Concerns Over Delinquency Rates and Fee Rate Reassessment... Card Industry Faces "One Challenge After Another" This Year

Multiple Debtors Account for 63%
High Risk of Delinquency, Vulnerable Assets
Concerns Over Non-Performing Triggers After Repayment Deferral

[Asia Economy Reporter Ki Ha-young] This year, the business environment surrounding the card industry is expected to be challenging. Concerns are rising over potential loan defaults due to the government's repayment deferral measures, as well as profitability decline ahead of the reassessment of merchant commission rates.

According to NICE Credit Rating on the 7th, as of the third quarter of last year, the proportion of multiple debtors holding three or more financial institution loans among the loan-type assets (card loans, cash services, loan-type revolving credit) of seven specialized card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana) was 63.0%. This is an increase of 0.4 percentage points compared to the previous quarter (62.6%). The asset proportion of multiple debtors has been on the rise, recorded at 60.3% at the end of 2018 and 61.7% at the end of 2019.

Loan-type card assets of card companies mainly target small business owners with relatively low collateral capacity and debt repayment ability. In particular, loan-type assets related to multiple debtors are classified as vulnerable assets due to the high proportion of low-income and low-credit borrowers and the high possibility of delinquency transition.

Despite the fact that small business owners' debt repayment ability has deteriorated due to the spread of the novel coronavirus infection (COVID-19), the combined delinquency rate (over 1 month) of the seven companies as of the third quarter of last year was 1.4%, down from 1.5% at the end of the previous year. This is because the government has implemented principal and interest repayment deferral measures for small and medium-sized enterprises and small business owners facing difficulties due to COVID-19.

With the repayment deferral measures scheduled to end in the first half of this year, concerns are growing that if economic activity contraction worsens due to the prolonged COVID-19 pandemic, defaults among low-income and low-credit borrowers will increase, posing a risk factor for rising delinquency rates in card companies.

The scheduled reassessment of merchant commission rates this year is also a risk factor for the card industry. As the main source of income for credit card companies, merchant commission revenue has been declining, leading card companies to face profitability deterioration. Merchant commission rates are adjusted every three years based on eligible costs, and the rates for credit card companies have been on a downward trend since 2015. The rates were lowered twice, in 2016 and 2019. Additionally, with the statutory maximum interest rate set to decrease from 24% to 20% starting in the second half of this year, revenues from cash services and other sources are also expected to worsen.

An industry insider said, "Once the COVID-19-related financial support measures end, a wave of defaults could explode at once," adding, "This year, with the reassessment of merchant commission rates and the reduction of the statutory maximum interest rate scheduled, concerns over profitability decline are increasing."

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