Card Industry Sees Sharp Rise in Mid-Interest Loans... "Shinhan Card Increases Tenfold" (Comprehensive)

Activation of Government Support for Low-Income Financial Services
Shinhan Card's Q3 Mid-Interest Loan Performance
Increased by 972.6% Year-on-Year

[Asia Economy Reporter Ki Ha-young] The card industry has increased the provision of mid-interest rate loans to middle-credit borrowers with credit ratings between 4 and 6 last year. This is the result of the financial authorities' efforts to revitalize support for low-income households and the expansion of Environmental, Social, and Governance (ESG) management.

According to the industry on the 27th, Shinhan Card recorded mid-interest rate loan performance of 215.6 billion KRW as of the third quarter of last year, a 972.6% increase compared to 20.1 billion KRW the previous year. This is nearly a tenfold surge. It is explained that mid-interest rate loans were expanded considering the impact of the novel coronavirus disease (COVID-19) and the group's ESG strengthening strategy.

The financial authorities have allowed mid-interest rate loans in the secondary financial sector, which had been restricted after the total household loan volume regulation, since October 2018 as part of inclusive finance. The existing mid-interest rate loan rates were commonly 'average interest rate below 16.5%, maximum interest rate below 20%' across all sectors, but from the third quarter of 2019, new mid-interest rate loan rates were applied by sector. Accordingly, card companies are recognized as mid-interest rate loans if the 'average interest rate is below 11.0% and the maximum interest rate is below 14.5%.'

Although the 2019 performance was only reflected for six months as mid-interest rate loan performance was recognized by the financial authorities from the third quarter, it is evaluated that Shinhan Card's mid-interest rate loans clearly increased last year. Not only Shinhan Card but also KB Kookmin, Lotte, Woori, and Hana Cards, which handled mid-interest rate loans last year, saw an increase in mid-interest rate loan performance.

KB Kookmin Card's mid-interest rate loan product 'KB Kookmin Saenghwal Dundeun Loan 2,' which meets the new standards of the financial authorities, recorded 93.4 billion KRW in 2019. This amount is about five times larger than Shinhan Card's during the same period. It is explained that this year, the performance of mid-interest rate loan products has increased by about 10% each quarter compared to this. Lotte Card and Woori Card also reported that their mid-interest rate loan performance increased compared to the previous year. Hana Card started mid-interest rate loans from the fourth quarter of 2019 and officially began last year, so it is expected that performance will increase from this year.

The financial authorities provide incentives related to loan regulations to expand the supply of mid-interest rate loans. Card companies must maintain the ratio of loan assets to total assets below 30%, but only 80% of mid-interest rate loans are reflected in loan assets. Also, mid-interest rate loans are excluded from the total household loan volume regulation. For card companies needing business diversification, there is an incentive to increase mid-interest rate loans, but compared to high-interest loans such as card loans and cash services, the profitability of mid-interest rate loans is relatively low.

An industry official said, "Due to the absence of total household loan volume regulation last year because of COVID-19 and encouragement of loans for self-employed and small business owners, mid-interest rate loans also increased," adding, "From the perspective of strengthening low-income finance, the financial authorities are promoting the supply of mid-interest rate loans, and as ESG management is emphasized in each financial sector, mid-interest rate loans are expected to expand this year as well."

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