Hong Kong,

Decreased Activity in Consumer Credit Market Driven by Changes in Borrower and Lender Behavior

  • Against a backdrop of worsening economic conditions, Hong Kong consumers have curtailed their spending and lenders have tightened their underwriting, which is causing declines in outstanding balances and origination volumes
  • Although still very low by global standards, delinquencies have started to rise in the major unsecured consumer credit categories of credit cards, unsecured personal loans and unsecured revolving lines
  • Gen Z consumers are showing the biggest increase in delinquency rates for credit cards, unsecured personal loans and unsecured revolving lines

The newly-released TransUnion (NYSE: TRU) Q1 2020 Industry Insights Report shows that COVID-19 has severely amplified the impact of the 2019 Hong Kong recession, and started to shape the consumer credit market in a number of distinct ways.

With economic conditions worsening and incomes negatively affected by the global pandemic, Hong Kong consumers have been pulling back on their spending and have reduced their appetite for credit more generally. At the same time, as delinquencies have started to rise, especially in the major unsecured lending categories of credit cards, unsecured personal loans and unsecured revolving lines, lenders have been tightening their underwriting. Together, the changes in consumer and lending behavior have caused a contraction in the Hong Kong consumer credit market.

To help lenders better understand these changes and predict potential trends within the consumer credit market, TransUnion Hong Kong is developing a bespoke credit forecast model. Francis Lau, director of research and consulting, Asia Pacific, TransUnion, explains: “We know macroeconomic conditions are likely to remain under stress for the remainder of 2020 and may still deteriorate further – this is true for most economies around the world. Our model aims to look at the potential trajectory of the consumer lending market in Hong Kong as a result of any changes caused by COVID-19, and will map the impact on key metrics like originations, balances and delinquencies.”

The model’s findings will highlight the potential impact of the economic downturn on consumer credit growth and loss rates, facilitate policy decisions, and provide insights to help lenders set and modify their strategies and enable them to continue assisting consumers during these unprecedented times.

Q1 2020 at a glance – originations and balances fall as delinquencies rise

Hong Kong macroeconomic conditions remained turbulent in Q1 2020, with the unemployment rate reaching 4.2% – a nine-year high. At the same time underemployment (refers to the proportion of underemployed persons in the labour force) reached 2.1%—a 10-year high. As the economy slowed with COVID-19 impacting the retail and hospitality sectors especially, retail sales fell 42% year-on-year (YoY) in March 2020. The combined effect of these and other factors saw Q1 Hong Kong GDP fall 8.9% YoY – the largest YoY decrease in recent history.

Against this backdrop, conditions in the consumer credit market became increasingly challenging. Outstanding balances fell YoY in Q1 2020 across all major consumer lending categories, with the exception of loan on card and mortgage, which recorded 11.5% and 9.6% YoY increases, respectively.

At the same time delinquency rates continued their upward trend, especially for unsecured personal loans and revolving lines, up 12 and 19 basis points (bps) YoY, respectively. Credit cards also saw a double-digit increase of 10 bps over the same period. Across all three categories, Gen Z consumers (those born from 1995 onwards) recorded the greatest increase in delinquency rates YoY in the last two quarters.

In the most recent quarter for originations, volumes generally fell, except for credit cards where they were unchanged YoY, and for auto loans where they actually increased, albeit from a very low base. However, due to the one-quarter reporting lag for originations (this report includes originations data for Q4 2019), the volume of credit enquires for Q1 2020 is perhaps more revealing of recent credit demand. Across all major credit categories there was a significant fall YoY in consumers applying for new credit, with the exception of personal loans which saw a small YoY increase. This drop in enquiries indicates that consumer demand for new credit was negatively impacted in the first quarter.

During COVID-19, TransUnion has been conducting additional research to assess the pandemic’s impact on consumer finances. The results of this research show that for consumers who indicated they had seen an impact on their personal finances as a result of COVID-19, more than half were going to use savings to help pay bills, and just under half said they would borrow money from friends or family. A much smaller number said they would be taking out a personal loan or credit card – perhaps explaining, in part, the decline in consumer credit enquiry volumes despite rising levels of financial hardship.

Q1 2020 Metrics for Major Credit Products in Hong Kong

Credit Product

Q4 2019 Originations(1) – Annual Change

Outstanding Balances

HK$ – Annual Change

Balance-Level Serious Delinquency Rates(2)(3)

Balance-Level Serious Delinquency – Annual Change (Basis Points)

Bank Credit Card




+10 bps

Loan on Card




0 bps

Auto Loan




+4 bps





+1 bps

Unsecured Personal Loan




+12 bps

Unsecured Revolving Line




+19 bps

Source: TransUnion Q1 2020 Industry Insights Report for 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 reported.

Marie Claire Lim Moore, CEO, Hong Kong, TransUnion, commented: “Consumers and lenders are changing their behavior as a result of the impact of COVID-19. Both are taking a more cautious approach to credit. Consumers are looking at a range of options to help cope with the increased financial pressures they face – everything from tapping into savings through to payment holidays. Lenders need to understand the changing landscape and develop the tools that can help them best respond to the changing needs of the consumer.”

Mortgage market originations bounce short-lived as consumer confidence falls

As reported in last quarter’s Industry Insights Report, a sustained fall of ~10% in property prices beginning in mid-2019 caused an increase in mortgage originations in the third quarter of 2019, as many consumers who had previously been unable to enter the property market now could as affordability improved. However, turbulent economic conditions, and an associated decline in consumer confidence in the fourth quarter, caused that originations uptick to be short-lived. In Q4 2019, mortgage originations declined – down 17.8% YoY. Looking forward, it is likely that COVID-19 stay-at-home restrictions enacted in January 2020 and the difficulty in buying homes in that environment will have a significant impact on the volume of mortgage originations for the first quarter of 2020.

Informed approach to risk will help provide a way forward

“As the economy, businesses and consumers continue to respond and adapt to the pandemic, the ability to provide and responsibly use credit is of paramount importance. Consumer confidence has clearly been impacted by the recession at the end of 2019 and the subsequent disruption and uncertainty caused by COVID-19 in the first quarter of 2020,” concluded Lim Moore. “Lenders need to be able to continue to assess consumer applications and overall portfolio risk with confidence – and TransUnion is doing everything we can to help them to be able to do this. By reviewing and updating their underwriting and portfolio management models to take account of potential changes in consumer behavior and risk, and by using trended credit data and predictive analytical tools, lenders will be able to serve the credit needs of consumers with confidence.”

For more information about the TransUnion Hong Kong Industry Insights Report and to register for TransUnion's Q1 2020 Industry Insights Report webinar scheduled for Thursday, 28 May at 3pm, please visit our dedicated website page.