Concerns Grow Over Credit Card Companies' Soundness Amid Signs of Prolonged COVID-19 Pandemic

Card Loan Amount Soars to 882.5 Billion Won Last Month
Concerns Over Rising Delinquency Rates After 6 Months

[Asia Economy Reporter Ki Ha-young] As the novel coronavirus infection (COVID-19) situation shows signs of prolonged duration, concerns about the soundness of credit card companies are also increasing.

According to the industry on the 25th, the card loan handling amount of seven specialized credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana Card) last month was 4.3242 trillion KRW, an increase of 882.5 billion KRW compared to the previous year. After recording around 3 trillion KRW in January (3.9148 trillion KRW) and February (3.8685 trillion KRW), it surpassed 4 trillion KRW last month. The growth rate compared to the previous year also stands out in March. It surged from 1.6% in January to 16.6% in February, and further soared to 25.6% in March.

Card loans mainly consist of middle- and low-credit borrowers. Although the interest rates are 3 to 4 times higher than bank credit loans, many multiple debtors easily obtain cash based solely on credit without significant loan screening. Therefore, if a strong shock occurs across the economy, there is a risk that the default rate could rapidly increase.

Korea Credit Rating also expressed concerns about asset deterioration in credit card companies in a recently published report. According to Korea Credit Rating, as of the end of December last year, the high-risk card loan balance of the seven specialized credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana Card) was 6.5 trillion KRW, accounting for 18.1% of total card loans (cash services, card loans, revolving loans). The high-risk card loan balance refers to the card loan balance of multiple debtors who have a credit rating of grade 7 or lower and hold loans from three or more financial institutions. This high-risk loan balance corresponds to about 25% of the credit card companies' equity capital of 26.3 trillion KRW.

Although signs of deterioration may not appear immediately, the industry is concerned about an increase in delinquency rates after six months. This is because the government has been extending loan maturities and deferring interest payments for at least six months starting this month to support small business owners suffering from COVID-19 damage. An industry official said, "Signs of deterioration such as rising delinquency rates may not appear immediately," but added, "If the grace period ends and debtors do not recover normally, it could lead to greater risks."

In particular, the industry is closely monitoring rising unemployment rates and closures of self-employed businesses. Another industry official said, "If layoffs or unpaid leaves increase, consumption will decrease, and if consumption decreases, delinquency rates may rise," adding, "As delinquency rates rise, risks increase, which could make it difficult for credit card companies to raise capital."

This content was produced with the assistance of AI translation services.