Card Companies Unable to Smile Despite Strong Q1 Performance...Fee Reduction Justification at Stake

Pent-up Consumption Revives
Delinquency Rates Decline
Double-Digit Net Profit Growth

Risk of Defaults Increases After September COVID-19 Support Ends
Strong Performance Raises Concerns Over Justification for Franchise Fee Reduction

[Asia Economy Reporter Ki Ha-young] In the first quarter of this year, credit card companies recorded strong earnings as their net income surged. This was due to increased card usage as suppressed consumption from COVID-19 revived, along with successful business diversification efforts in installment financing and leasing. However, despite these strong results, credit card companies seem unable to fully celebrate. The upcoming reassessment of merchant fees this year could use these strong earnings as justification for fee reductions.

According to the industry on the 27th, Samsung Card, which announced its results on the same day, posted a net income of 138.4 billion KRW in the first quarter, a 23.4% increase compared to the same period last year. Other card companies that released their results earlier also recorded double-digit growth rates in net income. During the same period, Shinhan Card’s net income grew 32.8% to 168.1 billion KRW. KB Kookmin Card achieved a sharp increase of 72.4%, reaching 141.5 billion KRW. Woori Card and Hana Card also posted net incomes of 72 billion KRW and 72.5 billion KRW, rising 41.2% and 139.4%, respectively.

The strong performance was mainly driven by increased card usage as consumption, previously suppressed by COVID-19, revived. Additionally, the efforts of credit card companies to diversify their businesses into installment financing and leasing showed positive results. Shinhan Card’s operating revenues from installment financing and leasing were 37.2 billion KRW and 75.5 billion KRW, respectively, increasing by 5.7% and 21.3% compared to the same period last year. KB Kookmin Card’s operating revenues from installment financing and leasing also surged 63.5% to 39.4 billion KRW.

A significant reduction in loan loss provisions due to a decline in delinquency rates also had an impact. Measures such as loan maturity extensions and interest payment deferrals during COVID-19 reduced delinquency rates, thereby decreasing the loan loss provisions that must be set aside in case loans cannot be recovered. In fact, Shinhan Card’s delinquency rate fell by 0.39 percentage points from 1.35% in the first quarter of last year to 0.96% this year. During the same period, KB Kookmin Card’s delinquency rate dropped by 0.38 percentage points to 0.86%, and Woori Card’s fell by 0.49 percentage points to 0.85%. Accordingly, Shinhan Card’s loan loss provisions in the first quarter decreased by 36.9% year-on-year to 102.1 billion KRW.

Despite the strong earnings, the credit card industry cannot simply rejoice. Although net income increased because there was no need to set aside provisions due to government COVID-19 support measures such as loan maturity extensions and interest payment deferrals, there is concern that defaults could surge all at once when these extensions end in September. Furthermore, with the merchant fee reassessment scheduled this year, strong earnings could ironically be used as a rationale for fee reductions, making the outlook on these results complex.

An industry insider said, "When the government’s extension measures end in September, large-scale provisions may need to be set aside," adding, "It remains to be seen whether these strong earnings will continue." Another insider lamented, "Although the results look good due to the illusion caused by the decline in delinquency rates, merchant profits are at cost level," and added, "They use the good performance elsewhere as a reason to argue that there is room to lower fee rates."

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