Hong Kong Credit Climate: TransUnion Impact Report on Credit Market

Hong Kong Consumer Credit Market Shows Impact of Latest Wave of Pandemic

Demand for new credit down across a number of major categories, in light of recent resurgence of COVID-19 infections
Despite drastic decline in new card openings, balances remained steady
Unsecured loans and revolving lines gaining popularity amongst Hong Kong consumers
Money lenders continued to grow share within unsecured loan categories

The newly released TransUnion (NYSE: TRU) Q1 2022 Industry Insights Report reflects the impact of wave five of the COVID-19 pandemic in Hong Kong, with muted consumer sentiment reflected in subdued levels of overall activity across a number of major categories in the consumer credit market.

In Q1 2022, enquiries—a measure of consumer demand—were roughly three quarters (77%) the overall level they were in the corresponding pre-pandemic quarter of Q1 2019, and 91% of what they were the same time twelve months ago (Q1 2021). The decline in enquires was across a number of major consumer lending categories, falling most for mortgages (down -36.9% YoY in Q1 2022) but also down (-12.4%) for credit card which is the most widely held credit product in Hong Kong. Enquires often reflect wider consumer sentiment, and this appears to be true in Q1 2022, with the TransUnion Consumer Pulse Study* conducted during the same period showing just over a quarter (26%) of people experienced a drop in household income during the last three months.

Originations, which measure new accounts opened and is a function of both consumer demand and lender willingness to advance credit, was impacted by this downward trend in consumer demand for new credit (or credit products with new reward features as is often the case for credit cards). In the fourth quarter of 2021 (latest available data for originations) originations fell drastically for credit cards (-25.8% YoY). However, other categories showed YoY growth, with unsecured revolving lines recording the biggest increase – up 130.1%. Unsecured revolving lines recorded significant origination declines at the beginning of the pandemic but have since seen a YoY improvement in recent quarters.

Much of the recent origination growth in unsecured personal loan (up 21.0% YoY) and revolving accounts is due to favourable comparisons against 2020 levels, which were depressed for these credit products. If we compare to the corresponding pre-pandemic quarter (Q4 2019) the trend for unsecured personal loans was a more moderate increase over a longer period, up 16.7% over two years. For unsecured revolving lines it was still a strong increase, up 93.6% compared to two years ago. In contrast, the YoY fall in credit card originations is consistent with a larger decrease over the two-year period which showed a -36.1% drop when compared to Q4 2019.