Survey: Renewed consumer spending in HK drives growth in credit balances

Hong Kong has seen renewed spending confidence which drives growth in consumer credit balances amidst surging retail and travel activities, according to TransUnion’s latest Industry Insights Report.

According to the report, the number of new credit cards issued in Q3 2023 increased by 2.9% year-on-year (YoY) as the summer sale season in July and August stimulated appetite.

Meanwhile, credit card balances in Hong Kong have surged by 12.5% YoY as consumers leveraged their cards for spending activities over the holiday period in Q4 2023.

Discretionary and retail spending was likely responsible for the majority of consumer credit card use during the period, but the impact of large spending activity relating to travel also contributed.

Hong Kong residents’ willingness to spend was also highlighted over Singles’ Day (11 November 2023), the annual shopping extravaganza, with sales on the day increasing by 266% YoY, highlighting renewed consumer spending confidence, according to the report.

This aligns with TransUnion’s Hong Kong Q4 2023 Consumer Pulse Survey findings, in which 38% of households reported an increase in income – a significant leap from the 21% of consumers who expressed similar sentiments in the same quarter of 2022.

This upward trend transcended all income brackets, indicating widespread financial improvements, and boosting consumer confidence and spending power. Wider sales data also showed that retail sales growth increased by 17.1% YoY to the end of November 2023 , and by 7.8% YoY for December alone.

“Analysis shows that consumers spent with less restraint than in the same quarter the year before,” said Weihan Sun, principal of research and consulting for Asia Pacific at TransUnion.

“Once the market fully reopened after COVID19 travel restrictions were lifted, new card volumes grew exponentially from pent-up demand and balances started to build as spending and consumption increased. We watch with interest to see whether this renewed consumer credit confidence extends into Q1 2024, especially with the Chinese New Year period acting as a stimulant for potential further growth activity,” Sun added.

On the lenders front, personal loan origination (new loans issued that are a reflection of both consumer demand and lender supply) volumes dropped by 5.5% YoY in Q3 2023 despite new credit enquiries growing over the same period, reflecting the possibility of lenders taking a more cautious approach in this category.

The report also witnessed a heightened demand for revolving lines, which was driven primarily by Millennial (born 1980-1994) and Gen Z (born 1995- 2004) consumers, with virtual banks responding positively, being responsible for 51% of revolving line originations during Q3 2023, up from 46% in Q3 2022.

The report also found that the total origination volumes increased by 49.4% YoY. However, the average balance of new credit lines for this product decreased by 41.1% YoY, with overall average balances (new and existing) decreasing by 10.7%.

This indicates that these consumers were among the higher-risk credit tiers, with lenders increasing the share of revolving line originations to riskier borrowers, who typically receive smaller lines, according to the report.

“Consumer preferences for revolving lines may be due to several factors. With interest rates remaining at peak levels, consumers are looking for more affordable options, and the turnaround times for application and approval of revolving line products are usually shorter than credit cards, offering greater convenience. With these factors in mind, it is not surprising to see virtual banks meeting demand from the younger consumers seeking more affordable and quicker access to credit,” Sun said.

“Given the renewed vigour in consumer spending, and the imminent prospect of interest rate reductions, Hong Kong’s consumer credit market is well positioned for steady expansion,” he added. “Multi-line lenders can focus on leveraging their existing client base for growth opportunities, while lenders seeking to expand their portfolios of offerings have the opportunity to explore untapped market potential.”

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