Increasing market share with relevant products in a dynamic loan market
The COVID-19 pandemic has brought drastic changes to the local economy and severely impacted consumers in the credit market. This begs the questions: Which loan product is proving to be popular amongst consumers, and which has the fastest-rising risk? Understanding market trends (and the data behind them) can give banks and money lenders a more comprehensive view of the market, enabling them to design products better suited to changing dynamics to stay competitive.
At the recent TransUnion 2020 Hong Kong Financial Services Summit, Francis Lau — Director of Research and Consulting, Asia Pacific — shared the latest trends and data on the Hong Kong consumer credit market. In his session — The Importance of an Industry Point of View — he explained how, apart from product design and market strategy, a deep dive into market data is a key factor for success.
In times of economic downturn, consumers’ income and ability to meet loan obligations are often affected. As Lau points out, there’s been a slight increase of 0.03% to 0.14% of consumers defaulting on repayments for more than 60 days. On the other hand, the impact on consumer income has led to a propensity to borrow more. This, he explains, is how credit card-related loans have performed the best amongst unsecured loan products in the current market climate.
Data from the first half of 2020 shows total credit card-related loans amounted to HK$38 billion, a year-on-year increase of 8.4%. However, the total amount of private loans during the same period was HK$98 billion (down 3.7% YoY), while the total credit line of revolving loans was HK$26 billion (down 9.4% YoY).
As for the stellar performance of credit card-related loans, Lau believes more consumers regard this product as an ideal means of improving cash flow due to its characteristics.
Unsecured personal loan products, including personal loans and revolving credit products, will experience negative effects on product performance and repayment rates during an economic downturn. According to Lau, the data shows fierce competition between banks and money lenders — with money lenders’ share of the market currently on the rise.
While banks and money lenders have both been affected, money lenders have managed to acquire new customers from banks. One of the reasons for this shift may be a difference in risk appetite. Looking at Q2 2020 data, the total amount of personal loans has fallen by 3.7%, while the number of new accounts fell by 4.5%. Of those new accounts, 78% are loans to borrowers within the below-prime tier.
In the first quarter of 2020, 43% of personal loans from banks were rated below-prime— compared to 96% below-prime loans from money lenders over the same period. Further evidence can be found by comparing the market share data where, in the second quarter of 2018, banks held a 75% market share and money lenders held 25%. By the second quarter of 2020, that gap narrowed to 73% and 27%, respectively.
Compared to banks, money lenders have a competitive edge in below-prime loans and across the risk spectrum. There’s been consistent growth for money lenders in outstanding balances from Q2 2018 to Q1 2020 — where below-prime loans experienced single-digit growth each quarter, and prime and above loans had multiple quarters of double-digit growth. For banks, below-prime loans have been declining, while prime and above loans fluctuated between moderate growth and slight decline.
A thorough understanding of the market can help companies navigate the changing dynamics of economic uncertainty — when managing rising risks becomes increasingly important. TransUnion solutions and products provide an accurate and comprehensive picture of each consumer to help identify those most vulnerable, so lenders can provide assistance before loans default. With a better understanding of individuals and their repayment abilities, lenders can better serve them and maintain their loyalty.
You can learn more about the data behind the trends and which products the market is looking for by watching the session replay or downloading the presentation here. Contact your sales representatives or click here for password.
For more information on TransUnion solutions and products, visit our webpage.
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