[0.5% Interest Rate Era] Card Companies Cautious Despite Relief: "Need to See If Funding Costs Actually Decrease"

[Asia Economy Reporter Ki Ha-young] As the Bank of Korea cut the base interest rate once again, the card industry showed a cautious attitude, saying that the future impact should be observed. Although a base rate cut generally leads to a decline in market interest rates, reducing funding costs, the market did not move as expected due to the impact of the novel coronavirus infection (COVID-19) despite the Bank of Korea's big cut in March.

The Monetary Policy Committee of the Bank of Korea held a monetary policy direction decision meeting on the 28th and lowered the base interest rate by 0.25 percentage points from the existing 0.75% to 0.50%, the lowest level ever. Earlier, as COVID-19 spread, the Bank of Korea held an emergency monetary policy meeting in March and cut the base rate by 0.5 percentage points. In April, the rate was kept unchanged.

From the perspective of the credit industry, the interest rate cut works positively. Credit industries such as card companies and capital companies do not have their own deposit functions, so funds for credit extension and loans are raised through corporate bond issuance. When market interest rates fall, funding costs also decrease, allowing the industry to reduce interest expenses accordingly.

However, there is a view that it remains to be seen whether the actual base rate cut will lead to a reduction in funding costs. In March, despite the Bank of Korea's 0.5 percentage point big cut, the interest rates on specialized credit finance company bonds (specialized bonds) rose due to the impact of COVID-19, and the credit spread on specialized bonds widened.

A card industry official said, "Contrary to expectations that funding costs would decrease when the Bank of Korea cut the base rate by 0.5 percentage points in March, the market moved in a different direction," adding, "We need to observe how the market will receive and react to this decision in the future."

Another industry official also said, "The interest rate cut will not immediately affect the card industry," and added, "There is also a view that expectations for stable or lower interest rates have already been reflected in market interest rates, so we need to watch how the rate cut will affect the industry in the long term."

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