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TransUnion introduces first Hong Kong Industry Insights Report
Hong Kong, May 24, 2017– A new view of the Hong Kong consumer credit environment confirms that the market is healthy and well-functioning, with low levels of delinquency and slowly growing balances. This perspective is provided by TransUnion’s (NYSE:TRU) newly introduced Industry Insights Report, a comprehensive view of the credit activity and performance of virtually every credit-active Hong Kong consumer.
The report found that the number of consumers with credit cards has barely changed between Q1 2016 and Q1 2017—up just 0.9%—and while outstanding credit card balances rose by 0.6%, that is slower than the inflation rate. This is an indicator that consumers are not using cards as their credit vehicle of choice.
“Overall, the consumer credit market mirrors the macro economy, which has delivered low and stable interest rates, unemployment and inflation during the past year,” said Brendan le Grange, director of research and consulting for TransUnion Hong Kong. “Conservative lending practices have kept card delinquency levels low; however, this may also be costing Hong Kong credit card issuers growth opportunities in moderate risk segments.”
In Q4 2016, the proportion of new credit cards opened in the moderate-risk prime and near prime tiers was down 7.5% compared to the year before, and those cards that were opened in these risk tiers had on average 5.1% lower credit limits.That said, total new card origination volumes did rebound in Q4 2016 after four falling quarters. TransUnion measures originations one quarter in arrears to account for reporting lag.
On the other hand, credit card issuers have been rewarding better-risk consumers with more offers. As a result, super prime consumers hold the highest number of credit cards—4.8 on average, with total combined credit limits of $286,631. These consumers aren’t necessarily the ones who use credit, though. The credit limit utilization rate (the ratio of the balance to the credit limit) is only 5% in the super prime tier, in contrast to 21% in the prime tier and 46% in the near prime tier. Utilization rates for the market as a whole dropped by about 3% over the past year.
Key Credit Card Market Statistics in Hong Kong
|Credit Card Metrics||Q1 2017||Yearly % Change|
|Total Consumer Balances||126.2 B||0.60%|
|Total Number of Accounts||18.37 M||-0.60%|
|Accounts per Consumer||4.6||-1.48%|
|Average Balance (Per Consumer)||38.95 K||-0.78%|
|Origination Volumes (Q4 2016)||550.9 K||11.62%|
|Consumer-Level Delinquency Rate (90+ DPD)||0.08%||1 bps|
“Consumers have wide access to card credit, but their use of cards has been stagnant. They don’t appear to be using cards as a means to borrow, instead looking at other credit products for their borrowing needs. This dynamic will present challenges for card issuers who are looking for ways to profitably grow their businesses,” continued Le Grange.
Inside The Hong Kong Consumer Credit Market
TransUnion’s Industry Insights Report also observed key metrics for the primary consumer credit products, including auto loans, mortgages, unsecured personal loans, unsecured tax loans and unsecured revolving lines.
After credit cards, unsecured personal loans and unsecured revolving lines are the most popular credit products in Hong Kong, with unsecured personal loans delivering the strongest balance growth during Q1 2017. Consumer risk performance on these loans also remained stable.
Credit Cards Remain the Most Popular Credit Product - Q1 2017
|Product Type||Number of Accounts||Total Balances||% of Balances Seriously Delinquent†|
|Credit Cards||18,372,407||126.2 B||0.21%|
|Unsecured Personal Loans||653,686||111.6 B||0.44%|
|Unsecured Revolving Loans||565,380||31.1 B||0.42%|
|Auto Loans||62,900||41.5 B||0.03%|
|Unsecured Tax Loans||37,557||6.6 B||0.07%|
Total personal loan balances are up 4% year-on-year and now contribute 88% of the balances credit cards do. If the trend of higher growth rates persists, personal loan balances will overtake credit card balances in as little as four years; as lenders continue to advertise low rates to low risk consumers and consumers continue to normalize loan-taking, there is every reason to believe it will.
“This growth in personal loan balances is not driven by new accounts volumes as much as it is by an improvement in the risk profile,” said Le Grange. “Consumers in the super prime risk tier – the lowest risk-tier and the fastest growing personal loan customer segment – have been increasing their use of personal loans, and they generally get larger loans. This is an interesting change in behaviour which we will continue to monitor. While super prime consumers may be attracted to personal loans by low interest rates, if their credit needs are small and occasional, they may find that revolving lines or credit cards are actually a cheaper option.”
The last quarter of any year is also the one in which tax loan balances start to spike: $3.5 billion in tax loans were added in Q4 2016. The average newly booked value of those loans was $214,241, up 3.2% from the same time last year.
As tax loan balances spiked, TransUnion’s report found that unsecured revolving lines became less popular. While total credit limits rose 6.2% year-on-year, total balances were only up 0.7% and the number of consumers carrying a balance on one of these products came down 2.2% during the last year.
Mortgages were the one product that saw significant change, with account volumes up 7.6% year on year, driven by a surge in new mortgage openings. In Q4 2014 there were 30,589 new mortgages opened, but volumes dropped every quarter to a low of just 19,057 in Q1 2016. Since then, volumes have increased every quarter, surpassing 30,000 in Q4 2016 for the first time in two years.
Unsecured Loan Balances Rising
|Loan Type||Average Balance Per Consumer||Yearly % Change||Consumer-Level Serious Delinquency Rates (90+ days past due)||Yearly % Change|
|Unsecured Personal Loans||$257,378||9.0%||0.95%||+3 bp|
|Unsecured Tax Loans||$205,532||1.1%||0.10%||-9 bp|
|Unsecured Revolving Loans||$135,128||1.9%||0.39%||-4 bp|
“The last twelve months were characterized by scarce growth in the major credit products and a continuing shift from revolving to installment products. It will be interesting to see if this shift continues over the next few quarters,” concluded LeGrange.
† Serious delinquency is defined as 60 days or more past due for all products except credit cards, where it is defined as 90 days or more past due
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