Card Loan Surge in First Half, 'Delinquency Rate' Declines... Card Companies Say "COVID-19 Illusion Effect"

Delinquency Rate 1.38% in First Half, Down 0.23%p
Financial Support Amid COVID-19
Concerns Over Defaults After Benefits End Next Year

[Image source=Yonhap News]

[Asia Economy Reporter Ki Ha-young] "At first glance, the indicators may seem to have improved. However, once government support measures such as loan maturity extensions or interest payment deferrals end, defaults could surge all at once. It could literally become a 'time bomb.'"

Regarding the sharp increase in card loans in the first half of this year due to the impact of the novel coronavirus infection (COVID-19) while delinquency rates declined, an executive from Company A Card said this, diagnosing it as a kind of optical illusion. They explained that the improvement was due to financial support following COVID-19, record-breaking typhoons, and flood damage caused by heavy rains. The industry shares a common view that once the repayment deferral period ends amid the significant increase in card loans and loans, delinquency rates could spike sharply.

According to the Financial Supervisory Service and the card industry on the 15th, the delinquency rate of card companies (based on total claims) in the first half of this year was 1.38%, down 0.23 percentage points from the previous year. The decline was mainly due to a decrease in card loan claims. During the same period, the delinquency rate for card loan claims was 3.14%, down 0.31 percentage points compared to the same period last year.

The improvement in delinquency rates occurred despite a 1.4% increase in card loan (cash service and card loan) usage compared to the same period last year. During this period, card loan usage amounted to 53 trillion won. In particular, the usage of high-interest card loans surged by 2.4 trillion won (10.5%) compared to the previous year.

The industry interprets this as an effect of liquidity expansion due to low interest rates and an optical illusion caused by COVID-19. Due to the impact of COVID-19, the government implemented loan maturity extensions and interest payment deferral measures, which postponed some of the default factors. There is also an analysis that, with liquidity flooding the market due to low interest rates, repayments started with relatively high-interest card loans first.

An industry insider said, "Delinquency rates are a representative lagging indicator," expressing concern that "in a situation where card loans have rapidly increased, defaults could burst all at once in the first half of next year when government support ends." Another industry insider said, "There may be a gap between the figures in the indicators and reality," adding, "As unemployment rises and self-employed business closures surge, the real economy is struggling, so we are closely monitoring the situation behind the indicators."

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