In Q3 2019, there was continued growth in the Hong Kong consumer credit market but with some shifts in demand among lending products. As well, despite a deteriorating macroeconomic environment, delinquency levels have generally held steady over the past year.
Hong Kong consumers face significant economic headwinds, with gross domestic product declining 3.2% in the third quarter, and the unemployment rate ticking up to 2.9% in September, according to Oxford Economics. In the face of this economic slowdown, consumers appear to be increasingly leveraging credit products that provide short-term liquidity and can potentially help them finance daily expenses.
Shifts in consumer credit behavior were evident in the balance trend for different products in Q3 2019. Total outstanding balances of revolving products, including credit cards, loans on cards and unsecured revolving accounts grew 8.5% year-over-year (YoY). Consumers often use these products as a source of short-term liquidity, and their growth may be an indication consumers are using credit to finance spending. In contrast, balances of non-revolving auto loans and unsecured personal loans declined 2.5% YoY and 1.7% YoY, respectively.
Growing consumer demand for credit products that provide access to consumption-oriented liquidity also explained widely divergent results in originations in Q3 2019, as well as variations in related outstanding balances.
Origination volumes of unsecured personal loans and revolving accounts grew 4.1% YoY and 6.9% YoY in Q2 2019, respectively (the latest available data for originations). At the same time, balances for both account types fell YoY in Q3 2019 as average balances for new accounts dropped. Several dynamics contributed to this change: A higher share of originations for both account types were to below-prime borrowers — those in TransUnion CVS risk score tiers between DD and JJ — with lenders typically giving smaller loans and credit limits to higher-risk borrowers. As well, a higher share of personal loan and revolving account originations has shifted from banks to moneylenders, as the latter specialize in lending to higher-risk borrowers. The originations growth for both products indicates continued consumer demand for credit, while the shift to smaller accounts has held total balance growth in check.
In contrast, origination volumes dropped YoY for both credit cards and auto loans in Q2 2019, by 10.4% YoY and 19.1% YoY, respectively. The drop in auto originations isn’t surprising as auto loans in Hong Kong tend to support higher-ticket, discretionary vehicle purchases. However, the drop in card originations is more surprising given the increase in balances noted above. This originations drop may be an indication that while cardholders are using their existing cards to a greater extent, they’re not seeking new cards to the same extent. The Hong Kong cardholders have on average 4.6 cards in their wallets, and the average cardholder currently utilizes only about 12% of his total credit limit. Most Hong Kong cardholder have the capacity to increase their balances using existing cards, and appeared to be doing so in Q2 2019 as consumers increasingly used their cards as a source of liquidity.
Q3 2019 Metrics for Major Credit Products in Hong Kong
“The macroeconomic environment has changed significantly from one year ago. Consumer lending market pressures have been building and now include an economic downturn; increased unemployment and lower wages; and declining property values.The growing uncertainties are now clearly having an effect. Consumers are continuing to spend, but patterns and channels are changing and demand for credit products providing access to consumption-oriented liquidity is growing. Banks are adopting more conservative approaches, while money lenders are moving aggressively to take market share in personal loans and revolving accounts.”
Francis Lau, Director of Research and Consulting for TransUnion Hong Kong
(2)Serious delinquency rates are 90 or more days past due for credit cards and 60 or more days past due for all other credit products.
(3)Delinquency data are reported at a balance level except for mortgages, which are reported at an account level because of the way data are collated.