As the financial authorities tightened regulations on card loans (long-term card loans), card loan balances fell for the second straight month. In contrast, balances of cash advances (short-term card loans) and revolving payments (paying only part of the bill and carrying over the rest) increased, leading some to say the quality of debt has worsened.
According to the Credit Finance Association on the 26th, card loan balances at nine card companies (Shinhan, Samsung, Hyundai, KB Kookmin, Lotte, Woori, Hana, BC, NH Nonghyup Card) stood at 42.7957 trillion won at the end of July. Card loan balances fell by 344.1 billion won in June and decreased by another 213.6 billion won in July.
As card loan balances hit an all-time high early this year, the Financial Supervisory Service in April called in officials in charge at card companies, re-notified them of the household loans total volume management targets, and asked them to draw up new management plans.
While card loans decreased, balances of cash advances, a short-term card loan, rose by 280.5 billion won in June and 240.9 billion won in July. Revolving amounts also increased by 31.6 billion won in June and 44.4 billion won in July, bringing the balance to 6.7732 trillion won at the end of July.
Card loan terms range from 3 to 36 months, with average annual interest rates of 12.28% to 15.32%. By contrast, cash advances have short terms of 1 to 2 months and average interest rates about 4 percentage points higher than card loans. Revolving rates are in the 14% to 19% range annually. For this reason, analysts say borrowers' debt quality has deteriorated.
A financial industry official said, "Cash advances are widely used by mid- to low-credit borrowers who urgently need living funds, so a steady supply is necessary to keep them from turning to illegal private lending," and added, "We are working to maintain a stable portfolio in line with the financial authorities' guidelines."