Card companies' card loan volumes rise in Q1, but revenue falls on inclusive finance push

South Korea's dedicated card companies saw their card loan volumes rise in the first quarter compared with both the previous quarter and a year earlier, though revenue from the business declined as the industry expanded its inclusive finance offerings.

According to the Financial Supervisory Service's financial statistics information system, the eight dedicated card companies — Lotte, BC, Samsung, Shinhan, Woori, Hana, Hyundai and KB Kookmin — extended a combined 10.97 trillion won ($7.29 billion) in card loans in the first quarter, up 4.1 percent from 10.53 trillion won in the previous quarter and 2.8 percent higher than the same period last year.

The rise in new lending also pushed up outstanding balances. Card loan assets at the eight firms reached 39.68 trillion won at the end of the first quarter, up roughly 400 billion won from 39.29 trillion won a year earlier.

Despite the asset growth, revenue moved in the opposite direction. Card loan revenue totaled 1.31 trillion won in the first quarter, down 16.5 billion won from 1.32 trillion won a year earlier and 15.7 billion won below the previous quarter.

The decline reflects lower average lending rates as the industry ramped up mid-tier loan supply in line with the broader push for inclusive finance. The average rate charged by the eight card firms fell from 14.64 percent per annum in the first quarter of last year to 13.50 percent in the first quarter of this year. Over the same period, mid-tier loan volume nearly doubled, rising from 1.26 trillion won to 2.57 trillion won.

Tighter household lending caps on banks also played a role. Stricter government regulations blocked some high-credit borrowers from obtaining bank loans, pushing them toward card loans instead and pulling the average lending rate lower.

With the government continuing to stress the importance of inclusive finance, card loan profitability is expected to keep deteriorating. Tightened household lending caps now applied across the entire financial sector are an additional drag on margins. As of Sunday, KB, Shinhan, Hana, Woori and NH NongHyup banks had collectively used up 78 percent of their annual household lending quotas for this year.