The newly released TransUnion (NYSE: TRU) Q4 2020 Industry Insights Report continues to reflect the impact of the global economic slowdown caused by the ongoing COVID-19 pandemic, with consumers and lenders both continuing to take a cautious approach to credit.

  • Largest decline in consumer demand and lender supply observed for credit products used for discretionary spending – credit cards and unsecured revolving lines
  • Millennials’ demand for and use of unsecured credit more robust than other generations
  • Delinquencies remain much lower than in other mature credit economies, but have risen for credit cards, amidst a challenging economic environment

Enquiries, a measure of consumer demand, were down year-on-year (YoY) in Q4 2020 across consumer credit products associated with discretionary spending, and this drop was most pronounced in the unsecured revolving line (-35.7%) and credit card (-27.1%) categories. Mortgages experienced a resurgence in enquiries – up 8.3% YoY – as improved housing affordability enabled consumer demand.

Originations, which measure new accounts opened and is a function of both consumer demand and lender willingness to advance credit, fell YoY in the third quarter of 2020 (latest available data for originations) across all the major consumer lending categories. With the decline in originations and the negative impact of consumer pessimism on credit utilisation, outstanding balances also fell YoY for most credit products, with the exception of mortgages. Outstanding balances for mortgages grew significantly – up 10.1% YoY, primarily driven by the surge in mortgage lending – a phenomenon observed across other credit economies.

Unsecured revolving lines, typically used for discretionary spending, recorded the largest YoY decline in outstanding balances (-36.2%) and enquiries (-35.7%) and the second largest drop in originations (-30.8%). This decline is reflective of the general fall in retail spending. It may also be driven by the relatively higher interest rates charged on these products as consumers take a more cautious approach to their finances, leading them to pay down outstanding credit lines and focus on more affordable products.

Despite the sustained consumer financial impact from subdued economic activity, delinquencies remained significantly lower than in other international credit markets. However, while most credit products experienced an improvement YoY, credit cards showed a slight deterioration in performance at the end of 2020.

“The continued impact of the pandemic and associated fall in retail spending have had a significant impact on consumer demand in the credit market. Lenders also remain cautious as they continue to adjust their risk appetite and business models to accommodate prevailing conditions,” said Francis Lau, director of research and consulting, Asia Pacific, TransUnion. “Although headline figures show an overall decline in consumer credit market activity, when we look deeper into generational behaviors, there are some meaningful trends emerging that may shape the outlook for 2021.”

Source: TransUnion HK news