Revolving Lines and Loans on Card Lead Growth in Hong Kong Credit Market
- Activity in key credit product categories increases during Q3 2022.
- Demand for loans on card elevated, although new account balances remain low.
- Issuers positioned well to build relationships with younger consumers to gain loyalty for the future.
Credit activity in Hong Kong has continued to increase in key product categories following the easing of COVID-19 restrictions and Phase II of the Consumption Voucher Scheme, according to TransUnion’s (NYSE: TRU) Q3 Industry Insights Report. The global information and insights company’s findings highlight a marked increase in the originations of loans on card and unsecured revolving lines, as well as growth in account balances.
“Overall, credit demand and supply in Q3 reflected a long-awaited increase in consumer credit activities,” said Kevin Chen, Principal, Financial Services Research and Consulting at TransUnion Asia Pacific. “This occurred despite private consumption not having yet recovered to pre-COVID-19 levels. Consumer sentiment has likely been bolstered by an improved unemployment rate and the stimulus provided by the government’s consumption voucher scheme.
“After being stagnant for several consecutive quarters, credit cards, which are the most widely-held consumer credit product in Hong Kong, finally saw a resurgence in originations and balances, while other forms of unsecured lending also continued their growth trajectory,” Chen said. “Although the latest quarterly data could indicate optimism among consumers that is leading to increased use of credit, it remains to be seen how the recently announced 4.5% contraction in Hong Kong’s GDP will affect credit market activity going forward.”
Credit card origination approaches 2021 rate
Credit card origination volumes fell slightly in Q2 2022 (the latest period for originations due to reporting lag), by -0.8% year-over-year (YoY) compared to Q2 2021. The YoY decline was all seen among consumers in the lowest-risk super prime score tier. Among borrowers in higher-risk tiers, an increase in origination volume was seen, with prime and below segments increasing the most on a YoY basis: originations among subprime consumers jumped by 45%, near prime by 15%, and prime by 7%1.
Total outstanding credit card balances also increased YoY in Q3 2022. These higher card balances were also likely a result of increased economic activity following the gradual relaxation of COVID-19 restrictions in Q3, with overall retail sales value in Hong Kong having increased by 1.3% YoY2.
Loans on card continue strong growth
Originations for loans on card (a product that offers additional access to credit to a consumer that already has a credit card with a lender) grew by 21.7% in Q2 2022, compared to Q2 2021, as lenders took advantage of opportunities to earn additional interest income and increase their overall share of consumers’ wallets through this lower cost of acquisition channel.
“Loans on card can be a profitable lever to help build loyalty and balances among those who need credit. With demand being the highest among younger, well performing consumers, lenders would do well to assess growth opportunities among existing cardholder portfolios,” Chen said.
Unsecured personal loan growth subdued
Growth in the unsecured personal loan market started to slow during 2022, with originations for this loan type only growing marginally, by 0.4% YoY, in Q2 2022, compared to the same quarter in 2021 when the number of unsecured personal loans increased by 5.2% YoY. The level of the originations, however, was still above the level seen in 2021 and earlier in the pandemic, suggesting sustained demand and supply.
Personal loan borrowers tend to be in higher-risk score tiers, with a larger share in prime and below segments compared to credit cards and other lending products. Over the past year, banks have expanded originations to higher risk borrowers. The share of bank personal loan originations going to the non-prime consumer segment increased from 44% in Q2 2020 to 57% in Q2 2022. For comparison, money lenders’ share of personal loan originations to non-prime consumers remained stable at around 95%. Money lenders constitute a slight majority of the unsecured personal loans market, with close to 52% of newly unsecured personal loans issued.
Demand for mortgages falls
Mortgages – the second most commonly held product in the Hong Kong consumer credit market – continued to be under pressure from an ongoing correction in the housing sector, in which property prices have fallen against the backdrop of weak demand and rising interest rates which has constrained affordability. While the number of accounts saw a moderate 3.5% increase YoY in Q3 2022, origination volumes seen in Q2 2022 decreased by -30.2%, in sharp contrast to the same quarter in 2021 where mortgage originations grew by 14.3%.
“Historically, a slow-down in mortgage originations can indicate caution among consumers, who are likely reluctant to take out long-term debt under economic conditions such as high inflation, high interest rates, and uncertainties in the property market. At the same time, as property values fall further, we may experience an improvement in affordability that could lead to a potential re-engagement from consumers looking to purchase a home.” Chen added.
Table 1: Q3 Metrics for Major Consumer Credit Products in Hong Kong
| Credit product | Q2 – 2022 (i) Originations – Annual Change | Outstanding Balances – Annual Change | Balance-Level Serious Delinquency Rates (ii) (iii) | Balance-Level Serious Delinquency – Annual Change (Basis Points) (bps) |
| Credit Card | -0.8% | 3.9% | 0.19% | 2 bps |
| Loan on Card | 21.7% | 2.5% | 0.01% | 0 bps |
| Auto Loan | -15.8% | -2.9% | 0.14% | 10 bps |
| Mortgage | -30.2% | 3.5% | 0.05% | 1 bps |
| Unsecured Personal Loan | 0.4% | 8.1% | 0.43% | 7 bps |
| Unsecured Revolving Line | 53.7% | -3.7% | 0.49% | 6 bps |
Source: TransUnion Hong Kong (except for mortgage data which is from the Residential Mortgage Survey (September 2022) published by the Hong Kong Monetary Authority)
i. Originations are viewed one quarter in arrears to account for reporting lag.
ii. 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.
iii. Delinquency data are reported at a balance level except for mortgages and loan on card, which are reported at an account level.
Consumers engaging more with credit
According to the TransUnion Consumer Pulse Survey for Q3 of 2022, of consumers who said they intend to apply for new credit in the next year, 41% were planning to open a new personal loan, indicating a preference for this product. This preference may be driven by an increased need for credit in the current inflationary environment, either to pay down more expensive credit card balances or to finance new purchases.
The Consumer Pulse Survey also highlighted that consumer sentiment is increasingly upbeat, supported by an improved employment market and 66% of consumers saying that their household finances were either better than expected or as planned during this quarter – an increase from the 60% of consumers who said the same thing in Q2.
These stable or improved finances enhanced consumers’ confidence in meeting their debt obligations, with 80% of respondents saying that they expected to be able to pay their bills and loans in full, up from 78% in the previous quarter. This was despite a consistent 95% of consumers expressing concern about inflation.
“Considering the current relatively stable status of the pandemic, along with improved labor conditions, consumption and the resulting demand for credit are likely to continue to support credit market recovery. The current and expected economic conditions indicate a tremendous opportunity for lenders to pursue growth. Hong Kong consumers have shown resiliency, a regained interest in credit, and a potential need to leverage credit to cope with the rising cost of living and debt. Lenders should leverage enhanced credit attributes to identify consumers who are likely to be resilient to these pressures and pursue prudent growth with these consumers, and hence gain loyalty.” Chen concluded.
For more information about the TransUnion Hong Kong Industry Insights Report and to register for TransUnion's Q3 2022 Industry Insights Report webinar scheduled for December 7, 2022 at 3:00pm HKT, please visit our dedicated website.
1 TransUnion CreditVision® risk score: super prime = AA; prime plus = BB; prime = CC; near prime = DD to HH; subprime = II to JJ. Prime and below = CC to JJ.
2 The Census and Statistics Department (C&SD) of Hong Kong, “Provisional Statistics of Retail Sales for September 2022”, November 1, 2022
