Hong Kong Consumer Credit Market Improves Amid Rising Consumption, Economic Rebound

Hong Kong’s consumer credit market improved in Q2 2021 as the local economy continued to rebound from the impact of COVID-19 and private consumption increased 6.5% year-on-year (YoY) increase, according to TransUnion’s Q2 2021 Industry Insights Report.

In Q2 2021, new credit growth was seen across all major consumer credit categories but credit cards mainly led this upward trends. Originations, the process of which a lender or another credit granting institution approves for a new credit product or exposures, increased YoY across all major unsecured lending credit categories but were the strongest for credit cards.

Originations for credit card rose 26% from Q1 2021, followed by unsecured revolving line (10.5%), auto loan (7.1%), and loan on card, a type of personal loan that allow customers to get a portion of their available credit card limit as cash (2.7%). Credit cards were also the only consumer credit product that registered growth in outstanding balances this past quarter, rising 1%, the first YoY increase since Q4 2019.

Q2 2021 Metrics for Major Consumer Credit Products in Hong Kong, Source: TransUnion Hong Kong

Growth in originations indicates that Hong Kong consumers are re-engaging in the credit market as the economy bounces back and consumption levels start to increase, the consumer credit reporting agency says.

In Q2 2021, real gross domestic product (GDP) grew notably by 7.6% YoY while retail sales climbed for the seventh straight month in August, helped by a stabilizing COVID-19 situation, economic recovery and a boost from the Consumption Voucher Scheme (CVS), according to data from the Hong Kong government.

In August, total retail sales rose 11.9% YoY to HK$28.6 billion while volume grew 10.6% YoY. Of the total retail sales value in August, online sales accounted for 7.4%.

The Hong Kong government launched in July a HK$36 billion e-voucher scheme aimed at boosting local spending and accelerating the city’s economic recovery amid the COVID-19 pandemic. Under the scheme, Hong Kong residents can register to receive e-vouchers with a total value of HK$5,000 by installments. On August 01, the first round of e-vouchers had been distributed and about 5.5 million people had already received it.

A mature payment card market

Hong Kong is one of the most mature payment card markets in Asia with high card penetration of 3.4 cards per inhabitant, according to Ravi Sharma, lead banking and payments analyst at GlobalData.

TransUnion estimates that there are 4.3 million credit card holders in Hong Kong, or more than half of the population, making it the most popular consumer credit product in the city. Data from the Hong Kong Monetary Authority indicate that by the end of Q2 2021, 19.22 million credit cards were in circulation.

Furthermore, one-third of Hong Kong respondents in TransUnion’s Consumer Pulse Survey shared that they were interested in applying for a new credit card in the next year.

Payment methods such as credit cards, contactless cards, mobile payments and stores valued cards are expected to grow in usage and continue benefiting from the decline of cash, according to Visa.

Visa’s Consumer Payment Attitudes Study 2.0, which polled 1,600 consumers in Hong Kong, Macau and Taiwan, found that cash payments lost significant favor during the pandemic, with Hong Kong seeing the largest drop in usage.

On the other hand, card-funded mobile payments, credit cards, contactless cards, peer-to-peer (P2P) payments and non-card-funded mobile payments all showed significant increase in usage.

Furthermore, two-fifth of Hong Kong and Macau consumers also indicated having used more digital banking services during the pandemic and will continue doing so afterwards, showcasing the long-lasting effect of COVID-19 on consumer payment and banking behaviors.