Procurement Interest Rate at 4.5% After Two Months... Card Companies Still Not Out of the Woods

'Near 5%' Credit Card Interest Rates Hit Lowest Since Early September
Bond Market Stability Expectations Impact
Performance Slump, Delinquency Rates, and Coexistence Finance Pressure

The interest rate on specialized finance company bonds, which had approached 5%, has somewhat stabilized and dropped to the 4.5% range for the first time in two months. This is seen as a rare piece of good news for credit card companies, which have struggled with poor performance and difficult fundraising. However, given the soaring delinquency rates leading to increased bad debt expenses and the government's pressure for cooperative finance, analysts say it is too early to be optimistic.

According to the Korea Financial Investment Association's Bond Information Center on the 20th, the interest rate on specialized finance company bonds (AA+, 3-year maturity) was recorded at 4.517% as of the 17th. This is the lowest level since September 8. The bond rate, which had approached 5%, has fallen to the 4.5% range for the first time in two months since early September. These bonds are the most important fundraising tool for credit card companies, which do not have deposit functions like savings or time deposits.

The stabilization in bond market interest rates is due to growing expectations that the U.S. Federal Reserve (Fed) will end rate hikes and cut rates next year. U.S. consumer price index and retail sales figures fell short of expectations, reinforcing the theory that inflation has peaked. Kang Seung-won, a researcher at NH Investment & Securities, explained, "After confirming the easing of U.S. inflation, the possibility of further Fed rate hikes has diminished, which in turn has eased the Bank of Korea's burden to raise its benchmark rate further. Although clearer signs of economic slowdown are needed, the bond market is expected to take a short-term 'breather.'"

Although the specialized finance company bond rates have stabilized after a long time, credit card companies still face heavy burdens. Their performance in the third quarter of this year was the worst. The cumulative net income of eight full-service credit card companies?Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana, and BC?was 2.0781 trillion won, down 11.7% compared to the same period last year. Only Hyundai Card and Lotte Card saw an increase in net income. Excluding the effect of subsidiary sales, Lotte Card's net income plunged 37.8% year-on-year.

Delinquency rates are also a concern. Some credit card companies have started to exceed the 2% level, which the industry generally considers manageable. According to the Financial Supervisory Service's electronic disclosure system, as of the third quarter this year, Hana Card had the highest delinquency rate at 2.25%, followed by Woori Card (2.10%) and KB Kookmin Card (2.02%), all exceeding 2%. Since about 60% of credit card loan users are multiple debtors, there are concerns that defaults could worsen in the high-interest-rate environment. Moreover, as delinquency rates rise, bad debt expenses inevitably increase. Even if card usage increases, profits are actually decreasing.

With difficulties in managing reserves, the government's pressure for 'cooperative finance' adds to the woes, creating a 'double whammy.' Following President Yoon Seok-yeol's remarks about banks' 'power abuse' and 'servitude,' pressure for cooperative finance is intensifying from the banking sector to the insurance industry. It is also rumored that credit card companies are being pressured to lower merchant fees. A credit card company official said, "Merchant fees for credit card companies have steadily decreased since 2012 and have effectively reached 'zero' levels. We have already squeezed out all possible resources, and with delinquency rates to manage, we are at a loss about what kind of cooperative finance plan to propose."

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