Card Companies Maintaining Credit Ratings... Challenges Begin in the Second Half of the Year

COVID Loan Grace Period Ends
Concerns Over Soundness if Delinquency Rate Rises

[Asia Economy Reporter Ki Ha-young] Despite the impact of the novel coronavirus infection (COVID-19), credit card companies maintained their existing credit ratings. This is interpreted as a result of conservative risk management and strong performance, despite the reduction in merchant fee rates last year and the contraction of private consumption due to COVID-19. However, the industry expressed concerns that if the economic recovery slows down as COVID-19 resurges, there could be a crisis in the soundness of credit card companies starting from the second half of this year.

According to the industry on the 17th, credit rating agencies such as Korea Credit Rating and NICE Credit Rating recently maintained the credit ratings of credit card companies through regular evaluations of corporate bonds. The corporate bond credit ratings of Shinhan Card, Samsung Card, and KB Kookmin Card were AA+, those of Hyundai Card, Woori Card, and Hana Card were AA, and Lotte Card was AA-, with no changes from the existing credit ratings.

According to Korea Credit Rating, the operating profit of seven credit card companies in the first quarter was 678.4 billion KRW, an increase of 16.1% compared to the same period last year. Although merchant fee income decreased significantly, operating profit increased through cost reduction, increased profits in non-payment sectors, and securing one-time gains. However, they stated that uncertainty due to deterioration in asset soundness remains and monitoring is necessary.

The credit card industry also expects signs of insolvency due to COVID-19 to appear as an increase in delinquency rates in the second half of this year. This is because the government has been extending loan maturities and deferring interest payments for at least six months since March to support small business owners and others struggling due to COVID-19 damage. If delinquency rates rise, risks increase, and there is concern that capital procurement for credit card companies could become difficult.

An industry official said, "Signs of insolvency such as rising delinquency rates will not appear immediately," but warned, "If the grace period ends and debtors do not recover, it could return as a greater risk than before the grace period."

According to the seven specialized credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana Card), the amount of card loans used in May was 3.526 trillion KRW, stabilizing compared to the surge to 4.3242 trillion KRW in March. It is analyzed that low-interest loans for small business owners and interest subsidy loans had an impact.

However, the industry believes that the delinquency rate will not fall just because the size of card loans has decreased. Another industry official said, "Card loans attract low-income self-employed people who urgently need living expenses and mid-to-low credit borrowers who find it difficult to get loans from banks," adding, "If the economy does not recover, it will be difficult for them to repay money, which could lead to an increase in delinquency rates."

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