"Second-Tier Financial Sector Needs Soundness Management Next Year... Credit Card Companies Face Growth Slowdown"

2025 Economic and Financial Outlook Seminar

There is a forecast that mutual finance and savings banks should continue proactive soundness management next year. In the case of the credit finance sector, growth is expected to slow down, and efforts should focus on securing profitability and managing soundness.

On the 12th, Sujin Lee, head of the Financial Consumer Research Office at the Korea Institute of Finance, stated this at the '2025 Economic and Financial Outlook Seminar' held at the Bankers' Hall in Jung-gu, Seoul. Regarding the mutual finance sector, Lee said, “The rise in delinquency rates is expected to slow due to an increase in the scale of non-performing loan sales,” but added, “With rising loan loss provisions and limited capacity for loan expansion, profitability stagnation is expected to continue next year.”

Although Saemaeul Geumgo and ShinHyup have taken steps to manage soundness by selling non-performing loans amounting to 25% and 15% of their non-performing loans past due over 90 days as of June this year, respectively, there is a possibility that the scale of defaults in loans to small and medium-sized enterprises such as individual business owners will expand. Furthermore, the policy of tightening regulations on real estate-related loans is expected to suppress not only corporate loans but also household loans, leading to lower profits for the mutual finance sector.

Lee suggested that the mutual finance sector should strengthen its original role. The supply function of household and credit loans has shrunk, causing the mutual finance sector’s original functions to not operate properly. In fact, the proportion of household loans in mutual finance cooperatives significantly decreased from 87.9% in the first quarter of 2014 to 44% in the first quarter of this year. With an increase in real estate-related secured loans, the proportion of credit loans to total loans also declined from 8% to 4.7% during the same period. He emphasized the need to redefine the identity to achieve the original purpose of providing funds to local communities and low-income groups.

On the 12th, panelists are participating in a discussion at the '2025 Economic and Financial Outlook Seminar' held at the Korea Federation of Banks Building in Jung-gu, Seoul. Photo by Oh Gyumin

In the case of savings banks, profitability is expected to recover and the trend of asset reduction is expected to slow due to expectations of interest rate declines. However, they should prepare for deterioration in the soundness of corporate loans and real estate project financing (PF). Lee said, “The reduction in funding costs due to expectations of interest rate declines will help improve net interest margins and profitability in the savings bank sector,” but added, “Since the recovery speed of private consumption is expected to be somewhat slow, high delinquency rates on loans to individual business owners will persist, and additional loss recognition due to revaluation of real estate PF projects should also be considered.”

Next year, the credit finance sector is expected to experience slower growth but will focus on securing profitability and managing soundness. Lee said, “The growth of core businesses such as installment and leasing will continue, and the interest rate cut environment is positive for profitability improvement,” but added, “They need to respond to changes in the competitive environment and concerns about declining core business profitability, and high loan loss provisions are also expected to continue.” For card companies, private consumption is expected to recover moderately, leading to stable growth through expansion in the payment sector. However, the low profit margin in the payment sector and worsening soundness indicators may act as factors for profitability decline and loan loss burdens.

Meanwhile, financial authorities announced plans to improve the system to revitalize the lending industry as a source of funds for vulnerable low-income groups. Seunghan Jeon, head of the Household Finance Division at the Financial Services Commission, said, “We plan to improve related systems so that the lending industry can lower funding costs even slightly and continue to supply funds to low-income people,” adding, “If market soundness is achieved through incentives for excellent lenders and eradication of illegal private loans, it is expected that low-income people will be able to use the industry with confidence.”