Card spending in South Korea has experienced a significant surge due to increased travel demand and domestic consumption recovery, but the financial performance of Korean card companies has worsened, primarily driven by rising borrowing costs and an increase in delinquency rates.

According to the Credit Finance Association’s data on Tuesday, the approved amount for individual card transactions in the second quarter of this year totaled 237.7 trillion won ($185.4 billion), up 5.1 percent from a year ago. The number of approved transactions also rose by 7.1 percent, totaling 6.67 billion cases. Corporate card approvals, on the other hand, fell slightly by 0.2 percent to 54.6 trillion won, but the number of transactions surged by 38 percent, reaching 400 million.

Despite the growth in overall card sales, major card companies experienced a decline in their first-half net profits. Hana Card saw its first-half net profit shrink by 39 percent, amounting to 72.6 billion won, while Woori Card’s net profit also contracted by the same percentage to 81.9 billion won. The industry leader, Shinhan Card, witnessed a 23 percent on-year decrease in its first-half net profit, recording 316.9 billion won. KB Kookmin Card’s net profit fell by 22 percent to 192.9 billion won, and Samsung Card managed a relatively successful defense with a modest 8 percent decline, reporting a first-half net profit of 290.6 billion won.

These results can be attributed to the impact of increasing borrowing costs. According to the Korea Financial Investment Association (KOFIA), the interest rate on AA+ rated bonds issued by local card companies dropped to the low 3.8 percent range in March, but by the end of June, it had risen to 4.306 percent. Furthermore, on July 7, it even hit 4.400 percent. Korean card companies typically procure about 70 percent of their required funds through issuing bonds.

Adding to the financial pressures, the rise in delinquency rates further compounded their challenges. As a safeguard against defaults, card companies have increased their provisions for credit losses. For instance, Shinhan Card’s provision for credit losses during the first half amounted to 373.3 billion won, up 44.8 percent from a year ago. KB Kookmin Card also significantly augmented its provisions by 66.9 percent, totaling 332.4 billion won during the same period.

By Myung Ji-ye and Minu Kim

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