Card Issuance Yield at 4.64%... Card Firms Face 5 Trillion Won Refinancing Burden
The U.S. Federal Reserve raised its benchmark interest rate by 0.25 percentage points to 3.75–4.00% in the early hours of Thursday, Korea time. Of the 19 Fed officials, 18 expected further hikes within the year. The three-year Treasury yield closed at 4.053% on the 16th.
Rising interest rates drive up borrowing costs. With the Bank of Korea raising rates for two consecutive months and the United States now following suit, funding cost burdens on non-bank financial institutions such as card firms are growing. According to the financial industry on the 17th, the BOK raised its benchmark rate to 2.75% in July and 3.00% on August 27, leaving the door open to further hikes.
Against this backdrop, the eight specialized card companies face the burden of refinancing 5.176 trillion won in bonds maturing by year-end. Hyundai Card carries the largest amount at 1.49 trillion won, followed by KB Kookmin Card at 1.24 trillion won. Rising funding costs have been passed on to loan rates, with the average card loan rate at the eight firms rising from 13.93% in January to 14.14% in August.
As of the 15th, the average one-year fixed deposit rate at 79 savings banks stood at an annual 3.74%, down 0.04 percentage points in a month. That is a 0.21 percentage-point drop in two months from 3.95% on July 8. In contrast, the same product at the five major commercial banks rose 0.14 percentage points to 3.35%, narrowing the rate gap between the two sectors to 0.39 percentage points. With household lending in the first half limited to 3.96 trillion won, savings banks have few avenues to deploy funds and have been forced to lower deposit rates. Meanwhile, community credit unions and cooperatives are raising fixed deposit rates to around 3.7% and rolling out special products at 4.3% to attract funds.
The bigger concern is the wave of bad loans set to arrive with a lag. Korea Investors Service affiliate Korea Ratings estimated that the interest rate shock will be reflected about six quarters later, pushing savings banks' fixed asset ratio of substandard or below loans above 10% to 10.63% by the end of 2027, with capital firms reaching 3.10% and card firms 1.29%. In the first half, delinquency rates stood at 6.26% for savings banks and 5.87% for mutual finance institutions, with corporate loan delinquency rates reaching 8.38% and 9.1%, respectively.
An official from the savings banking industry said, "Savings bank deposit rates are still 0.3–0.5 percentage points higher than in other financial sectors, and with active loan expansion difficult, there is little incentive to raise additional funds. If benchmark and market rates rise sharply, deposit rate increases will be inevitable to maintain deposit competitiveness." A card industry official said, "We are flexibly adjusting the issuance timing and maturities of finance bonds and balancing our short- and long-term funding structure. We are diversifying funding sources through various instruments such as overseas asset-backed securities (ABS)."
