Why Are Card Loan Rates Dropping Sharply Despite Rising Market Interest Rates?

원본보기 아이콘

[Asia Economy Reporter Yu Je-hoon] The long-term card loan (card loan) interest rates of major domestic card companies have attracted attention by showing a significant decline despite the rising trend of market interest rates. The industry attributes this to intensified overall competition, including loans for low- to medium-credit borrowers by internet-only banks.

According to the Credit Finance Association on the 24th, among the eight major domestic card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Woori, Hana, Lotte, NH Nonghyup), the average card loan interest rates of six companies fell by 0.43 to 1.39 percentage points compared to the previous month.

The only companies where card loan interest rates rose were Hana and Woori Card. Hana Card, which had maintained a low interest rate level, increased by 1.75 percentage points to 13.59%, aligning with other companies' levels, and Woori Card also rose slightly by 0.01 percentage points to 13.46%, showing little difference from the previous month.

Typically, card loan interest rates fluctuate according to each company's business strategy, but primarily they are influenced by market interest rates. When funding costs rise sharply, interest rate hikes become inevitable to protect profitability. The issuance rate of the 3-year AA+ rated specialized credit finance bonds recently surpassed the 3% range for the first time in about eight years last month and has since risen to the mid-3% range, approaching 4%.

The industry points to intensified competition as the reason for the divergence between market trends and card loan interest rates. Overall loan demand has decreased due to sluggish asset markets, and not only peer companies but also recently emerged internet-only banks have become competitors for card companies. An industry insider said, "Since internet-only banks are aggressively increasing loans to low- and medium-credit borrowers, card companies have no choice but to lower interest rates despite the rise in market interest rates."

However, there are concerns that this strategy may not continue as the U.S. Federal Reserve (Fed) is expected to raise the benchmark interest rate to 2.25-2.5% within the year, and the Bank of Korea is also considering two to three additional hikes. An industry insider stated, "If funding costs rise sharply due to benchmark rate hikes, it will be difficult for card loan interest rates to avoid an upward trend."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.