Despite Strong Q3 Performance by Card Companies... "What About Next Year?" Sigh

Improved Performance in Q3 Driven by Consumer Sentiment Recovery
Possibility of Additional Fee Reductions and Early DSR Implementation
Concerns Over Profitability Decline Next Year

[Image source=Yonhap News]

[Asia Economy Reporter Ki Ha-young] Credit card companies have continued their strong performance in the third quarter of this year. This is due to reduced expenses such as marketing amid the COVID-19 aftermath, and increased card usage in certain sectors like online shopping and department stores. However, with the upcoming fee reassessment next month likely to lead to further reductions, and financial authorities' household debt measures expected to shrink loan operations, there is already concern about next year.

According to the credit card industry on the 27th, the cumulative net profits for the first three quarters of this year reported by five major card companies (Shinhan, Samsung, KB Kookmin, Woori, and Hana Card) all showed increases.

Industry leader Shinhan Card recorded a cumulative net profit of 538.7 billion KRW for the first to third quarters, up 14.6% compared to the previous year. This was attributed to cost savings from digitalization and business diversification such as installment plans and leasing. During the same period, Samsung Card and KB Kookmin Card also posted increases of 20.2% and 46.6%, recording 421.7 billion KRW and 374.1 billion KRW respectively. The growth of small and medium-sized card companies was even steeper. Hana Card's cumulative net profit surged 73.9% to 199 billion KRW, while Woori Card recorded 175 billion KRW, up 63.6% from the previous year.

This performance improvement was influenced by a recovery in consumer sentiment. Card usage increased not only in online shopping but also in certain sectors like department stores, boosting credit sales revenue. Efforts to reduce costs by cutting offline marketing and restructuring around digital channels, as well as business diversification through strengthening installment and leasing services, also contributed.

However, despite the strong results, card companies do not seem entirely pleased. It is explained as a recession-type profit achieved through the COVID-19 base effect and cost reductions. There are concerns that the management environment surrounding card companies will not be easy starting next year. Interest rate hikes are a prime example. With the Bank of Korea signaling further rate increases, card companies face rising funding costs as benchmark interest rates go up.

The outlook for the card fee reassessment scheduled for next month is also not optimistic. Although card companies claim that fee revenues are in deficit, the atmosphere leans toward further reductions. If fee rates are lowered again, profits will inevitably decrease. Following additional household loan measures announced by financial authorities, loan businesses such as card loans and cash services are also likely to contract from next year. Starting January next year, secondary financial institutions must apply a Debt Service Ratio (DSR) of 50% to borrowers whose total loan amount exceeds 200 million KRW.

An industry insider said, "We have been compensating for losses from reduced merchant fee rates through loan operations like card loans, but with the government's strengthened household debt management, even this is expected to become difficult from next year," expressing concern that "card fees are also likely to be further reduced, worsening profitability."