Card firms’ asset jump, more consumers spend on credit cards


As Korea’s credit card companies rush to increase their assets, worries are mounting over whether another bubble might be in the offing.

For Korean policymakers, the warning signs in the credit card industry bring back painful memories of 2002, when 4 million card holders defaulted and the entire economy was jeopardized as the bubble burst.

Credit card companies are eager to get bigger. As of the end of December, the combined assets of credit card companies reached 79.3 trillion won ($70.8 billion), a figure that surpassed the bubble-era peak of 78.9 trillion recorded in 2003.

The total assets have steadily gone up in recent years, with companies taking advantage of looser regulations.

Credit card spending also surged to 540 trillion won last year, up from 493.7 trillion the previous year, according to the Bank of Korea and the Credit Finance Association. And while the spending figure is still less than the 2002 peak of 622 trillion won, the rapid growth is causing concerns in the market.

More alarming is the expansion of credit loan services to individual customers. Outstanding credit card loans reached 28.2 trillion won in 2011, up about 300 billion won from the previous year. Cash advance service through credit cards amounted to 12.4 trillion won, with the default rate climbing to 1.8 percent, almost double the average of household debt.

The underlying reason for the jittery market sentiment over credit card statistics is the possibility that the country’s already precarious household debt situation could spin out of control if another credit card crisis arises.

Korea’s snowballing household debt, which is estimated at nearly 900 trillion won, is posing a major challenge to the economy already beset by hostile external conditions such as the eurozone fiscal debt crisis and a gloomy outlook for the global economy.

According to the Financial Supervisory Service, local credit card firms spent 583.4 billion won on marketing campaigns, including those for attracting new customers during the January-September period last year. The yearly total is estimated at upwards of 600 billion won.

Due to heated competition, the total number of cards issued by Korean companies stood at a record 122 million as of December last year.

As long as credit cards are issued to customers with solid credit records, there’s no reason for panic. However, the recent credit card boom is leading to a spike in the issuance to low-credit customers. In 2010, the number of cards issued to those with lower credit history was about 1 million, up from 640,000 a year earlier.

The Credit Finance Association, which represents the credit card industry, claimed that holding crisis talks would not reflect reality. It said today’s card industry is in a totally different situation compared with the liquidity crisis that hit companies hard in 2003, as a more stringent credit monitoring system is in place and risk management has been strengthened drastically.

By Yang Sung-jin (insight@heraldcorp.com)