Hong Kong Credit Market Makes Significant Recovery as Consumers Spend and Travel More

  • Highest growth rate observed for credit card originations since Q2 2021
  • Growth in credit led by younger consumers as they engage and participate in the credit marketplace
  • Virtual banks captured sizeable market share of personal loan and revolving line origination volumes for 2022

Credit activity in Hong Kong has grown significantly since the post-pandemic economic reopening, with originations1 across major products increasing by 17% year-over-year (YoY) for Q4 2022 – the first positive growth in six quarters. This is according to global information and insights company TransUnion’s (NYSE: TRU) Q1 2023 Industry Insights Report, which provides lenders insights into trends in the local credit market that help them position for growth.

The most significant growth was among credit card originations, which increased by 28% YoY. The total credit limit at origination increased by 45% YoY, while outstanding balances grew by 18% compared to 7.3% in the previous quarter. Growth is likely to continue on a positive trajectory, based on a nearly 49% YoY growth in credit inquiries – consumers applying for new credit accounts – during Q1 2023.

INT-APAC-23-2492400 Hong Kong Q1 23 IIR - In-line Graphics (700)_ENG_07
Source: TransUnion Hong Kong consumer credit database

TThe most significant growth in card originations was among super prime2 consumers, who account for 66% of Hong Kong’s credit-active population; card originations to super prime consumers were 30% higher compared to same quarter of 2021. Prime plus and prime consumers, who account for 24% of Hong Kong consumers, made up 34% of the overall originations and grew by 24% YoY in Q4 2022, reflecting the growth in demand and supply of new cards among lower-risk borrowers.

The report’s findings are in the context of significant real GDP growth of 2.7% YoY in the first quarter of 2023, with annual GDP growth for full year 2023 projected to be between 3.5% and 5.5%. GDP growth is likely to be near the higher end of the forecast range if the current momentum of recovery is sustained.3

Private consumption expenditure surged by 13% YoY in real terms in the first quarter, and overall investment expenditure reverted to 5.8% growth within the improved economic outlook.3 Consumers surveyed in the latest TransUnion Consumer Pulse Survey supported this sentiment, with 27% of respondents reporting increased discretionary spending. The survey also found more respondents added or expanded digital services, subscriptions and memberships (34% in the most recent survey, up from 19% in the previous edition).

“The credit card sector has turned around from its subdued performance in 2022 and the years before, with two consecutive quarters of significant year-over-year growth. Much of this growth was seen in the lowest risk borrower tiers, signaling a clear return to an upward trajectory for the market,” said Kevin Chen, principal, Financial Services Research and Consulting at TransUnion Asia Pacific.

“Consumers are making the most of their renewed opportunities to transact with an increased confidence in economic growth – they’re travelling and shopping, and they’re seeking the most lucrative rewards while exercising their spending power,” he said.

Younger consumers are the growth engine for the Hong Kong credit market

Originations among Gen Z consumers (born 1995 to 2010) in above-prime risk tiers grew by 27% YoY in Q4 2022, with originations among Millennial (born 1980 to 1994) above-prime consumers growing by 17%. These two generations accounted for the largest portion of growth among prime and below consumers as well, with 23% growth among Millennials and 22% growth among Gen Z consumers.

TransUnion’s recent study into the credit behavior of younger consumers showed that Gen Z consumers have the greatest appetite for credit as they mature into adulthood. In Hong Kong, there are around 500,000 adult Gen Z consumers aged 18 and older, with an additional 330,000 turning 18 and becoming eligible to apply for credit in the next six years4.

The study also found that Gen Z consumers were more like to hold credit from non-bank lenders, including money lenders and virtual banks, than Millennials were at the same age in 2016. The percentage of Gen Z (17%) holding non-bank credit cards was almost double that of Millennials (9%) at the same age. At the same time, 91% of Millennials held only cards issued by banks in their wallets in 2016, compared to 84% of Gen Z consumers who did the same in 2021.

“These are consumers who are growing up in a digital age; they are tech-savvy and willing to conduct most – if not all – of their transactions online,” Chen said.

Virtual banks enjoyed breakthrough popularity in the unsecured lending market in 2022

The personal loan landscape has changed significantly since the inception of virtual banks, with their FinTech solutions drawing market share from money lenders. In 2020, virtual banks accounted for 1% of personal loan originations, with their market share of originations growing to 7% in 2022. During this time, personal loan originations from traditional banks grew from 41% to 43%, while originations from money lenders fell from 59% of new personal loans to 50% over the two-year period.

Virtual banks are quite successful at acquiring younger consumers, with Gen Z borrowers responsible for 22% of virtual bank personal loan originations in 2022, up from 16% in 2021. Gen Z were responsible for 9% of traditional bank originations during 2022, and for 13% of originations with money lenders that year.

Virtual banks appear to be targeting younger consumers for unsecured revolving lines too, as 30% of originations of this product by virtual banks during 2022 were to Gen Z consumers. By comparison, just 5% of unsecured revolving line originations by traditional banks were to Gen Z during 2022. In contrast, 47% of unsecured revolving line originations for Gen X (born 1965 – 1979) were from traditional banks, while just 15% were from virtual banks during 2022.

From a zero base in 2020, the number of revolving lines originated through virtual banks reached nearly 120,000 in 2022, surpassing the volume originated by money lenders. Over that same time, the number of revolving lines originated by traditional banks fell from nearly 55,000 in 2020, to just over 31,000 in 2022.

“Virtual banking aligns with Hong Kong’s quick and slick culture, with virtual banks innovating the landscape with technological advancements to provide a new and simplified banking experience,” Chen said. “Their technology-enabled credit risk profiling means that they can make quick credit decisions, extending credit and other financial services to consumers, all via a device in the palm of their hand, wherever they may be and at any time.”

To compete in this changing environment, traditional lenders need to accelerate digitization to provide a friction-right customer lending experience, while preventing fraud. Digitization is not only a key to automation of processing to improve operational efficiency, but also important to deliver a relevant and convenient customer onboarding and lifecycle management experience.

”Strong growth in the card market in particular suggests that there are opportunities for lenders to meet consumers’ rising demand, with re-engaged consumers in the target risk segments indicating potential profitable growth, driven by the products and benefits that they value,” Chen concluded.

For more information about the TransUnion Hong Kong Industry Insights Report, please visit our dedicated website.

1 Originations are viewed one quarter in arrears to account for reporting lag.
2 TransUnion CreditVision® risk score: super prime = AA; prime plus = BB; prime = CC; near prime = DD to HH; subprime = II to JJ. Prime and below = BB to JJ.
3 Economic situation in the first quarter of 2023 and latest GDP and price forecasts for 2023 (with photo/video) (
4 Hong Kong Census and Statistics Department, Population by Age, 2021