The latest Industry Insights Report by TransUnion revealed that consumer demand for new credit cards in Hong Kong remained subdued towards the end of 2023. However, growing credit card balances indicate increased use of existing cards, with lenders extending additional capacity to borrowers in Q1 2024.

According to TransUnion, credit card enquiries decreased by 8 percent year-over-year (YoY) in Q4 2023, and origination volumes dropped by 20 percent YoY. During Q1 2024, outstanding balances increased by 8.6 percent, and average balances grew by 7.5 percent, showing greater use of existing cards.

TransUnion’s Q1 2024 Consumer Pulse survey reveals that 38 percent of Gen Z borrowers and 32 percent of Millennials plan to apply for new credit or refinance existing credit within the next year.

Additionally, 39 percent of Millennials and 26 percent of Gen Z respondents intend to seek credit plans to apply for a new personal loan. This renewed confidence in credit presents growth opportunities for lenders to build and maintain loyalty while expanding their relationships with consumers seeking the best interest rates, rewards, and quick approval times.

“Consumers are leveraging their existing credit lines, building balances to meet their needs in Q1 2024. Lenders can leverage rewards programmes and retention strategies to maintain the top-of-wallet position,“

said Weihan Sun, principal of research and consulting for Asia Pacific at TransUnion.

Personal loan originations fell by 8.7 percent YoY in Q4 2023, despite a 4 percent YoY increase in enquiries. The average new loan amount rose by 2.9 percent YoY as lenders focused on lower-risk borrowers. Delinquency rates remained below one percent despite a slight increase in delinquencies.

Loans under HK$150,000 comprised 17 percent of active personal loans in Q4 2023, with money lenders issuing 80 percent of these loans. The mid-size tier (HK$150,000 to HK$300,000) represented 67 percent of outstanding personal loans, with money lenders issuing 66 percent of new loans in this range. Larger loans exceeding HK$300,000 were mainly issued by traditional banks, accounting for 88 percent of all originations in this tier in Q4 2023.

“The personal loan market, especially for small- and medium-ticket loans, is increasingly dominated by money lenders, offering significant repeat borrowing opportunities. Personal loans present a sizeable opportunity for new-to-product consumers seeking liquidity,” said Weihan Sun.

Revolving lines of credit are concentrated among near-prime and subprime consumers. Recent vintages of revolving line originations by these borrowers are performing worse, indicating adverse selection.

“Recent revolving line vintages for riskier borrowers have performed worse than pre-pandemic counterparts, likely due to increased credit use. Lenders need to price for the additional risk and monitor early warning signs to predict delinquencies,”

Weihan Sun added.

Featured image credit: Edited from Freepik