate 0.139%

Since 2020, Nova Credit started to release predictions of bankruptcy rates for the coming 12 months regularly. Hong Kong’s economy has been gradually recovering due to the improving year-on-year GDP change and the decreasing unemployment rate announced recently. As of August 2021, Nova Credit estimated the bankruptcy rate for the next 12 months will be 0.139%.  Based on the 5.4 million Hong Kong population with credit profile, the estimated number of bankruptcy cases will be approximately 7,506, which is fewer than the annual total of 8,693 bankruptcy petitions received by the Official Receiver’s Office in 2020.

“Improvement in the gross domestic product (GDP) and the drop in unemployment rate are two important macro-economic indicators that affect the estimated bankruptcy rate we announced at mid-2021,” said Albert Lo, Chief Architect of Nova Credit. According to the Census and Statistics Department (C&SD), real GDP continued to grow notably by 7.6% in the second quarter over a year earlier, total exports of goods grew strongly by 20.2% year-on-year in real terms in the second quarter.  Positive impacts from the global economic recoveries lead by Mainland China and the United States, Hong Kong’s exports of goods in the upper-year increased significantly. In addition, the adaption of Covid vaccinations in Hong Kong also encourages HK retail markets. Our economy certainly welcomes the adjusted social distancing measures with a “vaccine bubble” to enable certain resumption of social and economic activities. According to the Half-yearly Economic Report 2021 released by the HKSAR government, consumption and investment demand gathered further steam, private consumption expenditure grew by 6.8% year-on-year in the second quarter and positively impacted the labour market. Overall investment expenditure saw accelerated growth of 23.8% year-on-year in real terms, reflecting significantly improved business sentiment.

The seasonally adjusted unemployment rate declined visibly, from the peak of 7.2% in December 2020 – February 2021 to 6.8% in the first quarter of 2021 and further estimated at 5% in May 2021 – July 2021. The unemployment rates of retail, accommodation and food services, construction, and arts, entertainment, and recreation sectors fell significantly. The underemployment rate likewise decreased from the peak of 4.0% to 3.8% and further to 2.5%. The performance of GDP and unemployment rate carry significant information value to the estimation of bankruptcy rate.

Hong Kong’s economy continues to recover along with the epidemic situation. The government announced various multi-pronged measures, coordinated with the banking sector, and encouraging banks to back up SMEs at this difficult moment. We believe this will bring positive impacts to Hong Kong and we welcome such appropriate measures to further safeguard this important economic sector.

We look forward to the positive impact expected from direct fiscal policies such as the Consumption voucher scheme and Cross-boundary Wealth Management Connect and the knock-on effect that should boost our economy. Notwithstanding the uncertainties of international relationships and the economies of Hong Kong’s key business partners, we are looking forward to more measures from HK and GBA that can help drive a strong recovery from the pandemic including the lift of travel restrictions. 

Nova Credit will continuously monitor the macro-economic environment and update bankruptcy rate prediction accordingly, leverage innovative technology for sharing valuable findings with the banking sector, allowing more accurate and timely business decisions.