Credit Card Companies, Speed Adjustment?... Slight Increase in Card Loan Interest Rates

5 Card Companies Raise Rates by 0.05~0.13%P
Increased Delinquency Burden Leads to Speed Adjustment

Photo by Yonhap News

[Asia Economy Reporter Ki Ha-young] Card companies are raising relatively high card loan (long-term card loan) interest rates despite the prolonged low interest rate environment. This is interpreted as a move to slow down lending as more people are taking out credit loans amid the real estate and stock investment boom, and the burden of delinquencies has increased due to the resurgence of COVID-19. It is expected that the burden on households and low-income earners, who already find it difficult to get loans due to the high thresholds of commercial banks, will increase.

According to the disclosure by the Credit Finance Association on the 3rd, the average card loan interest rates (standard grade) of seven specialized card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana) recorded 14.57% to 16.73% at the end of July, slightly rising compared to the previous month. Samsung Card's card loan interest rate rose by 0.07 percentage points from the previous month to 16.73%. Following that, Lotte Card recorded 16.07%, up 0.05 percentage points from the previous month. Shinhan Card increased by 0.12 percentage points to 15.92%, and Hyundai Card rose by 0.13 percentage points to 15.9%. KB Kookmin Card also increased by 0.12 percentage points to 15.33%. On the other hand, Woori and Hana Cards saw slight decreases. During this period, the average card loan interest rates for Woori Card and Hana Card were 14.57% and 15.03%, down 0.16 and 0.11 percentage points respectively from the previous month.

The increase in average card loan interest rates by card companies is interpreted as an effort to control the pace of lending. As COVID-19 prolongs and card loans are mainly used by middle- and low-credit borrowers, if the delinquency rate of vulnerable borrowers rises, it could pose a problem to asset soundness. Since card loans are mainly used by middle- and low-credit borrowers who find it difficult to get loans from commercial banks, there is an analysis that repayment of loan principal could be challenging.

In fact, the use of card loan services surged in June. The card loan usage amount of the seven specialized card companies in June was 3.9415 trillion KRW, a 16.3% increase compared to the previous year. It also increased by 11.8% compared to the previous month. This is similar to the increase in card loan lending in March, when the shock from COVID-19 began to intensify. At that time, the card loan scale was 4.3232 trillion KRW, an increase of 459.7 billion KRW (11.8%) compared to the previous month.

An industry insider said, "Recently, demand for card loans is also increasing," adding, "In the prolonged COVID-19 situation, we are closely monitoring the situation as rising delinquency rates could cause problems in asset soundness."

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