Card Industry Posts Solid Q1 Results... "COVID-19 Crisis Expected from Q2"

Q2 Earnings Likely to Fully Reflect COVID-19 Impact

[Asia Economy Reporter Ki Ha-young] Despite the contraction in consumption due to the impact of the novel coronavirus infection (COVID-19), credit card companies posted solid earnings in the first quarter of this year. However, concerns are rising about a decline in profits starting from the second quarter as the COVID-19 pandemic prolongs.

According to the credit card industry on the 2nd, Shinhan Card recorded a net profit of 126.5 billion KRW in the first quarter, up 3.6% from the previous year. Growth in the leasing and installment finance sectors was steep. Leasing segment revenue reached 62.2 billion KRW, a 47.2% increase compared to the same period last year, while the installment finance segment grew by 15.7% to 35.2 billion KRW.

KB Kookmin Card also posted a first-quarter net profit of 82.1 billion KRW, up 5.3% year-on-year. Net interest income increased by 4.7% to 318.2 billion KRW, and net fee income rose 33.7% to 82.9 billion KRW.

Woori Card achieved a first-quarter net profit of 51.0 billion KRW, a 112% increase compared to the previous year. Hana Card also recorded a net profit of 30.3 billion KRW during the same period, up 66.1% year-on-year.

On the other hand, Samsung Card’s first-quarter net profit declined compared to the previous year. Samsung Card posted a net profit of 112.2 billion KRW, down 6.8% year-on-year. The company explained that the decrease in net profit was due to a 21.2 billion KRW reduction in dividends from Renault Samsung Motors compared to the previous year.

Credit card companies attributed their solid first-quarter performance to continuous cost-cutting efforts, diversification of revenue streams, and strengthened risk management. An industry insider said, "Despite the consumption contraction caused by COVID-19, we were able to improve performance through revenue diversification and cost efficiency."

However, there are cautious forecasts that such strong results will be difficult to achieve from the second quarter onward. This is because the effects of consumption contraction due to social distancing and interest repayment deferrals for small business owners will be fully reflected. According to an analysis of first-quarter card approval performance released by the Credit Finance Research Institute, card approval amounts last month decreased by 4.3% compared to the previous year. This is the lowest monthly growth rate since the 2008 financial crisis. After increasing by 5.8% in January and 6.5% in February, the trend turned downward in March.

Card loans also surged by 25.6% year-on-year last month. According to the industry, the total card loan amount handled by the seven specialized credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, and Hana Card) last month was 4.3242 trillion KRW, an increase of 882.5 billion KRW compared to the previous year. After recording around 3.9 trillion KRW in January and 3.8685 trillion KRW in February, the amount surpassed 4 trillion KRW last month. The year-on-year growth rate also sharply rose from 1.6% in January and 16.6% in February to 25.6% in March.

An industry insider expressed concern, saying, "The impact of COVID-19 will be fully reflected from the second quarter. Not only will sales decline due to consumption contraction, but credit quality indicators such as delinquency rates may also deteriorate."

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