According to the financial sector on July 5, the average delinquency rate (for accounts overdue by more than one month) among eight major credit card companies—Shinhan, Samsung, Hyundai, KB Kookmin, Lotte, Woori, Hana, and BC Card—rose to 1.32% in the first quarter of this year, up 0.06 percentage points from 1.26% at the end of last year. After a decline that began in the second quarter of last year due to the resolution of bad debts, the rate has rebounded this year.
Among the companies, only Lotte Card (-0.27 percentage points) and Samsung Card (-0.02 percentage points) saw decreases, while all others reported increases.
The rise in delinquency rates translates into greater financial strain for credit card companies, as they must increase their loan loss reserves to prepare for potential bad debts. The total amount of loan loss reserves for the eight companies grew by 1.37% (1.516 billion won), from 11.0322 trillion won at the end of last year to 11.1839 trillion won by the end of the first quarter.
As the burden of setting aside reserves increases, credit card companies are also facing heightened pressure on their profitability, compounded by rising funding costs.
The interest rate on three-year, non-guaranteed AA+ financial bonds has steadily increased from 3.3% in January to over 4.3% this month. Unlike banks, credit card companies cannot rely on deposits for funding and are heavily dependent on issuing credit finance bonds. As market interest rates rise, their funding costs also increase.
In this context, the balance of card loans has reached record levels this year. As of May, the total card loan balance among nine credit card companies hit 43.2534 trillion won, marking the highest level in two months. The demand for card loans has surged due to increased borrowing for investment and living expenses, but analysts warn that the rising delinquency rates and increased funding costs could significantly dilute the benefits of interest income.
Financial authorities are closely monitoring the rapid increase in household loans, particularly those from credit card companies. Recently, they have urged proactive management from companies that have seen significant growth in household loans, and credit card firms are now reporting related trends on a daily, weekly, and monthly basis.
A credit card industry official stated, "The economic slowdown and polarization are increasing repayment burdens for self-employed individuals and vulnerable borrowers, leading to a general rise in delinquency rates across the financial sector. Given that the credit card industry has a high proportion of mid- to low-credit and low-income customers, it is particularly affected by these trends."
* This article has been translated by AI.
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