As funding costs for credit card companies continue to rise, interest rates for card loans aimed at low- and mid-credit borrowers have actually decreased. The ongoing inclusive finance policy from financial authorities has increased the profitability pressures on card companies, making it difficult for them to pass on rising funding costs to interest rates.
According to the financial sector on June 12, the average funding rate for card loans among eight major credit card companies (Shinhan, Samsung, Hyundai, KB Kookmin, Lotte, Woori, Hana, and BC Card) rose to 4.04% in April, up 0.07 percentage points from the previous month’s 3.97%.
The funding rate is based on the average yield of three-year card bonds calculated by private credit rating agencies such as Korea Asset Evaluation, KIS Asset Management, and NICE P&I, serving as a key indicator of the overall funding conditions in the card industry.
Among the card companies, Lotte Card reported the highest funding rate at 4.33%. Woori Card and Hana Card both recorded rates of 4.02%, while BC Card and Hyundai Card reached 4.00%. Shinhan Card, Samsung Card, and KB Kookmin Card were close behind at 3.99%, nearly entering the 4% range.
Card companies rely on issuing card bonds for funding, as they do not have deposits. An increase in funding rates directly leads to higher loan costs.
Despite rising funding costs, interest rates for card loans targeting low- and mid-credit borrowers have actually fallen. The average interest rate for card loans for borrowers with credit scores below 700 among the eight major credit card companies was 17.18% in April, down 0.09 percentage points from 17.27% the previous month.
Industry analysts attribute this trend to the financial authorities' push for inclusive finance. As policies aimed at improving access to finance for low- and mid-credit borrowers continue, card companies are finding it increasingly challenging to fully reflect rising funding costs in the interest rates for these borrowers.
The concern is that loans to low- and mid-credit borrowers carry a relatively high risk of default, and if the trend of lowering interest rates continues, profitability pressures could intensify. Particularly, borrowers with low credit scores face a higher risk of delinquency, which could increase the burden of loan loss provisions for card companies, further complicating their soundness management.
A source in the card industry stated, "Despite the rise in funding rates, we are in a situation where we must continue to support low- and mid-credit borrowers in line with the government's inclusive finance policy, which inevitably increases profitability pressures. It is becoming increasingly important to manage asset soundness stably in preparation for potential increases in delinquency rates and loan loss costs."
* This article has been translated by AI.
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