Credit card companies’ delinquency rate hits 10-year high in H1

Photo by Kim Ho-young

South Korean credit card companies recorded the highest delinquency rates in a decade in the first half of 2024 even as they saw 1.5 trillion won ($1.13 billion) in net profits during the same period, according to the latest data.

A provisional report released by the Financial Supervisory Service on Tuesday said that the total net profit of the country’s eight major card companies for the first half of the year was 1.5 trillion won, up 82.2 billion won, or 5.8 percent, from 1.42 trillion won during the same period a year ago.

The growth in profits was driven by increases in income from card loans, installment card fees, and merchant fees, which rose by 194.2 billion won, 171.1 billion won, and 131.3 billion won respectively year-on-year.

However, the asset quality of these companies worsened during the period. The delinquency rate for the major card companies stood at 1.69 percent at the end of June 2024, the highest level in 10 years and an increase of 0.06 percentage points from the 1.63 percent tallied at the end of 2023.

The ratio of non-performing loans also rose by 0.03 percentage points to 1.17 percent over the same period.

The delinquency rate for card loans was 3.60 percent, which significantly contributed to the overall increase in the delinquency rate for the major credit card companies. But this figure is slightly lower by 0.07 percentage points from 3.67 percent at the end of 2023. The delinquency rate for credit sales receivables was 0.91 percent, up 0.05 percentage points from 0.86 percent at the end of the previous year.

The sharp rise in the delinquency rate among the credit card companies is largely due to the influx of mid- to low-credit borrowers turning to card loans. As borrowing from savings banks and private lenders becomes increasingly difficult, these financially vulnerable borrowers opted for card loans instead.

According to the Credit Finance Association, the total outstanding balance of card loans from the country’s nine major card companies (Lotte, BC, Samsung, Shinhan, Woori, Hana, Hyundai, KB Kookmin, and NH Nonghyup) hit a record high of 41.23 trillion won at the end of July 2024, up by 620.7 billion won, or 1.53 percent, from the previous month‘s balance of 40.61 trillion won.

The credit card industry is building up its capacity to respond to the deterioration in asset quality. Although the bad debt reserve ratio for card companies declined by 2.4 percentage points from 109.9 percent at the end of 2023 to 107.5 percent at the end of June 2024, the adjusted capital adequacy ratio stood at 20.3 percent, well above the management guidance ratio of 8 percent for all card companies.