Concerns Over Rising Delinquency Rates Due to COVID-19... Will Card Companies Lower Loan Interest Rates? (Comprehensive)

Card Loan Disclosure Enables Product Comparison
Potential for Interest Rate Reduction Competition Among Companies

Photo by Yonhap News

[Asia Economy Reporter Ki Ha-young] As it becomes possible to compare card loan products for long-term card loans, attention is focusing on whether card companies will lower their loan interest rates. There is a high possibility of competition among card companies to lower interest rates to prevent customer attrition, and the plan to lower the legal maximum interest rate is gaining momentum, centered on the National Assembly. However, concerns about rising delinquency rates in the second half of the year due to the aftermath of the novel coronavirus infection (COVID-19) have raised the possibility that increased cost burdens could be a stumbling block.

According to the card industry on the 23rd, the Korea Federation of Credit Finance Companies standardized the internal rating system of card companies into a 10-grade system based on default rates from the 20th, disclosing ▲base price (non-discounted interest rate) ▲adjusted interest rate (discounted interest rate) ▲operating interest rate (final interest rate), etc. Starting with card loans, it plans to expand to credit loans in September and cash services in November. The default rate is the probability of being delinquent for more than 90 days within one year from the loan handling date.

According to the disclosure, among grades 1 to 2, Samsung Card had the lowest final interest rate for card loans at 9.66%. In the 9 to 10 grade range, Lotte Card had the lowest card loan interest rate at 20.85%. This means that for high-credit customers, it is advantageous to take out card loans from Samsung Card, and for low-credit customers, from Lotte Card.

The average interest rates across all grades were ▲Shinhan Card 13.89% ▲Samsung Card 14.10% ▲KB Kookmin Card 13.17% ▲Hyundai Card 14.09% ▲Lotte Card 14.94% ▲Woori Card 14.67% ▲Hana Card 13.50%, with a difference of 1.77 percentage points between the highest and lowest interest rates.

In the market, the dominant view is that the change in the card loan disclosure system will induce interest rate competition among card companies, leading to a reduction in loan interest rates. The amendment to the Interest Limitation Act, which lowers the legal maximum interest rate to 20%, was proposed in the 21st National Assembly, and the strong pressure on the financial sector to reduce interest rates also seems to be encouraging interest rate cuts.

However, there are also forecasts that a rapid reduction in loan interest rates will not be easy. This is because the cost burden for risk management has greatly increased due to concerns about rising delinquency rates caused by the prolonged COVID-19 pandemic. In fact, KB Kookmin Card plans to raise the maximum interest rate for short-term loans such as cash services by 0.3 percentage points to 23.9% starting from the 15th of next month. This is close to the legal maximum interest rate of 24%.

Credit rating agencies are also concerned about financial sector insolvency due to COVID-19. NICE Credit Rating recently pointed out in its report titled 'Expectations and Concerns for the Financial Industry after COVID-19' that it has become difficult to accurately assess the asset soundness indicators of financial companies due to so-called 'lifeline loans,' where financial companies continuously extend loan terms.

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