Strong Resurgence in Unsecured Lending in Hong Kong Consumer Credit Market

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.