Credit Cards Led Hong Kong Consumer Credit Market Growth with 20% Year-Over-Year Rise in Originations
Generation Z Continues to Drive Growth with 85% Yearly Increase in Balances
Consumer sentiment remains positive despite rising global trade tensions and expected pull back in GDP in H2 2018
YoY card balance growth in Q2 2018 exceeded inflation driven by increased new card originations (grew 20% YoY in the first quarter) and increased utilization of existing cards:
Younger consumers continue to be the engine for strong consumer credit growth
Millennials hold 26% of total card balances
Three out of 10 credit cards added in the last 12 months were opened by Gen Z and their balances have almost doubled on the back of this, ending the quarter with around 85% YoY growth
Unsecured personal loan market shows weaker growth with number of accounts falling 2.1% and number of consumers with personal loans dropping 2.2% YoY
- Mortgage inquiry volumes reached their highest levels in three years despite rising house prices and interest rates
Hong Kong, Sep 5, 2018 – The Hong Kong consumer credit market continues to benefit from favourable economic conditions, including low unemployment, high labour force participation and rising wages. TransUnion’s (NYSE: TRU) newly released Q2 2018 Industry Insights Report showed positive originations and balance growth across most major consumer lending products, with generally low and stable delinquency rates, as consumers are continuing to access credit and are able to successfully manage current debt levels.
“Hong Kong’s consumer lending environment continues to reflect the strong economy with widespread balance growth,” said Brendan le Grange, director of research and consulting for TransUnion Hong Kong. “Escalating global trade tensions might pull back GDP growth in the second half of the year, which remains an area of potential concern for lenders and consumer businesses. But through the first half of the year, there are no indications of significant risk within the consumer lending sector.”
Credit cards – the most widely held credit product in Hong Kong – are leading the rise in overall consumer balance growth. Q2 2018 is now the third consecutive quarter in which year-over-year card balance growth has exceeded inflation. This balance growth has been driven by both new card originations and increased utilization of existing cards. Credit card account originations in the first quarter of 2018 (latest data available) were up nearly 20% year-over-year, to 587.1K, compared to Q1 2017 (latest data available). Average consumer balances at the end of Q2 2018 increased 2.9% over the prior year, to 39.0K. At the same time, card delinquencies remained well controlled. Consumer-level delinquency rates–the percentage of consumers 90 or more days past due on one or more cards–dropped one basis point over the past year to 0.07% at the end of Q2 2018.
Younger -consumers were once again the engine for that growth. While Baby Boomers (born 1946 to 1964) reduced their balances by 3.9% year-over-year, Millennials (born 1980 to 1994) accounted for two out of every three HK dollars added by the credit card industry in the last year (Q2 2017 to Q2 2018). They now hold 25.8% of total card balances.
The youngest borrowers grew their balances even faster, as three out of 10 credit cards added in the last 12 months were added by Generation Z (born 1995 onwards). Gen Z balances have almost doubled on the back of this, ending this quarter up 84.7% year-over-year.
“As we’ve seen in recent quarters, the youngest generations are driving growth in the consumer credit market. Many of these consumers are still early in their careers and still entering household formation life stages, and their credit needs are continuing to evolve and grow. This bodes well for the overall Hong Kong market today and in the future,” said le Grange.
Potential Weakness Seen in Unsecured Personal Loan Market?
While the consumer credit market is performing well overall, TransUnion noted weaker growth in the unsecured personal loan market. TransUnion found that the number of open accounts fell 2.1% over the past year, to 618.9K in Q2 2018, while the number of consumers with a personal loan dropped 2.2% over the same period to 422.1K.
“Unsecured personal loans are an important segment of the consumer credit market because younger consumers often utilize such loans,” said le Grange. “It is not yet clear whether consumers are shifting their borrowing preferences to other account types, such as credit cards, or if lenders are pulling back from marketing this product. This trend bears watching in the coming quarters to understand if there is a longer-term shift occurring, and how lenders may be able to respond.”
Mortgage Market on the Rise
TransUnion’s Industry Insights Report also found that the mortgage market is performing exceptionally well. Mortgage inquiry volumes reached their highest levels in three years, despite both higher house prices and rising interest rates.
“Hong Kong property prices continue to rise, with the Centa-City Leading Index, an indicator of Hong Kong property price changes, adding approximately 17% year-over-year. This is compounded by mortgage lending rates that have started to climb, which may put pressure on demand for new home purchases. Despite these headwinds, the number of mortgage inquiries in Q2 2018 reached the highest levels in over three years,” said le Grange. “This strong demand contributed to the healthy growth in mortgage accounts we saw over the past year.”
As of Q2 2018, there were 532K mortgage accounts, up 7.6% from Q2 2017. As well, mortgage account originations increased year-over-year by 0.7%, to 26.5K in Q1 2018, the latest quarter available. At the same time, account-level delinquency rates (60 or more DPD) dropped 1 basis point to a low 0.04%.
“The mortgage market’s strong performance is indicative of the overall consumer performance in Hong Kong. More credit is being extended, balances are rising and delinquencies are, for the most part, dropping. This is good news for both lenders and consumers,” concluded le Grange.
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