Borrowing to buy stocks, borrowing to cover living expenses — that is the profile of many South Koreans turning to credit card loans this year.
Card loans extended by South Korea's specialized credit card companies reached 56.1 trillion won ($40.4 billion) in the first half of this year, up 4.6 trillion won, or 9.0%, from 51.5 trillion won a year earlier, according to first-half operating results for specialized credit finance companies released by the Financial Supervisory Service on the 27th.
Short-term card loans, known as cash advances, slipped 0.8%, or 200 billion won, to 28.1 trillion won. Long-term card loans, called cardloan in Korea, jumped 20.9%, or 4.8 trillion won, to 28 trillion won.
Industry watchers point to two reasons the long-term loans alone grew so sharply. One is demand for leveraged investing that spread with the stock market rally. Investment money that once flowed into bank credit loans has shifted to card loans, where rules are relatively loose, analysts said.
"It is true that card loan demand has risen as leveraged investing increased with the stock market rally," an industry official said. Posts have also appeared one after another on online communities saying that borrowers have no choice but to stretch their finances to the limit by tapping even card loans to invest.
The other reason is the burden of living costs. As banks tighten their lending standards, more low- and middle-income households in need of quick cash are turning to card loans. With domestic demand weak amid the economic slowdown and only a few industries such as semiconductors enjoying a boom, the widening gap is pushing those who need immediate cash toward card loans, industry officials said.
A considerable number of borrowers rejected in bank loan screenings are also using card loans as an alternative, according to industry sources. Some small business owners whose sales have dried up are raising urgently needed payments through card loans.
Spending on credit and debit cards totaled about 635 trillion won, up 39.6 trillion won, or 6.7%, from a year earlier. Net profit at the specialized card companies rose 68.3 billion won, or 5.6%, to 1.2934 trillion won in the first half.
Asset quality indicators remained broadly stable. The delinquency ratio on total credit at card companies stood at 1.54% at the end of June, up 0.02 percentage point from 1.52% at the end of last year, while the ratio of substandard-or-below loans fell 0.02 percentage point to 1.13%.
The loan loss reserve ratio slipped 0.6 percentage point to 105.6%, but all card companies stayed above 100%. The adjusted equity capital ratio, a measure of capital adequacy, fell 0.3 percentage point to 20.8%, though every card company remained well above the 8% supervisory guidance level.
