The card industry is focusing on recovering its soundness by reducing the balance of card loan refinancing. As the actual arrears rate of major credit card companies approached 2%, it is interpreted that they have started risk management by reducing the scale of refinancing loans, which have a high risk of arrears.
Card loan refinancing is a product that lends money again to those in arrears on card loans for repayment. It is classified into two types: one that pays off loans received from other card companies and adjusts the maturity, and the other, a product where one card company offers card loans to the same financial consumer once more.
Although there is an advantage of being able to temporarily alleviate the burden of arrears by adjusting the maturity through refinancing, as credit ratings drop and higher interest rates than previous loans apply, the burden of interest ultimately increases. Since it is a product targeting those in arrears, the possibility that the repayment ability of financial consumers is weak quantitatively increases the probability that the soundness of card companies will decline.
According to the Korea Credit Finance Association on the 16th, as of the end of May, the balance of refinancing loans of eight major credit card companies (Shinhan, Hyundai, Samsung, KB Kookmin, Lotte, Woori, Hana, BC Card) was 1.4365 trillion won, a decrease of 23.3% compared to the same period last year. Hyundai Card had the largest decrease, with a reduction of 39.9% compared to the previous year, while KB Kookmin Card (38.4%) and Shinhan Card (31.1%) also reduced their refinancing loan balances.
The only companies that showed an increase were BC Card, Woori Card, and Samsung Card. BC Card slightly increased its refinancing loan balance from 0 won to 1.84 billion won, while Woori Card and Samsung Card increased by about 10%. Woori Card stated that its balance increased by converting some of its non-performing loans into refinancing loans for management. Samsung Card explained that the refinancing loans also increased as the frequency of credit card usage rose.
Recently, card companies appear to be taking measures to manage soundness in response to the rising arrears rate. The average actual arrears rate of eight major card companies for the first quarter of this year was 1.93%, an increase of 0.08 percentage points compared to the same period last year (1.85%), marking the highest level in a decade. Compared to the previous quarter (1.80%), this is a rise of 0.13 percentage points. KB Kookmin, Hana, Woori, and BC Cards are already known to have an actual arrears rate exceeding 2%. The card industry sees an arrears rate above 2% as a warning sign.
With the implementation of the three-tier Stress Debt Service Ratio (DSR) regulations from this month, card loans have also been included in credit loans, which is expected to lead to reduced profitability in the card industry while underscoring the importance of soundness management. Previously, card loans and cash services were classified as 'other loans' by regulatory authorities and thus were excluded from major regulatory targets such as DSR application.
The DSR is a key indicator that determines the lending limit based on the ratio of annual principal and interest repayment to annual income. The 'stress DSR' reflects the possibility of interest rate increases by applying a 'stress rate' that is higher than the actual rate, thus calculating the loan limits more conservatively. With the implementation of the three-tier DSR, a stress rate of 1.5% will be applied immediately to card loans regardless of the amount upon new issuance. Accordingly, the lending limits will decrease, and the number of card loan users is expected to decline significantly.
A representative from the card industry noted, 'It appears that card companies have generally reduced new sales in order to decrease the balance of refinancing loans,' adding, 'If the economy recovers and the repayment ability of financial consumers improves, there is a possibility of expanding sales again.'