Credit Card Companies Lower Loan Rates and Increase Limits Amid Loan Growth

Credit card companies are lowering interest rates and increasing limits on card loans (long-term credit card loans) for some customers, despite rising funding costs due to increased bond rates. This shift comes as financial authorities have expanded household loan targets, allowing companies to resume operations, particularly for customers with relatively good credit ratings.

According to the financial sector on September 15, KB Kookmin Card has reduced card loan rates for some customers from an annual 15.90% to 11.70% this month. The available limit has also increased from 10 million won to 12.5 million won. NH Nonghyup Card has similarly lowered its card loan rate for some customers from 13% to 10.4%.

In July, the average interest rate for new card loans from eight major credit card companies rose to 14.15%, an increase of 0.28 percentage points from the previous month. The rates offered by KB Kookmin Card and NH Nonghyup Card for select customers are lower than this average. However, these preferential rates are based on individual creditworthiness and card usage, differing from the overall average rate.

Notably, while funding costs for card companies are increasing, card loan rates are decreasing. Unlike banks, credit card companies do not have deposit functions, making them highly reliant on market-based funding, including card bonds. Recently, the yield on three-year bonds rated AA+ has risen to the mid-4.5% range, increasing the funding burden on card companies.

Despite this, the reduction in preferential card loan rates and increased limits can be attributed to the additional capacity created by the expanded household loan targets. Financial authorities raised the household loan growth management target from 1.5% to 3.0% in the August 13 real estate measures. This adjustment has allowed card and capital companies, which had been limiting loan growth, to take on additional lending capacity.

Card loans are a key revenue source for credit card companies. They can be issued without collateral, allowing for relatively quick adjustments to loan amounts based on customer-specific rates and limits. Previously, due to total volume regulations, card companies had reduced limits and new issuances, leading to a decline in card loan balances for two consecutive months in June and July.

In contrast, as card loan supply has been restricted, some loan demand has shifted to higher-interest cash advances and revolving credit. As of the end of July, the balance of cash advances reached 7.251 trillion won, marking three consecutive months of increase. The balance of revolving credit also rose to 6.8759 trillion won, increasing for four consecutive months.

Normalizing card loan supply could alleviate the reliance of borrowers on cash advances, which typically have shorter terms and higher rates. By lowering rates for prime borrowers, credit card companies can manage both profitability and soundness.

However, there are concerns that competition among card companies could extend to lower-credit borrowers, potentially stimulating demand for loans among vulnerable borrowers again. A rapid increase in card loan balances could lead to higher delinquency rates and bad debt costs, increasing the soundness burden on card companies.

A financial sector official stated, “We are strengthening marketing efforts in segments where limits have not been filled based on borrower credit ratings within the total household loan volume. We are lowering rates in certain segments, including high-credit borrowers, to manage delinquency rates.”