[비즈한국] Although the New Year has begun, the continued economic downturn has left many ordinary citizens deeply concerned. Amidst an unstable financial environment, sluggish domestic demand, and deteriorating economic conditions, household debt reached an all-time high in 2024. The trend of hitting "record highs" due to the prolonged economic slump also extends to credit card companies. As cash-strapped citizens turn to the secondary financial sector, accepting high interest rates approaching 20%, and credit card companies seek to expand their loan assets in a challenging business climate, the volume of card-based lending has surged significantly.
An examination of the operating assets of Korea's seven specialized credit card companies (KB Kookmin, Lotte, Samsung, Shinhan, Woori, Hana, and Hyundai Card) as of November 2024 shows that Lotte Card experienced the largest increase in the balance of long-term card loans (card loans) compared to the end of the previous year. Lotte Card's card loan volume rose by 24.2%, from 4.2954 trillion won in 2023 to 5.3341 trillion won as of November 2024.
Following Lotte Card were Woori Card (21.3%) and Hyundai Card (21.3%). Woori Card's card loan balance grew from 3.3335 trillion won in 2023 to 4.0449 trillion won in November 2024. During the same period, Hyundai Card's balance increased from 4.7762 trillion won to 5.7928 trillion won. Samsung Card029780 (5.8%), KB Kookmin Card (3.4%), Shinhan Card (2.5%), and Hana Card (1.9%) saw only single-digit growth rates.
Card lending is divided into short-term card loans (cash advances) and long-term card loans (card loans). Cash advances allow for short-term borrowing of 1 to 2 months within the credit card limit, while card loans allow for borrowing over a period of 2 to 36 months based on credit card usage and the user's credit score. The maximum interest rates on these reach nearly 20%.
Card loans are primarily sought by ordinary citizens who find it difficult to borrow from commercial banks or those in need of emergency funds. While these serve as a financial lifeline for vulnerable groups, they can also trigger a vicious cycle of re-borrowing due to late payments, or lead to bankruptcy and rehabilitation. With bank loan thresholds raised by government regulations, the card loan balance hit an all-time high last October.
The total volume of card loans from the seven credit card companies continues to rise and is on the verge of reaching the 40 trillion won mark. In November of last year, the combined card loan balance of the seven companies recorded 39.3962 trillion won. Including BC Card (44.6 billion won), which has relatively smaller card operations of its own, the total reaches 39.4408 trillion won.
Some card companies remain passive in handling loan assets. Hana Card has not allowed its card loan balance to exceed 2 trillion won since 2020. Comparing figures from four years ago to November of last year, Hana Card (6.9%) is the only one among the seven companies with a growth rate below 10%.
Lotte Card also recorded the highest growth rate in card loan balance over the approximately four years since 2020, jumping 50.3% from 3.5477 trillion won to 5.3341 trillion won. It was followed by Woori Card (35.3%), Hyundai Card (31.0%), KB Kookmin Card (22.5%), Samsung Card (13.5%), and Shinhan Card (12.9%).
A look at consumers' card loan utilization last year shows a steeper upward trend than during the COVID-19 pandemic. From March to September 2020, the total rose 191%, from 12.1215 trillion won to 35.3210 trillion won. In 2024, it increased by 210% over the same period, from 10.3926 trillion won to 32.2010 trillion won. While the absolute transaction volume was larger in 2020 when the pandemic hit, the rate of increase was higher in 2024.
As the scale of lending grows, concerns have been raised regarding the industry leader's move to launch products targeting young adults just beginning their careers. Because these individuals often lack financial literacy, taking on excessive debt could lead to adverse effects like late payments and declining credit scores. In October last year, Shinhan Card launched 'Cheoeum Dream Loan,' a long-term loan product for the youth. While Shinhan Card's standard card loan interest rates range from 5.2% to 19.9%, the Cheoeum Dream Loan was marketed with a relatively lower interest rate in the low 10% range.
Shinhan Card promoted the Cheoeum Dream Loan via social media and text messages. Their YouTube channel, 'Sol-Ka-Mal,' introduced the product as a 'first credit loan for youth' and advertised benefits such as coupons and interest rate reductions. However, these videos have since been deleted and are no longer available. As of the first half of last year, Shinhan Card held the largest share (20.9%) of card lending among the seven specialized credit card companies. Its card loan balance reached 8.3263 trillion won (as of November 2024).
The increase in credit card companies' loan assets is viewed as a negative indicator not only for households but also for the industry itself. Rising delinquency rates worsen the asset soundness of card companies. While they have increased loan performance because it is difficult to generate profit from their core payment business, it can have a detrimental effect on soundness management. This is why the industry strongly opposed the '2025 Card Fee Reform Plan' announced by the Financial Services Commission last December, which included provisions to lower merchant card fees.
The Korean Financial Industry Union issued a statement following the financial authorities' announcement, criticizing, "Due to continuous fee cuts, the profit margin on credit sales for card companies has plummeted to the 0.5% level. To fill the revenue gap, card companies are becoming dependent on the loan business, leading to a surge in high-interest revolving payments and card loan assets." They added, "This increases bad debt costs and the spread of non-performing assets, worsening the overall financial health of the card industry."