Card Industry Achieves Strong Performance but Faces Challenges from 'Interest Rate Hikes, Merchant Fees, and Delinquency Rates'

Net Profit of 5 Major Credit Card Companies Soars 39.8% in First Half of the Year
Industry "Cautiously Watching Recession-Type Surplus and Delinquency Rates"

[Image source=Yonhap News]

[Asia Economy Reporter Ki Ha-young] In the first half of this year, credit card companies recorded strong performance thanks to the recovery in consumer spending and a decline in delinquency rates. Although net income nearly increased by 40% compared to last year, there are forecasts that this improvement trend may not continue. Issues such as the scheduled interest rate hikes in the second half, the reassessment of merchant fees, and delinquency rates could have negative effects.

According to the credit card industry on the 27th, the net income of five credit card companies (Shinhan, Samsung, KB Kookmin, Woori, Hana) that have announced their results so far for the first half of 2021 totaled 1.1658 trillion KRW, an increase of 39.8% (332 billion KRW) compared to the same period last year.

Shinhan Card, the industry leader, posted a net profit of 367.2 billion KRW in the first half of this year, up 21.4% from the previous year. During the same period, Samsung Card and KB Kookmin Card also recorded increases of 26.7% and 54.3%, respectively, with 282.2 billion KRW and 252.8 billion KRW. In particular, Hana Card achieved 142.2 billion KRW, a sharp increase of 117.8% compared to the previous year. Woori Card also recorded 121.4 billion KRW, up 52.5% year-on-year.

Despite these strong results, credit card companies seem unable to celebrate fully. It is explained as a 'recession-type surplus' achieved through the COVID-19 base effect and cost reductions. There are also concerns that the amount of provisions, which decreased due to the decline in delinquency rates caused by COVID-19 support measures such as loan maturity extensions and interest payment deferrals, could increase at any time.

The business environment in the second half is also challenging. Interest rate hikes are a representative issue. If the Bank of Korea raises the base interest rate this year, credit card companies will inevitably face increased funding costs due to higher borrowing rates. Considering the impact of the reduction in the maximum interest rate, it will be difficult to raise operating interest rates by the same amount as the increase in funding costs, so profitability is expected to decline.

The reassessment of merchant fees scheduled around November this year is also a key factor. With next year’s elections approaching, the political sphere is actively proposing bills to reduce merchant fees for self-employed and small business owners, so the market sees a high possibility of additional reductions.

There are also concerns that delinquency rates, which appear to be managed stably in numbers, could become a hidden threat. An industry insider said, "Due to COVID-19 support measures such as loan maturity extensions and interest payment deferrals, delinquency rates show a misleadingly low effect," adding, "With a lot of funds circulating in the market, defaults could occur like a domino effect at any time."

Credit rating agencies also predict that while credit card companies’ performance will be maintained this year, it will decline from next year onward. Korea Credit Rating recently stated in a report, "Considering past cases of merchant fee rate reassessments, there is a high possibility of fee rate reductions," and "The pressure on loan asset operating interest rates to decline due to the reduction in the maximum interest rate, and the possibility of increased funding costs due to base interest rate hikes, are expected to negatively impact credit card companies’ performance."

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