Hong Kong,
11
September
2019
|
06:00
Asia/Hong_Kong

Challenging Macroeconomic Conditions Reflected in Hong Kong Consumer Credit Market

Total outstanding credit balances continue to grow despite a slowdown in new account openings

The newly-released TransUnion (NYSE: TRU) Q2 2019 Industry Insights Report shows that the normally resilient Hong Kong consumer credit market has been impacted by recent macroeconomic uncertainty, and although still growing, the rate of increase has slowed significantly.

In Q2 2019, total outstanding balances reached a record high of $350 billion, representing growth of 2.9% year-on-year. However, this growth rate was a deceleration from the same period the year before, where in Q2 2018 total annual balance growth was 4.4% YoY. Outstanding balances of revolving accounts—which includes bank credit cards, loans on cards and unsecured revolving accounts—grew 3.2% YoY in Q2 2019. This outpaced the 2.7% YoY growth rate of non-revolving accounts, which includes auto loans, unsecured personal loans and mortgages.

Importantly, balance level delinquencies remained stable across almost all major lending categories, with the exception of auto loans. Delinquency rates improved the most for unsecured revolving lines, with a reduction of 11 basis points (bps) to 0.43% YoY.

In originations, the only positive growth was in loans on cards – up 6.1% YoY in Q1 2019 (latest available data for originations). This indicates a shift in lender origination focus to existing customers, as this product is offered by card issuers to current cardholders as a means to fully utilize the unused credit limits rather than refinance outstanding credit card balances.

“In previous quarters, the Hong Kong consumer credit market had proven resilient to macroeconomic pressures. However, the sustained nature of the China-U.S. trade war, and additional pressure from the uncertainties in Hong Kong and their subsequent impact on retail sales in June, have definitely started to have an effect.” said Francis Lau, director of research and consulting for TransUnion Hong Kong. “Encouragingly, there was still growth in the market, albeit at a slower rate. Key fundamentals like historically low unemployment and real wage growth in the first two quarters in 2019, coupled with continued low rates of credit delinquency, should continue to give lenders reassurance. The next two quarters will be significant ones for the lending industry and will signal if the apparent deceleration in growth in the consumer credit market is just a temporary cooling or a more significant trend.”

Q2 2019 Metrics for Major Credit Products in Hong Kong

Credit Product

Q1 2019 Originations(1) – All Borrowers (K)

Annual Change

Outstanding Balances

HK($) (B)

Annual Change

Balance-Level Serious Delinquency Rates(2)

Annual Change

Bank Credit Card

553.6

-5.8%

138.4

6.7%

0.19%

1 bps

Loan on Card

387.7

6.1%

34.8

22.3%

0.01%

0 bps

Auto Loan

3.1

-15.0%

40.2

-1.8%

0.11%

8 bps

Mortgage

22.4

-15.4%

1,370

8.9%

0.05% (3)

1 bps

Unsecured Personal Loan

75.1

-3.0%

101.5

-1.7%

0.43%

-2 bps

Unsecured Revolving Line

13

-6.3%

28.5

-11.1%

0.43%

-11 bps

Source: TransUnion Hong Kong

  1. Originations are viewed one quarter in arrears to account for reporting lag.
  2. Serious delinquency rates are 90 or more days past due for credit cards and 60 or more days past due for all other credit products.
  3. Delinquency data are reported at a balance level except for mortgages, which are reported at an account level because of the way data are collated.

Credit access remains available despite originations drops

New account originations decreased YoY for most consumer credit products, including bank credit cards, auto loans, mortgages, unsecured personal loans and unsecured revolving lines. However, despite these decreases in originations compared to the prior year period, it is clear that lenders continue to make new credit accounts available to consumers in significant volumes. Additionally, the YoY growth in balances across many credit products, including credit cards, loans on card and mortgages, indicates that lenders are continuing to support consumers and advance them credit, despite the external market challenges.

The housing and associated mortgage market are often an indication of consumers’ longer-term sentiment. Mortgage balances increased YoY in the most recent quarter, driven by higher origination amounts. At the same time, the mortgage origination market has shown signs of stress. In Q1 2019 (the most recently available quarterly data for originations) there was a 15.4% fall in origination volumes compared to the same period a year ago. This was the second consecutive quarter with YoY declines in mortgage originations. This trend is expected to continue, as mortgage enquiries—the precursor to loan origination—fell by 5% in Q2 2019 compared to Q2 2018. On the positive side, consumers continue to perform well on their mortgage obligations, with the account-level serious delinquency rate remaining flat and very low at 0.05% in Q2 2019.

Considering the impact of other key indicators

According to Census and Statistics Department figures, during the first half of 2019 retail sales dropped 2.6%. However, the fall was most pronounced in June, where sales fell 6.7%. At the same time, GDP growth declined 0.3% in Q2 2019 following positive but low growth of 0.6% in Q1 2019. Both these economic factors—declining retail sales and weak GDP growth—put negative pressures on consumer credit demand. At the same time, continued low unemployment levels and positive wage growth have served to support consumers’ ability to service their debt obligations and buffer the market from rising delinquencies.

Lau concluded: “The Hong Kong consumer credit market benefits from very low delinquency rates, lower than almost any other developed credit economy in the world. This, and other unique characteristics, means Hong Kong is able to weather a certain amount of volatility. Trade wars and wider stock market and currency volatility, uncertainty caused by an impending Brexit, and wider macroeconomic factors will all have an impact, and with balance growth still occurring it is important for lenders to continue to focus on portfolio performance and monitor any shifts in payment behavior closely.”

For more information about the TransUnion Hong Kong Industry Insights Report and to register for TransUnion's Q2 2019 Industry Insights Report webinar scheduled for Wednesday September 18 at 3 pm ET please visit https://www.transunion.hk/business.