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Card firms urged to curb issuance

Customers’ card payment ceilings likely to be slashed to reduce soaring household debt

Tough screenings are expected for applications for new credit cards, starting later this month, as financial authorities strengthen supervision of card firms.

Customers will also likely see monthly payment ceilings on new credit cards slashed sharply compared to the average ceiling on current cards, according to financial regulators.

As part of policymakers’ efforts to curb snowballing household debt, the Financial Services Commission will unveil measures against reckless issuance and high delinquency rate in the credit card industry in mid-December.

The FSC plans to introduce a system to urge card companies to rigidly assess customers’ income, property and credit standing before issuing cards.

Under the system, companies will have no choice but to lower customers’ payment ceiling.

The regulator will also instruct issuers to suspend usage of credit cards, which remain dormant for more than one year.

Dormant cards with no payment record for more than a year account for 27 percent of the total number of credit cards in the local market.

In addition, procedures for closing credit card accounts will be simplified.

As credit card issuers have entered an excessive business expansion mode, the FSC and the Financial Supervisory Service recently introduced “weekly monitoring.”

Under the instructions, companies have been obliged to set their own guidelines, curbing expansion, in three major business sectors ― company assets, card issuance and promotion budgets.

Meanwhile, credit card companies reported a 26.7 percent year-on-year drop in earnings for the first nine months of the year.

Card issuers have been fighting a marketing war since last year, vying for a bigger slice of consumer spending as it gets on track to recovery.

The competition led to sharp increases in card issuance and service loans, similar to the last industry crisis, in which the then-largest issuer LG Card and several others had to be rescued with creditors’ money.

According to the FSS, the combined net profit of six credit card companies came to 1.02 trillion won ($900 million) during the January-September period, compared to 1.39 trillion won over the same period last year.

The weaker bottom line came mainly due to increased loan-loss provisions amid tightened regulatory supervision on card firms’ risk management.

The six credit card companies set aside 863.7 billion won in loan-loss reserves during the nine months, more than three times more than the 266.2 billion won reserved in the previous year.

The average default rate of seven firms stood at 1.91 percent at the end of September, up 0.17 percentage point from 1.74 percent as of the end of June.

The FSS said the figure has been trending higher since the second quarter amid slowing asset growth and increased fresh delinquencies.

But the figure is still below the 3.02 percent tallied in 2008 and 1.86 percent in 2009.

By Kim Yon-se (
Korea Herald Youtube