Strong Resurgence in Unsecured Lending in Hong Kong Consumer Credit Market
- Lenders showed an increased risk appetite, with strong growth in new accounts opened (originations) within prime and below consumers
- Unsecured revolving lines recorded strongest increase in originations, after a second consecutive quarter of year-on-year growth
- Money lenders played an increasingly significant role in consumer credit market growth
The newly released TransUnion (NYSE: TRU) Q3 2021 Industry Insights Report shows increased momentum in the Hong Kong consumer credit market. Against a backdrop of continued economic growth1, increased consumer spending2 and falling unemployment3, consumer and lender confidence appear to be improving and led to a significant increase in new accounts opened (originations).
During a period when COVID-19 infection rates remained low and international travel continued to be restricted, originations—a measure of new accounts opened that is a function of both credit demand and supply—increased across all the major unsecured lending categories. Year-on-year (YoY) growth was most pronounced for unsecured revolving lines at 46.7%. Although this was from a low base, having recorded a significant decline during pandemic times, it was the second consecutive quarter in which growth was observed in this category. This category had previously recorded five consecutive quarters of YoY declines (Q4 2019 to Q4 2020, inclusive).
Credit cards—the most widely held consumer credit product in Hong Kong—maintained the strong YoY growth seen earlier in the year, as originations increased by 24.5% YoY in Q2 2021 (most recent quarter for originations because of reporting lag). The other major unsecured lending categories of personal loans (up 32.2%) and loan on card (up 30.4%) also showed significant increases.
This momentum is expected to continue in the coming quarter, with Q3 enquiries—a measure of consumer demand—showing a similar growth trend. As with originations, unsecured revolving lines recorded the largest increase in enquiries – up 97.8% YoY in Q3 2021, reaching a two-year high. Credit card enquiry volumes increased 14.8% YoY in Q3 2021, compared to a YoY decline of -28.8% in Q3 2020. Personal loan enquiries increased 11.3% YoY in the latest quarter.
The resurgence in originations is congruent with wider TransUnion research, with its recent Q3 Consumer Pulse research4 showing a general improvement in household finances. The research showed the number of consumers reporting their household income was negatively impacted by the pandemic was down 12 percentage points from Q1 (Q1: 55%, Q3: 43%). It also showed that the number of households intending to increase spending had increased – nearly a third (Q3: 31%) said they expect to spend more on retail purchases, up six percentage points compared to the prior quarter (Q2: 25%).
Outstanding balance growth across credit cards, loan on card and unsecured revolving lines generally follows originations growth as consumers start to draw down on the credit facilities newly available to them over time. It is anticipated the recent growth in originations will have a corresponding increase in balances in coming quarters. Credit cards was the only unsecured lending category to record an increase in balances YoY in Q3 2021 (up 4.3%), having already seen positive originations growth earlier in the year.
“With unemployment in Hong Kong now at its lowest level since the pandemic begun, and a resurgence in retail spending supported by the consumption vouchers issued in recent months, the growth in new accounts opened has been significant and continues to reverse the impacts of the pandemic,” said Marie Claire Lim Moore, CEO, Hong Kong, TransUnion. “Sustaining this recovery will be front of mind for policymakers and lenders alike, and ensuring the insights needed are available to support Hong Kong will remain our focus. At the moment, we are very much at the centre of a consumer, and increasingly borrowing-led, recovery, and we are working closely with lenders to help maintain this momentum.”
Table 1: Q3 2021 Metrics for Major Consumer Credit Products in Hong Kong
Credit Product | Enquiries – Annual change(i) | Q2 2021(ii) Originations – Annual Change | Outstanding Balances – Annual Change | Balance-Level Serious Delinquency Rates(iii)(iV) | Balance-Level Serious Delinquency – Annual Change (Basis Points) (bps) |
Credit Card | 14.8% | 24.5% | 4.3% | 0.17% | -12 bps |
Loan on Card | N/A | 30.4% | -2.3% | 0.01% | -1 bps |
Auto Loan | 1.4% | -8.8% | -6.2% | 0.04% | -5 bps |
Mortgage | 28.0% | 14.3% | 9.1% | 0.04% | -1 bp |
Unsecured Personal Loan | 11.3% | 32.2% | -3.4% | 0.36% | -19 bps |
Unsecured Revolving Line | 97.8% | 46.7% | -3.6% | 0.43% | -9 bps |
Source: TransUnion Hong Kong (except for mortgage balance data which is from the Residential Mortgage Survey (September 2021) published by the Hong Kong Monetary Authority)
i. When considering enquiries, loan on card is a subset of credit card (i.e. you must have a credit card to have a loan on card) – as such, this product does not require enquiries for originations.
ii. Originations are viewed one quarter in arrears to account for reporting lag.
iii. 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.
iv. Delinquency data are reported at a balance level except for mortgages, which are reported at an account level.
Lenders show an increased risk appetite, with money lenders leading the charge
The growth in new accounts opened has been observed across all risk tiers, but was most concentrated in the prime and below risk tiers5.
For credit cards, originations from prime and below risk tiers (which constitutes about a fifth of total origination volumes) increased by 31.1% YoY in Q2 2021. At an industry level, average new account credit lines for credit cards increased 20.4% YoY in Q3 2021.
A similar trend was also seen for personal loans, with originations for below prime consumers increasing by 36.2% in Q2 2021, compared to 21.7% for the prime and above risk category.
Mortgages—Hong Kong’s primary secured lending category—continued to be more focused on low-risk consumers (93.3% of originations are for prime and above consumers), which is consistent with historical trends.
The increased participation by higher risk (below prime) tiers in the unsecured lending categories, was reflected in both money lender and traditional banks’ origination risk dynamics. When measuring originations growth for unsecured personal loans, for banks the share of originations for below prime consumers increased to 55% in Q2 2021, up from 23% in Q2 2020. For money lenders—who have a business model traditionally more focused on higher risk lending—this increase was to 94% from 75% over the same periods.
For revolving line balances, money lenders have also gained market share. Although overall outstanding balances declined -3.6% YoY in Q3 2021, money lenders’ total share of balances increased to 28% in Q3 2021, up from 18% in Q3 2019.
The increased presence of online lenders in the Hong Kong market, especially within the below prime lending tiers, corresponds with a general increase in the awareness of FinTech lenders amongst consumers. TransUnion’s latest Consumer Pulse research showed that almost two-thirds (62%) of consumers were aware of emerging ‘buy now, pay later’ online services, and just over a third (35%) said they had used these services one or more times in the last 12-months.
“Competition for acquisition growth is increasing. Emboldened by consistently low levels of delinquencies which have continued to improve in recent quarters, lenders of all types have increased their risk appetite and have been able to service the needs of resilient Hong Kong consumers. Careful portfolio monitoring and continued adjustments to underwriting parameters are key to remaining competitive in an improving consumer credit market,” Lim Moore concluded. “With the pandemic recovery under way, competition for share of wallet and retaining new customer loyalty are key elements to lender success. By employing insight-led strategies, lenders can continue to meet the needs of consumers that are entering or re-engaging in the consumer credit market in significant numbers.”
For more information about the TransUnion Hong Kong Industry Insights Report and to register for TransUnion's Q3 2021 Industry Insights Report webinar scheduled for 15, December at 3:00pm HKT, please visit our dedicated website page.
