Credit Rating Maintained, but Card Companies Worry About September Onwards (Comprehensive)

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

[Image source=Yonhap News]

[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, the soundness of credit card companies could face a crisis starting in 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 their corporate bonds. Shinhan Card, Samsung Card, and KB Kookmin Card corporate bond credit ratings remained at AA+, Hyundai Card, Woori Card, and Hana Card at AA, and Lotte Card at AA-, with no changes from their previous 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 significantly decreased, operating profit increased due to cost reductions, increased profits in non-payment sectors, and securing one-time gains. However, uncertainties due to deteriorating asset soundness remain, necessitating monitoring. Korea Credit Rating pointed out, "The one-month-plus actual delinquency rate and the non-performing loan ratio slightly increased compared to the end of last year in the first quarter of this year," but also noted, "There is a possibility that defaults may suddenly surface when the debtor's principal repayment deferral policies end."

The credit card industry also expects signs of defaults 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, potentially making it difficult for credit card companies to raise capital.

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

According to seven specialized credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, and 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. This is also 62.2 billion KRW less than last year (3.5882 trillion KRW). The size of card loans increased to 3.9148 trillion KRW in January, 3.8685 trillion KRW in February, and 4.3242 trillion KRW in March this year, then fell back to 3.5851 trillion KRW in April. It is analyzed that low-interest loans for small business owners and interest subsidy loans had an impact.

However, the industry believes that a decrease in the size of card loans does not necessarily mean a drop in delinquency rates. Another industry official said, "Card loans attract low-income self-employed individuals 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, which could lead to an increase in delinquency rates."

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