Credit Card Companies Show Strong Performance Despite COVID-19... "Recession-Type Profit, Concerns for Second Half" (Comprehensive)

Cost Reduction Including Marketing Expense Cuts
Net Profit of 7 Specialized Companies Increases by 21.2%

[Asia Economy Reporter Ki Ha-young] The card industry recorded surprisingly strong earnings in the first half of this year. Although this was a result of good performance despite the impact of the novel coronavirus infection (COVID-19), it is analyzed as a 'recession-type surplus' due to cost reductions such as cuts in marketing expenses.

According to the semi-annual reports of seven specialized card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana Card) on the 18th, the combined net income of the seven specialized card companies in the first half of this year was approximately 1.0643 trillion KRW. This represents an increase of about 21.2% compared to the previous year (878 billion KRW).

Double-digit growth in first half net income... "Effect of cost reduction"

All card companies posted double-digit growth in the first half of this year. The company with the highest growth rate was Hana Card. Hana Card recorded a net income of 65.3 billion KRW in the first half, a sharp increase of 93.9% compared to the previous year. The strong performance of corporate card companies such as Lotte Card and Hyundai Card was also notable. Lotte Card's net income for the first half was 64.3 billion KRW, up 37.6% from the previous year. Hyundai Card also recorded a net income of 166.2 billion KRW during the same period, an increase of 36.4% year-on-year. Lotte Card explained that net income improved through rapid normalization after mergers and acquisitions (M&A), adjustment of a profitability-focused product portfolio, and cost efficiency. Hyundai Card analyzed that the private label credit card (PLCC) strategy and digital process efficiency were effective in improving actual performance.

Industry leader Shinhan Card recorded 302.5 billion KRW, up 11.5% from the previous year. Samsung Card posted a net income of 222.6 billion KRW, up 16%. KB Kookmin Card and Woori Card achieved 163.8 billion KRW and 79.6 billion KRW respectively, growing 12.1% and 19.6% compared to the same period last year.

Concerns over rising delinquency rates in the second half... "Costs expected to increase"

Analysis suggests that cost reductions, such as cuts in marketing expenses, had the greatest impact on these strong results. Initially, the market widely expected that card companies' performance would be poor this year due to economic and consumer sentiment contraction caused by COVID-19. However, as sales in travel, duty-free shops, amusement parks, and movie theaters declined due to COVID-19, related marketing expenses significantly decreased, resulting in a 'recession-type surplus.'

Emergency disaster relief funds provided by the government to encourage domestic consumption are also cited as a factor in the performance increase. According to the Credit Finance Association, the domestic credit sales approval amount for cards (credit, check, prepaid cards) in the second quarter rose 3.9% year-on-year to 222.5 trillion KRW. Due to consumption contraction caused by COVID-19, card approval performance in March fell to the lowest level since the 2008 financial crisis. However, from May, card usage rebounded and showed recovery due to the effect of disaster relief fund payments.

Regarding performance in the second half, concerns about risk management are emerging. This is because COVID-19 is prolonged, and delinquency rates are expected to rise due to extensions of loan repayment grace periods and other factors. An industry insider said, "The strong performance in the first half was a result of cost reductions," adding, "In the second half, as concerns about rising delinquency rates increase, expenses such as provisions for bad debts may rise."

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