Among the loans extended by card companies, the amount in arrears for six months or longer was the highest since 2003, when comparable data became available. Card companies are speeding up sales of nonperforming loans, but new bad debt is piling up faster. As card companies failed to generate revenue in the payment fee institutional sector, they expanded lending such as card loans.
According to the Financial Supervisory Service on the 16th, as of the end of September last year, the amount in arrears for six months or longer at the eight stand-alone card companies was 538.3 billion won, up 78.1% from the end of September a year earlier (302.2 billion won). It was the first time since 2003 that the amount in arrears for six months or longer exceeded 500 billion won on a quarterly basis. The amount in arrears for one to six months has been declining since last year. Short-term arrears have turned into long-term arrears.
Considering that card companies have been selling nonperforming loans over the past three years, the level of distress is estimated to be more serious than the figures show. When arrears occur, card companies have been selling at low prices rather than continuing collection to reduce the arrears ratio.
As of the end of September last year, gains on sales of loan receivables at card companies were 581.9 billion won, more than double the 2021 level (222.7 billion won). Gains on sales of loan receivables surged to around 500 billion won starting in 2023. Card company loan receivables refer to all credit offerings, including card loans and cash services.
In the card industry, the recent deterioration in soundness is seen as the result of an expansion in card loans. Since 2013, as merchant card fee rates have been cut and profitability has worsened, card companies have focused on card loans. To preserve revenue, card companies have been reducing interest-free installment benefits and raising annual fees. A card industry official said, "Every time we cut expense as much as possible, card fee rates are cut again, creating a vicious cycle."
Net income at the eight stand-alone card companies for January to September last year was 1.9332 trillion won, down 14.1% from the same period a year earlier (2.2509 trillion won). By contrast, card loan revenue rose 8.3% over the same period, from 3.6765 trillion won to 3.9817 trillion won. The card loan balance at nine card companies, which fell from June to September last year, turned upward again to 42.5529 trillion won as of the end of Nov. last year.