Younger Consumers Present Growth Opportunities for Hong Kong’s Lenders
- Revolving lines showed steady, continued year-over-year growth, driven by younger consumer participation
- Redefined lender risk strategies led to personal loan portfolio contraction and improved account-level delinquencies, creating opportunities for prudent future growth
- Card utilisation increase driven by existing cardholders amidst a cautious lending environment
Consumers in Hong Kong are increasingly choosing the value and convenience of revolving lines, mostly offered by digital banks responding to consumers’ needs, with demand throughout the year in 2024 trending well above the prior year levels. Enquiries for this product increased by 25.2% year-over-year (YoY) between September and November 2024, and revolving line origination volumes, a measure of new accounts opened, were up 76.4% YoY in the June to August 2024 quarter[1] (the most recent available data due to reporting lag). These market shifts and trends are reflected in TransUnion’s (NYSE: TRU) Hong Kong Industry Insights Report ending November 2024.
Despite the significant increases in originations, the average new account credit line amount decreased by almost a third (32.8%), with two thirds (66%) of originations coming from digital banks who are growing their customer base via this product with faster approvals being a value to consumers. Lower credit limits on revolving lines are due to the observed shift in share to these digital banks, who have a lower risk appetite compared to traditional banks that offer much larger revolving line limits.
Given the shift towards lower new credit line assignments, outstanding balances decreased by 5.1% and average balances per account decreased by 14.8% YoY in the three months ending November 2024. Despite the recent balance decreases, the revolving line market remains strong and holds significant potential for growth, as the number of revolving line accounts increased by 6.2% YoY, and the number of consumers carrying an active revolving line balance increased by 11.5% YoY.
The increase in revolving line account activity was primarily driven by younger consumers, and those seeking digital wallet integration for online shopping and cross-border spending. Millennials[2] accounted for 40% of recent revolving line originations, and Gen Z represented more than 30%. The number of new accounts granted to Gen Z consumers more than doubled (increased by 127.8%) YoY in the three months ending November 2024.
“An increasing number of consumers in Hong Kong are using revolving lines from digital banks, reflecting greater product diversity in borrowers’ wallets,” said Weihan Sun, principal of research and consulting for Asia Pacific at TransUnion. “This product makes it easy to transact, and while we are seeing more consumers carry balances, those who revolve their balances may be doing so to take advantage of the lower interest costs on these facilities, compared to those on more traditional products like credit cards.”
Alongside this rapid growth has been a rise in delinquencies. The percentage of accounts 60 or more days past due (DPD) was up 8 basis points (bps) YoY to 0.7% at the end of November 2024.
“While an increase in delinquencies may be of concern, it is in the context of remarkable growth in the adoption of a product that is disrupting the credit behaviours of multiple segments of consumers, particularly Millennials and Gen Z who prefer the speed and convenience of revolving lines,” Sun added. “Lenders who employ smart monitoring solutions to keep track of performance will be better positioned to limit further risk of increasing delinquency rates.”
Redefined risk strategies position personal loans for confident growth
Enquiries for personal loans continued to increase YoY, by 1.2%, but origination volumes declined by 4.6% YoY in the period from June to August 2024. Despite this decrease, originations among Gen Z consumers increased by 10.3% over the same period.
Personal loans also saw YoY declines in the overall account numbers (-1.2%), outstanding balances (-1.3%) and average balances (-0.7%) in the three months ending November 2024, reflecting lenders’ cautious appetite for extending these loans, particularly to borrowers in the below prime risk tiers[3].
Given that personal loans market activity has slowed, and total asset growth has decreased, lenders’ restrained approach in managing risk carefully has resulted in delinquencies improving over the previous two quarters and stabilising under the 1% threshold across primary delinquency measures.
“Lenders need to adopt advanced trended data and proactive identification of early risk signals to better manage their personal loans portfolio risk. Opportunities for prudent growth still exist and can be found by taking a more comprehensive trended view of consumer performance across all products in wallet,” said Sun.
Opportunity for credit card portfolio growth lies among younger consumers, and those new to Hong Kong
The Hong Kong credit card market saw higher spending from existing cardholders, influenced by macroeconomic factors such as moderate economic growth of 2.5% in 2024[4] and increase in travel related spend. This was reflected in the 1.4% increase in outstanding balances YoY in the three months ending November 2024, a 2.1% increase in the number of consumers with an active card account, and the 1.2% increase in the number of consumers carrying a balance over the same period. This occurred despite declines in local retail sales between June and August of between 10 and 12%[5].
Credit card origination volumes declined by 9.1% YoY between June and August 2024, with the average credit limit offered on new cards down 6.6% YoY. Demand remained soft over the September to November period, when enquiries for credit cards declined by 7.0%, which likely affected originations for the three months ending November 2024. However, there is still opportunity for lenders to grow their portfolios as younger consumers and new to region consumers enter the credit market.
The share of new credit cards originated by Gen Z consumers increased from 17.4% to 21.4% YoY in the three months ending November 2024, accounting for more than one in five new cards issued. With Hong Kong’s young consumers entering a stable job market, many into relatively well-paying roles in finance or technology, they often start their credit journey at prime or prime plus credit tiers. Their lower risk credit profiles make them attractive prospects for lenders, who also recognise the future lifetime value of these younger borrowers.
“Lenders seeking growth in the credit card portfolios can draw on trended risk data to identify lower-risk, younger consumers who are building their credit wallets to meet their lifestyle and travel ambitions. Further opportunities for growth lie among new talents arriving in Hong Kong, with around 180,000 people having moved to the city through various talent admission schemes as of the end of 20244,” Sun said. “Adapting strategies and products to appeal to this market, who are also rapid adopters of revolving lines, will be key to building card portfolios in the future.”
