Funding rates for card companies have risen by nearly 1 percentage point in six months, raising concerns about declining profitability in the second half of the year. While the first half of the year saw solid performance due to cost-cutting measures, analysts warn that rising funding costs and stricter household loan management could quickly diminish the ability to maintain these results.
According to the Korea Credit Finance Association on July 28, the average funding rate for eight major card companies, including Shinhan, Samsung, Hyundai, KB Kookmin, Lotte, Woori, Hana, and BC Card, was recorded at 4.39% at the end of last month. This marks an increase of 0.93 percentage points compared to the end of last year.
The funding rates published by the association are based on the average yield of three-year card bonds calculated by private credit rating agencies such as Korea Asset Evaluation, KIS Asset Management, and NICE P&I. This serves as a key indicator of the funding costs for card companies.
By company, the funding rates for Shinhan, Samsung, and KB Kookmin, which have relatively high credit ratings, rose from 3.42% to 4.33% during this period. Lotte's rate increased by more than 1 percentage point, reaching 4.74%.
The burden of funding costs continues into the second half of the year. According to the Korea Financial Investment Association, as of July 27, the average yield on three-year bonds rated AA+ was 4.459%, an increase of 0.231 percentage points from the end of last month. Following the Bank of Korea's decision to raise the benchmark interest rate by 0.25 percentage points this month, there are indications of a potential further increase next month, which is expected to exacerbate the funding burden for card companies.
Unlike banks, card companies cannot raise funds through deposits, making them highly dependent on marketable funds such as corporate bonds. When market interest rates rise, the cost of issuing bonds directly translates into increased financial costs, putting pressure on profitability.
In the first half of the year, four major card companies reported a combined net profit increase of 4.2% compared to the same period last year, thanks to cost efficiency. However, in the second half, the ongoing burden of funding costs, coupled with the government's stricter household loan management, is likely to limit the growth of more profitable businesses such as card loans. Concerns are also emerging that the expansion of mid-interest loan policies could lower the yield on loan assets.
A card industry official stated, “As the government's household loan management policy continues, it will be difficult to increase card loan assets in the second half as we did in the first half. If the benchmark interest rate is raised further, the ongoing rise in market interest rates will increase the burden of funding costs, further intensifying profitability pressure.”
* This article has been translated by AI.
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