According to the Korea Financial Investment Association on April 28, the yield on three-year AA+ bonds issued by specialized credit finance companies stood at 4.054% as of April 27. That is up 1.272 percentage points from April 28 last year, when it was 2.782%. Because card companies lack a deposit base and rely heavily on bond issuance, higher market rates directly increase funding burdens and squeeze earnings.
Against that backdrop, regulators are calling for lower rates by shrinking card loans and introducing Saeitdol loans — a lower-rate product — for the card industry, prompting concerns that margins will narrow further. As of the end of last month, the average interest rate on card loans at eight dedicated card issuers — Lotte, BC, Samsung, Shinhan, Woori, Hana, Hyundai and KB Kookmin — was 13.49%. The Saeitdol loan rate announced for the sector is only 8% to 12%.
“Overall funding conditions have worsened, and we are being pushed into handling lower-rate products as well, which increases the profitability burden,” a card industry official said. The official added that while Saeitdol loans come with incentives, “given the higher delinquency risk typical of mid- to low-credit borrowers, the burden is not small.”
Savings banks are also voicing concerns about the regulator-led expansion of mid-rate loans. The planned cut in the interest-rate ceiling for private mid-rate loans to 15.26% from 16.51% has raised fears of a “cutoff,” with some lenders already effectively halting new loans to borrowers with credit scores below 500. If the cap falls further, borrowers who previously could still qualify at annual rates in the 15% to 16% range could be pushed out of the market, the industry says.
Regulators have also said they will offer additional regulatory incentives for a “Mid-Rate Loan 1” product if a savings bank’s average rate is 12.26% (preliminary) or lower. Industry officials, however, expect limited impact because many savings bank customers are multiple-debt holders or have limited collateral, leaving relatively few borrowers who can qualify for rates below 12%.
In the first quarter, the average rates on private mid-rate loans at the top five savings banks were 12.97% at SBI Savings Bank, 13.14% at OK Savings Bank, 13.32% at Korea Investment Savings Bank, 14.96% at Acuon Savings Bank and 15.38% at Welcome Savings Bank. For borrowers with credit scores of 700 or below, the average rate was 14.16%. That means rates would need to fall by at least 1 to 3 percentage points to meet the 12.26% incentive threshold.
“With deposit rates rising to around 4%, if lending rates also fall, a squeeze in net interest margins is unavoidable,” a savings bank official said. The official added that higher-credit borrowers who can get rates below 12% often use such loans only temporarily, limiting the practical customer base and leaving little room for policy incentives to translate into meaningful lending capacity.
* This article has been translated by AI.
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