Bank-affiliated Card Companies 'Cry' While Samsung Card 'Smiles'... What's the Reason?

Mixed Fortunes in Procurement Interest Cost Management
Challenging Environment... Intensified Competition Up

[Asia Economy Reporter Minwoo Lee] Amid declining earnings of major card companies last year, only Samsung Card stood out by holding its ground. While most card companies maintained decent business activities, proactive risk management related to funding differentiated their fortunes. As the business environment is expected to remain challenging this year, a full-scale competition of 'capabilities' is anticipated.

According to the industry on the 10th, the combined net profit of Shinhan, Samsung, KB Kookmin, Hana, and Woori Card last year was 2.0393 trillion KRW, down 2.7% from the previous year. Narrowing down to four card companies under financial holding companies, the situation is worse. The net profit of Shinhan, KB Kookmin, Hana, and Woori Card decreased by 8.3% year-on-year to 1.417 trillion KRW. Only Woori Card saw a slight increase of 4 billion KRW (2.0%) compared to the previous year, while Shinhan (-5.0%), KB Kookmin (-9.6%), and Hana (-23.3%) all declined consecutively. Hana Card’s net profit plunged to about three-quarters of the previous year’s level.

On the other hand, Samsung Card alone showed a solid upward trend. It recorded a net profit of 622.3 billion KRW last year, growing 12.9% year-on-year. This is the largest scale since 2014. In the fourth quarter alone, it earned 165.8 billion KRW in net profit, up 28.1% from the same period last year. It achieved excellent results exceeding market consensus by more than 60%.

The overall business environment for card companies was not bad. Credit card usage increased due to the lifting of COVID-19 social distancing measures, and loan assets such as card loans grew despite loan regulations. For Shinhan Card, total operating assets increased by 11.5% year-on-year. Credit sales rose by 12.1%, and card loans and cash services also showed growth rates in the 7% range.

Ultimately, proactive risk response, especially funding cost management, is evaluated as the factor that divided fortunes. Card companies raise funds through card bonds and asset-backed securities (ABS). Last year, as the bond market tightened, card bond interest rates rose sharply, causing interest expenses to surge. According to the Korea Financial Investment Association, the 3-year specialized credit finance bond rate was in the mid-2% range at the beginning of last year but exceeded 6% in November. Shinhan Card’s interest expenses increased by more than 200 billion KRW to 710.7 billion KRW in one year. KB Kookmin Card also saw a 35.0% increase to 509.6 billion KRW compared to the previous year.

Samsung Card was able to avoid the impact of the bond market tightening by proactively raising funds. It secured funds in advance through long-term specialized credit finance bonds with maturities of over three years before card bond interest rates rose significantly. Although the new borrowing cost rose from 3.47% in the third quarter to 4.79% in the fourth quarter, the total borrowing cost was contained at 2.61%, increasing by only 0.18 percentage points. Choi Jungwook, a researcher at Hana Securities, evaluated, "Due to the suspension of interest-free installments and reduction of various promotions, credit sales surged, and various selling and administrative expense ratios were significantly lowered," adding, "The shift to a profitability-oriented business strategy was effective."

This year, as the trend of rising delinquency rates among card companies continues, the burden of bad debt provisions is expected to persist. Concerns remain about consumption contraction due to rising various utility charges. In this situation, there is also a forecast that business capabilities among card companies will ultimately determine the outcome. A card company official said, "Last year, sales such as credit sales and card loans increased, but performance was difficult due to funding costs. This year, there are concerns both inside and outside the industry that basic business performance may also be sluggish due to consumption contraction," adding, "With various survival strategies fully mobilized, competition is expected to become even fiercer."

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