Card bond interest rates approaching the 4% range... What are the impacts?

"Likely to Affect Loan Interest Rates and More in the Medium to Long Term"

[Asia Economy Reporter Yu Je-hoon] The interest rates on card bonds have rapidly risen, approaching the breakthrough of the 4% range. The industry is concerned that the increase in funding costs could lead to higher interest burdens for borrowers in the medium to long term.

According to the Bond Information Center of the Korea Financial Investment Association on the 17th, as of the 11th, the funding cost (average market rate) for AA+ rated specialized credit finance company bonds was 3.838%. After surpassing the 3% range for the first time in about eight years at the end of last month, it is rapidly approaching the 4% range. The last time the funding cost for AA+ rated bonds was in the 4% range was over 10 years ago, in 2012.

On the same day, the funding cost for AA0 rated bonds reached 3.898%, and the funding cost for AA- rated bonds exceeded 4%, reaching 4.067%. Although there has been a slight decline since then, the overall upward trend remains.

This rise in card bond interest rates is interpreted as a result of recent signs of interest rate hikes by the U.S. Federal Reserve (Fed). The Fed has announced a 'big step' of raising the benchmark interest rate by 50 basis points (1bp=0.01%) at its meeting in May.

Unlike commercial banks and others, card companies, which do not have deposit functions, raise funds by issuing bonds. Recently, they have expanded their funding channels through long-term commercial paper (CP), but last year, the proportion of card bonds exceeded 70%, indicating a high dependence. CPs are also not free from the effects of rising interest rates.

The industry believes that this rise in funding costs will not immediately lead to an increase in card loan interest rates, but in the medium to long term, it could result in a heavier burden for borrowers. An industry official said, "An increase in funding costs does not immediately affect interest rate hikes," but added, "The Bank of Korea recently raised rates by 0.25 percentage points and has signaled further increases, so the impact in the medium to long term is inevitable."

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