The growth of automobile installment financing by credit card companies has appeared to slow. As the increase in domestic automobile sales stalls, the related financial market is also contracting. In a situation where the overall revenue of the card industry is deteriorating, the sluggish automobile market is expected to add to the burden.
According to the Financial Supervisory Service, the revenue from automobile installment financing by six major credit card companies (Woori, KB, Lotte, Samsung, Shinhan, Hana) in the first quarter of this year was 107.6 billion won, a mere 1.1% increase compared to the same period last year. The growth rate of the automobile installment financing revenue of these six credit card companies was 10.5% in the first quarter of last year and 25.5% in the first quarter of 2023. The growth rate has decreased by 24.4 percentage points over the past three years.
Automobile installment financing is a structure where credit card companies pay the full car purchase price to the seller at once and then receive monthly principal and interest payments from consumers. It is similar in nature to the automobile installment financing mainly offered by capital companies, and unlike purchasing a car through credit card installments, it is subject to the three-tiered debt service ratio (DSR) application.
Credit card companies have been expanding their presence in the automobile installment financing market by offering lower interest rates compared to the capital industry, which has been the market's mainstream. The proportion of automobile installment financing revenue to the total installment financing revenue of credit card companies is as high as 96%. This means that they rely on the automobile market for virtually all of their installment financing revenue.
This year, as the growth of domestic automobile sales has slowed, the related financial market also appears to be contracting. According to the Ministry of Trade, Industry and Energy, the sales volume of domestic cars in the first half of this year was 679,775 units, an increase of only 1.8% (12,197 units) compared to the same period last year. While the sales volume of imported cars (146,853 units) recorded a double-digit growth rate (12.1%) during the same period, the sluggish sales of domestic cars, which account for the majority of the domestic market, has prevented credit card companies from significantly increasing their automobile installment financing revenue.
As the major sources of revenue for credit card companies decrease, the contraction of installment financing could further increase the burden on the industry. The revenue from merchant fees of seven major credit card companies in the first quarter was 1.2741 trillion won, down 7.1% from the same period last year (1.3713 trillion won). This is because financial authorities require favorable fee rates for around 5 million small and medium-sized merchants. The implementation of the three-tiered stress DSR last month is expected to make it difficult to expand revenue from card loans as the lending limits are reduced, leading to a significant decrease in consumers using card loans.
An industry official noted, "While installment financing does not account for a significant portion of credit card company revenue, it could act as an additional burden in a situation where major revenues, such as merchant fees, are decreasing."