HuanLian: The Hong Kong consumer credit market is steadily returning to normal, with a cautiously optimistic market environment

Following the Federal Reserve's announcement of the latest round of interest rate cuts, the Hong Kong Monetary Authority also lowered its base rate to 4.25% in October, marking the second rate cut within 2025. According to the latest quarterly outlook published by TransUnion (TRU.US) titled "Mixed Market Conditions: Hong Kong Consumer Credit Market Steadily Recovers," major banks in Hong Kong have adjusted their prime rates accordingly, which not only reduces borrowing costs for consumers but also injects momentum into the steady recovery of the Hong Kong consumer credit market.

TransUnion stated that although income growth remains moderate and the unemployment rate has risen, particularly among the younger generation, the retail market is gradually improving, and the property market is stabilizing in an orderly manner. The overall trend indicates that the current market is neither experiencing rapid growth nor weakness, but rather a cautiously optimistic environment that provides growth opportunities for financial institutions capable of accurately identifying and seizing opportunities.

TransUnion's Asia Pacific President and Hong Kong CEO, Lam Ka-yee, noted that while the decline in credit costs helps drive market demand, the corresponding adjustments in interest rates by financial institutions may narrow their margins. Market growth is expected to show uneven trends. Therefore, financial institutions that can quickly respond to demand and systematically adopt personalized strategies to meet target customer groups will have a better chance of standing out in the competition.

TransUnion recommends that Hong Kong financial institutions closely monitor the following key indicators in the current environment to identify genuine market signals:

Credit approval mix and standards: Financial institutions should clearly define their target customer groups, granting new credit approvals to eligible consumers while avoiding overly uniform approval criteria. TransUnion's quarterly outlook indicates that financial institutions that adopt risk-based pricing strategies rather than relying solely on interest rate competition generally achieve better repayment performance. As competition intensifies in expanding new customer groups, maintaining orderly and prudent credit approval standards will be key to ensuring business health.

Early repayment status (30/60 days): Continuously monitoring early repayment records remains an important indicator for assessing credit quality. TransUnion data shows that consumer performance within the first 30 to 60 days after account opening is very helpful in reflecting their overall repayment performance. If early repayment conditions are stable or improving, it indicates that consumers are gradually adapting to the new repayment terms. Conversely, any overdue repayments occurring early reflect potential financial risks, especially among younger consumers or those with higher credit usage rates.

Differences in response to interest rate changes among peers: As the Hong Kong Monetary Authority and the Federal Reserve continue to adjust policy rates, the ability of financial institutions to quickly and effectively adjust their pricing will be a key factor in maintaining competitive advantage. Financial institutions that respond swiftly to interest rate changes (whether cuts or hikes) can manage their profit margins more effectively while maintaining customer loyalty. Institutions that adopt flexible pricing strategies to balance credit portfolio growth with risk-adjusted returns will have an advantage in sustaining growth and enhancing long-term competitiveness.

Regional real estate market sentiment: Real estate activity remains an important indicator of household financial confidence and mortgage strategies. By tracking transaction volumes and price trends in different regions, financial institutions can more accurately grasp the areas where mortgage demand is recovering first. Regions with stable or moderately rising confidence may present visible short-term credit opportunities, while relatively weaker regions should adopt more prudent strategies HuanLian found that if financial institutions are committed to improving service quality and approval efficiency rather than just competing on benchmark interest rates, they are more likely to achieve sustainable market share growth in the mortgage market.

HuanLian indicated that if these indicators remain robust, financial institutions are advised to actively respond to the positive credit demand from consumers. Conversely, if the indicators weaken, they should tighten credit approvals and focus on better-performing customer segments. As the Hong Kong credit market gradually returns to normal, financial institutions that closely monitor market changes, flexibly adjust, and expand effective business strategies will be most likely to seize opportunities for sustainable growth from the recovery trend driven by certain market indicators in 2026