Last Year's Card Companies' Net Income 2.5823 Trillion KRW... Down 0.9% YoY

Last year, the performance of specialized credit finance companies such as card and capital companies declined compared to the previous year. It is analyzed that factors such as the economic recession and the prolonged high interest rates leading to increased funding costs had an impact.

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According to the Financial Supervisory Service on the 18th, the net profit of eight domestic full-service card companies last year was 2.5823 trillion won, down 0.9% (23.9 billion won) from the previous year (2.6062 trillion won). During the same period, total revenue, which is a sales concept, increased by 14.2% to 26.7889 trillion won from 23.4608 trillion won the previous year. This was due to increases in installment card fee income (759.6 billion won↑), merchant fee income (596.8 billion won↑), and interest income (252.1 billion won↑). Total costs, including cost of sales and selling and administrative expenses, rose 16.1% to 24.2066 trillion won compared to 20.8546 trillion won the previous year. The increase in bad debt expenses (1.1505 trillion won↑) and interest expenses (1.1231 trillion won↑) had an impact.

However, net profit after reversal of bad debt reserves last year was 2.9044 trillion won, an increase of 1.0762 trillion won (58.9%) compared to the previous year (1.8282 trillion won). This was due to the revision of the Credit Specialized Financial Business Supervision Regulations on January 1 last year, which determines the scale of bad debt provisions for unused credit balances. The revision lowered the credit conversion rate of "limit-type credit" such as overdraft accounts from 50% to 40%. As a result, part of the bad debt provisions that were previously reserved based on 50% for credit sales or card loans was reversed as profit.

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The asset soundness of card companies also deteriorated. Last year, the delinquency rate of card companies was 1.63%, up 0.42 percentage points from 1.21% the previous year. Among these, the "card receivables delinquency rate" (excluding refinancing loans), which combines credit sales and card loans, rose 0.35 percentage points to 1.73% from 1.38% the previous year. The fixed and below-standard loan ratio, which indicates non-performing loans with principal and interest overdue for more than three months, increased by 0.29 percentage points to 1.14% from 0.85% the previous year. The bad debt provision coverage ratio rose 3.2 percentage points to 109.9% from 106.7% the previous year. The required provision amount is the bad debt reserve that must be prepared according to the total loan size.

However, capital adequacy slightly improved. The adjusted capital adequacy ratio improved by 0.4 percentage points to 19.8% from 19.4% the previous year. The adjusted capital adequacy ratio is the ratio of adjusted capital to adjusted total assets. Card companies must maintain this ratio above 8%. The leverage ratio improved, falling 0.2 times to 5.4 times from 5.6 times the previous year.

Last year, the net profit of 163 non-card specialized credit finance companies, including capital, leasing, and new technology finance companies, was 2.7026 trillion won, down 20.7% (704.1 billion won) from 3.4067 trillion won the previous year. Although total revenue increased by 4.048 trillion won during the same period, total costs increased even more by 4.7521 trillion won. Regarding total costs, interest expenses increased by 2.3158 trillion won and bad debt expenses by 1.967 trillion won compared to the previous year. Last year, bad debt expenses surged 130.8% to 3.4713 trillion won from 1.5043 trillion won the previous year.

Asset soundness also deteriorated. The delinquency rate of non-card specialized credit finance companies last year was 1.88%, up 0.63 percentage points from 1.25% the previous year. The fixed and below-standard loan ratio rose 0.66 percentage points to 2.2% from 1.54% the previous year. The bad debt provision coverage ratio increased by 10.6 percentage points to 140% from 129.4% the previous year. However, the adjusted capital adequacy ratio rose 1 percentage point to 17.9% from 16.9% the previous year. The leverage ratio improved, falling 0.5 times to 5.9 times from 6.4 times the previous year.

A Financial Supervisory Service official said, "Although the net profit of non-card specialized credit finance companies decreased more than that of card companies due to increased bad debt expenses, their loss absorption capacity remains sound," adding, "We will strengthen asset soundness management such as delinquency rates and enhance loss absorption capacity through bad debt provision accumulation in preparation for domestic and international uncertainties in the financial market."

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