"Profitability Declines and Delinquency Rates Rise"… Bleak Outlook for Card Companies Next Year (Comprehensive)

Card Loan DSR Application from Next Year
Merchant Fees to Be Recalculated by Year-End
High Possibility of Rising Delinquency Rates

[Asia Economy Reporter Ki Ha-young] Bleak forecasts are emerging regarding the business environment for the card industry next year. Not only will the core commission revenue decline, but the profitability of card loans is also likely to worsen due to strengthened regulations. Moreover, concerns are rising that there is no sharp solution to counteract the deterioration in profitability, as growth is threatened by worsening asset quality indicators such as delinquency rates and the expanding influence of big tech (large information technology companies).

According to the industry on the 10th, Korea Credit Rating Agency recently diagnosed at the 'Post-COVID Non-Bank Financial Institution Risk Review' seminar that the strengthened loan regulations will increase the burden on the card industry's external growth and profitability. Starting next year, the Debt Service Ratio (DSR) will be applied to card loans (long-term card loans), and the total volume regulation limit will also be lowered. In particular, it is expected that the burden of managing asset quality will increase in the short term. This means that both the profitability and asset quality of card companies will be threatened next year.

With an additional reduction likely in the merchant fee recalculation scheduled for the end of this month, it has become difficult to secure profitability even in loan products that had previously offset commission deficits due to strengthened regulations. Furthermore, delinquency rates, which have been managed stably so far, are also likely to soar. Wi Ji-won, Head of Structured Evaluation at Korea Credit Rating Agency, expressed concern, saying, "With the proportion of multiple debtors in card loans at a high 64.4%, the end of loan maturity extensions and interest payment deferrals implemented during COVID-19 will likely lead to a rise in delinquency rates."

Rising Funding Costs Increase Expenses... Big Tech Growth Also Threatening

The sense of crisis felt on the ground by the card industry is even more urgent. While both profitability and asset quality are expected to deteriorate next year, there is no breakthrough for growth either. Simple payment service providers such as Naver Pay and Kakao Pay are rapidly growing, expanding their influence within the payment industry, which had long been dominated solely by card companies. In fact, as of the third quarter, Naver Pay's payment volume reached 9.8 trillion won, approaching the 10.7 trillion won payment volume of small and medium card companies (Lotte, Woori, Hana Card) during the same period.

An industry insider said, "The long-standing low interest rate trend has recently shifted to an upward trend, increasing funding costs and thus the burden of expenses," adding, "If merchant fees are further reduced at the end of this year, profitability next year will inevitably decline further, and with big tech expanding their influence in the payment market using their platforms as weapons, the situation is extremely challenging."

Another industry insider said, "While losses from card commissions have been offset by loan products such as card loans, it will be difficult to do so from next year due to strengthened loan regulations," adding, "Delinquency rates are also likely to surge once loan repayment deferrals and maturity extensions end next year, and as a result, setting aside loan loss provisions will inevitably worsen profitability."

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