📷 Ads for credit card loans posted on the wall of a building in Seoul. (BusinessKorea DB)
Card Loan Balance Reaches 42 Trillion Won, Raising Concerns
As the economic downturn accelerates, the proportion of card loan delinquents is rapidly increasing.
According to NICE Information Service on May 13, the potential delinquency rate for long-term credit card loans (card loans) as of the end of March this year was 6.51%, up 0.13 percentage points from the end of the previous month.
The potential delinquency rate represents the proportion of borrowers who are more than 30 days overdue among card loan holders. This means that out of the total 3.42 million card loan users at the end of last year, over 220,000 failed to repay their loans on time.
The potential delinquency rate, which remained in the early 5% range until the first half of 2022, began to show an upward trend from the second half of the same year. After recording 6.22% at the end of last year, it has risen by 0.29 percentage points in just three months this year.
Card loans are often referred to as an emergency fund source for the working class and vulnerable groups, due to their nature of attracting borrowers who have difficulty obtaining loans from primary financial institutions. As the economic contraction continues, the recent card loan balance has been skyrocketing.
According to the Credit Finance Association, the card loan balance at the end of March was 42.3720 trillion won. Although it decreased slightly compared to February, which recorded an all-time high, analysts suggest this is a temporary effect due to the write-off of non-recoverable debts at the end of the quarter. Card loan demand is increasing even as interest rates approach 15%, nearly matching the levels seen during the Legoland crisis. Moon Jae-won, a manager at NICE Research Center, warned, “Preemptive risk management and continuous monitoring of long-term credit card loan holders and vulnerable borrowers will be necessary. Caution is needed as the situation may worsen in an environment where household income is sluggish and downside risks to the economy are expanding.”
Given this situation, credit card companies’ loan loss expenses are also surging. In the first quarter, the total loan loss expenses of six specialized credit card companies, including Shinhan, Samsung, Hyundai, KB Kookmin, Hana, and Woori Card, amounted to 1.0669 trillion won, a 49.5% increase from 713.7 billion won in the first quarter of last year. An industry official explained, “As the industry’s delinquency rate indicators are deteriorating, and the economic situation is not favorable, we plan to focus on soundness management through delinquency management and refinement of screening processes.”
Source: businesskorea.co.kr
