Loan Surpasses 10 Trillion, but with COVID-19... Concerns Over Credit Card Companies' Soundness Remain

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[Asia Economy Reporter Kim Hyo-jin] Last year, loans by specialized credit finance companies (specialized credit companies), such as capital companies and credit card companies, increased by nearly 10 trillion won. This is interpreted as a result of low- and middle-credit households and small and medium-sized enterprises (SMEs), who have difficulty accessing banks, rushing to find urgent funds. Due to the impact of the novel coronavirus disease (COVID-19), the difficulties of financially vulnerable groups have intensified, raising concerns about soundness.

According to financial authorities and the financial sector on the 6th, as of the end of last year, the loan scale of 107 capital, lease, and new technology finance companies excluding credit card companies was 76.7 trillion won, an increase of 11.3% (7.8 trillion won) compared to the end of the previous year (68.9 trillion won). The increase in loans to SMEs accounted for most of this, at 7.7 trillion won.

A representative from the SME sector said, "If the funds are for positive purposes such as new technology development or expansion of production facilities, they are often procured through banks or various policy funds," adding, "Most appear to have taken out loans urgently to resolve immediate financial difficulties."

Last year, the loan usage (cash service and card loan) of exclusive credit card companies and credit cards issued by banks with dual operations amounted to 105.2 trillion won, an increase of 1.3% (1.4 trillion won) compared to the previous year (103.8 trillion won). Cash service usage decreased by 1.6 trillion won, but card loan usage increased by 3 trillion won. Combining the loan increases of capital, lease, new technology finance companies, and credit card companies last year, the total reached 9.2 trillion won.

Soundness management appeared relatively favorable. The delinquency rate of capital companies, etc., as of the end of last year, was 1.68%, down 0.24 percentage points from the end of the previous year (1.92%). The adjusted capital adequacy ratio and leverage ratio were maintained at the previous year's levels. The delinquency rate of credit card companies as of the end of last year was also 1.43%, down 0.05 percentage points from the end of the previous year (1.48%). Both the adjusted capital adequacy ratio and leverage ratio were maintained at levels equal to or higher than regulatory ratios compared to the previous year.

The problem is whether this level of soundness can be maintained after the first quarter of this year. As the impact of COVID-19 on the real economy and finance becomes apparent, there are concerns that financially vulnerable households and SMEs, who are particularly vulnerable in crises, will increasingly be unable to repay their loans.

The burden of "urgent loans" has been growing this year. In March, the card loan handling amount of seven exclusive credit card companies was 4.3242 trillion won, an increase of 25.6% (882.5 billion won) compared to the same month last year (3.4417 trillion won). It was in the 3 trillion won range in January (3.9148 trillion won) and February (3.8685 trillion won), but exceeded 4 trillion won in March. The average card loan interest rate is around 15%, which is five times that of bank loans. A financial sector official pointed out, "This means that risk factors have accumulated that much."

Some capital companies have stopped new business operations as the issuance of specialized credit finance company bonds (specialized credit bonds) has been blocked due to COVID-19. Capital companies raise funds through the issuance of specialized credit bonds and execute loans based on these funds, but with funding blocked, they are unable to provide loans. The market expects that if capital companies, which are currently managing existing loans to endure, face difficulties in management due to borrowers' reduced repayment ability, the aftershocks will be significant. It is also known that the model guidelines for soundness management of specialized credit companies, which the Financial Supervisory Service originally planned to introduce this year, have not progressed rapidly due to the impact of COVID-19 and other factors.

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