August Card Spending Growth Slows... "Worried About September and Beyond"

Total Card Approval Amount in August 74.3 Trillion KRW
Up 2.7 Trillion KRW (3.7%) YoY
However, Down 3.4 Trillion KRW (4.3%) Compared to Last Month

[Asia Economy Reporter Ki Ha-young] The amount approved on credit cards, an indicator of private consumption, decreased again last month. The effect of disaster relief funds that briefly drove consumption ended, resulting in a decrease of more than 3 trillion won compared to the previous month. Due to strengthened social distancing measures following the resurgence of COVID-19, concerns are rising that card consumption worsened further in September.

According to the Credit Finance Association on the 30th, the total card (credit, check, prepaid cards) approval amount last month was 74.3 trillion won, down 3.4 trillion won from the previous month (77.7 trillion won). This is interpreted as a result of the exhaustion of disaster relief funds that were provided to stimulate consumption amid the COVID-19 impact. However, compared to last year when COVID-19 had not occurred, it increased by 2.7 trillion won (3.7%), approaching the average performance. The number of approvals recorded 1.9 billion transactions, down 1.6% year-on-year.

This year’s card approval performance fluctuated sharply due to the impact of COVID-19. In March, the total card approval amount was 66.5 trillion won, down 4.3% year-on-year. This was the largest decline since the 2008 global financial crisis. However, it soon broke the previous record. In April, the card approval amount was 68.8 trillion won, down 5.6% compared to the same period last year, setting a new record for the largest decline. Considering the usual natural increase factors such as inflation, which typically causes a 5-6% rise, this represents nearly a 10% drop year-on-year.

Fortunately, combined with the government’s emergency disaster relief fund effect, stability returned in May. The card approval amount in May was 78.1 trillion won, up 6.8% year-on-year, followed by an 11% increase in June. This was due to the subsiding of COVID-19 and the revitalization of consumption. However, from the second half of the year, the growth rate slowed, and card consumption again faltered. The growth rate dropped from 6% year-on-year in July to 3.7% in August.

The industry is concerned that September will mark the peak of consumption contraction. With the disaster relief fund effect already exhausted and social distancing strengthened to level 2.5 due to the resurgence of COVID-19, many restrictions were imposed on consumer activities. Although online consumption had compensated for the decline in offline consumption, offline sales, including those of self-employed businesses, sharply decreased. According to the 'COVID-19 Crisis Response Small Business and Self-Employed Management Status Survey' conducted by the Seoul Regional Headquarters of the Korea Federation of Small and Medium Business on 1,021 small business owners in Seoul, 87.4% of respondents predicted that sales in the second half of this year would decrease compared to the second half of last year.

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