Persistent 'Geupjeon' Demand... Card Loans and Cash Services Soar

Card Loan Balance 35 Trillion Won... 1.2 Trillion Increase Since Last Year-End
Revolving Balance Also Soars... Highest Since February
Concerns Over Financially Vulnerable Groups' Soundness and Card Companies' Delinquency Rates

Card loans, a quick cash source for ordinary people, continue to soar without stopping. The balance of card loans still approaches 35 trillion won, and the revolving balance has also reached its highest level since February. Concerns about the financial soundness of vulnerable groups have raised warnings that credit risks for card companies may also signal red flags.

According to the Credit Finance Association on the 21st, the card loan balance of seven card companies including Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Hana, and Woori Card was recorded at 34.8326 trillion won as of the end of June this year. This is a 3.5% (1.1922 trillion won) increase from 33.6404 trillion won at the end of last year. Although it slightly decreased by 0.4% compared to the end of May, which was the highest monthly level this year, it is still considered a level that cannot be taken lightly.

Cash services (short-term card loans) and revolving balances, which are representative quick cash means, are also not decreasing easily. The cash service balance of the seven card companies last month was 6.3278 trillion won, the second highest monthly level this year. The revolving balance was 7.2614 trillion won, the highest since February. Revolving is a service that allows partial payment of credit card bills and defers up to 90% to the next month without a delinquency record. It is considered a quick cash source mainly used by ordinary people as it reduces the burden of lump-sum repayment.

While cash services and revolving provide quick cash, the costs are also considerable. Depending on the card company, interest rates close to the legal maximum annual rate of 20% must be borne. According to the Credit Finance Association, the average cash service fee rate of the seven card companies was 17.45?18.41% (as of the first quarter), and the average revolving interest rate was 15.52?17.88% (as of May). The highest fee rates are all in the high 19% range, similar to the legal maximum interest rate.

Nevertheless, the continued high level of card company loans is interpreted as due to the increasing number of people who have no choice but to use card company quick cash as household situations worsen due to high interest rates and high inflation. If this trend continues, concerns about the soundness of financially vulnerable groups as well as credit risks for card companies may increase. If the revolving and cash service balances, mainly used by vulnerable borrowers such as low-credit and multiple debtors who need quick cash, grow, delinquency rates may rise, increasing the risk of card company insolvency. Already, in the first quarter of this year, the delinquency rate rose to the 1% range for six of the seven card companies except Hyundai Card (0.95%).

There is also increasing pressure on this year’s performance. Merchant fees are continuously declining, while expenses such as funding costs and bad debt costs are not decreasing. The interest rate on specialized credit finance bonds (AA+, 3-year) used by card companies without deposit functions remains in the 4.2% range. Compared to the 2.4% range at the beginning of last year, funding costs have doubled. Given the financial authorities’ pressure for win-win finance, it is expected to be difficult to avoid poor performance for the time being. A card company official explained, “It is a dilemma situation,” adding, “This year, the atmosphere is to prioritize risk management and soundness management over performance growth.”