In the first half of this year, Lotte Card's ratio of non-performing loans (loans falling below standard) surpassed 2%, marking the highest level among major credit card companies. This surge in non-performing loans was due to its client, Homeplus, failing to repay the purchases made with credit cards on time. This is expected to be an additional burden amid a significant decrease in net profit for the first half of the year.
According to the semi-annual report released on the 29th, Lotte Card's ratio of loans falling below standard was 2.37% in the first half of this year, rising by 1.01 percentage points compared to the same period last year. During the same period, the ratio for seven other major credit card companies (Samsung, Shinhan, Hyundai, KB Kookmin, Hana, Woori, and BC Card) ranged from 0.79% to 1.55%, with the increase being between 0.01% and 0.06%. Lotte Card was the only company among the eight credit card companies to record a non-performing loan ratio above 2%. Its growth rate was also more than 100 times higher than that of Shinhan Card, which had the lowest rate.
The ratio of loans falling below standard refers to the percentage of non-performing loans that have not had principal and interest repaid for more than three months and are effectively unlikely to be recovered. It is one of the indicators of a credit card company's financial health.
The non-performing loan ratio increased as Homeplus, a major client, fell into management difficulties. Lotte Card holds the largest amount of sales from purchase-only credit cards among major credit card companies issued to Homeplus. Purchase-only credit cards are credit/debit cards issued by purchasing corporations to make payment for purchases and are used for credit transactions between corporations.
Last year, Lotte Card generated approximately 800 billion won in sales from purchase-only credit cards at Homeplus. However, they only securitized 400 billion won of the purchase-only credit card debt. Following Homeplus's application for court receivership in March due to financial difficulties, it has been unable to recover 60 billion won.
Amid a sharp decline in net profit in the first half of this year, the increase in the non-performing loan ratio is expected to pose an additional burden for Lotte Card. The company recorded a net profit of 41.6 billion won in the first half of the year, a decrease of 33.8% compared to the same period last year. The need for setting aside a loan loss provision was a factor in the drop in net profit. Lotte Card also accumulated 430.9 billion won in franchise fees and credit loss provisions related to Homeplus debts in the first half of the year.
A Lotte Card official noted, "The purchase-only credit cards and corporate card debts related to Homeplus were classified as loans falling below standard, which led to the increase in the ratio. When excluding debts related to Homeplus, it remains at levels similar to previous years."