Hong Kong Consumer Credit Demand Rebounds as Macroeconomic Conditions Improve

Consumer demand increased across major lending categories
Younger generations showed stronger rebound in card balances
Consumers deleveraging to cope with uncertainties associated with the pandemic

The newly released TransUnion (NYSE: TRU) Q1 2021 Industry Insights Report shows demand for consumer credit rebounded in the latest quarter, mirroring recent GDP and retail sales growth*.

Almost all of the major consumer lending categories recorded strong growth in credit enquiries – a measure of demand – with mortgages recording the largest increase, up 25.1% year-on-year (YoY) in Q1 2021. Credit cards, the most widely held consumer credit product in Hong Kong, also showed strong growth – up 8.3% YoY. The only category to show a decline was unsecured revolving lines, continuing the trend seen in previous quarters where it has repeatedly recorded the largest YoY declines. This is likely a function of relatively higher interest rates for revolving lines when compared to other products and this product’s use for discretionary spending, which has generally decreased.

While consumer demand for new credit appears to be increasing, this renewed demand has not yet been reflected in higher reported new account openings. Reporting for originations, which are a measure of new accounts opened and are a function of both consumer demand and lender willingness to advance credit, lags other indicators by a quarter due to the way data are reported. In Q4 2020, YoY originations declines were most pronounced for unsecured lending products focused on discretionary spending – loan on card (-17.7%), unsecured revolving lines (-15.8%), and credit cards (-13.9%). The recent rebound in enquiries is likely to create positive momentum for origination volumes for Q1 2021.

Growth in total credit card balances, a measure reflective of spending and demand for credit, although still negative YoY, has rebounded faster for younger generations – led by Millennials (born 1980-1994). The Millennial generation, which represents an increasingly larger proportion of credit-active consumers (29%), recorded a small (0.8%) YoY decline in overall card balances in Q1 2021, against an overall fall of 7.6% across the credit-active population.

“Improving macroeconomic conditions are helping to fuel a rebound in consumer demand and spending, but this trend is far from uniform across generations,” said Francis Lau, director of research and consulting, Asia Pacific, TransUnion. “It will be important for lenders to promote relevant offers to enable consumer spending and manage the recovery of supply to keep up with demand in the coming quarters.”