Hong Kong lenders chase after small-ticket loans, maintain tight standards

They’ve embedded services in digital wallets to increase to get more customers.

Lenders in Hong Kong have changed strategies to chase after small ticket-size opportunities, embedding their offerings in digital wallets to capture more market share.

Providers that offer digital wallet pay-later solutions are capturing an increasing share of wallet, with Hong Kong now past more than half a million consumers holding active revolving line products, said Weihan Sun, principal of research and consulting for Asia Pacific at TransUnion.

“Lenders who are digitally agile and connected with digital native audiences are continuing to see growth. Consumers are prioritising convenience, which is an important differentiator in a very mature market,” Sun said.

This shift is reflected on revolving lines seeing more enquiries, but less new account lines.

Enquiries for revolving lines rose 154% year-on-year (YoY) in Q2, according to a November 2024 report by TransUnion. However, the average new account credit lines dropped by 42.8% during the same period.

Credit cards steady
Hong Kong’s credit card market logged a 12.3% YoY growth in enquiries and a 12.7% growth in originations. Average limits on the new cards are lower by 8.7% YoY.

This suggests that card issuers have a healthy appetite to offer additional credit to consumers who demonstrate consistent repayment behaviours, TransUnion said.

“The double-digit increase in demand for credit cards during the second quarter was likely also driven by lenders expanding their rewards offerings to build and retain loyalty and top-of-wallet status,” said Sun.

In a survey, 45% of respondents from Hong Kong said that they plan to apply for a new credit card in the next 12 months. Other products they are interested in are personal loans (34%) and pay-later loans (27%).

“Hong Kong consumers are very strategic in how they leverage their payment options to capture the greatest returns, and they seek reassurance that their financial services providers understand their needs and support their ambitions. These could be for discounts on sought-after items, or rewards that will help them realise their dreamed-of experiences,” Sun added.

Lenders still strict
Despite the increase in demand and new lines opened, lenders reportedly maintained strict underwriting as personal loan demand outpaced supply, TransUnion said. Although loan enquiries rose 3.8% YoY in Q2, originations dropped by 4.6%.

Thanks to tighter underwriting standards, account-level delinquencies (60 days past due) improved by five basis points YoY during Q3 2024, to 0.82%.

Hong Kong also saw a decline in subprime borrowers’ share of personal loan originations across lender types. Over 2 in 5 or 45% of money lenders’ loans were issued to borrowers in the subprime risk tier in Q2, down by one percentage point, compared to a year earlier.

“Due to the risk profile of the majority of these borrowers, lenders have tightened their underwriting practices for this product in response to profitability pressures and to protect their overall portfolios from deteriorating,” Sun said.

For digital banks, the share of subprime originations was down three percentage points from 14% in Q2 2023 to 11% in Q2 2024.