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FSC to be tougher on credit card firms

The Financial Services Commission unveiled a comprehensive package to curb excessive competition among credit card companies on Wednesday, a precautionary measure to prevent another liquidity crunch amid growing risks of reckless card and loan issuance.

The financial regulator said it plans to induce issuers to offer reasonable supplementary services that would not harm their profitability and conduct regular monitoring of all six firms ― Shinhan, BC, Samsung, Hyundai, Lotte and Hana SK.

It will crack down on illegal activities like street sales and set up marketing rules during the first quarter of the year for companies to use as training and internal monitoring materials.

To rein in excessive lending, the FSC said it will also raise the coverage ratio for service loans and cash advances.

However, the agency noted that the credit card sector is “in sound condition,” given figures such as capital adequacy ratio, overdue rate and debt dependence, thanks to the generalization of credit cards and issuers’ continuous efforts in management improvement and strengthened risk control since 2003.

Still, symptoms of risk have been emerging, such as the swelling number of cards and ballooning service loans, which mirror LG Card’s credit crisis in 2003 in which the government bailed out the then-largest issuer and several others after millions had defaulted on payments.

As of September, the average number of cards owned by a Korean adult reached 4.59, topping the previous record of 4.57 in early 2003, according to the Credit Finance Association.

Combined card loans rocketed to 6.5 trillion won at the end of September, up almost 40 percent from 5.3 trillion won in March, FSC data showed.

Competition has intensified since last year among companies to lure more customers and provide more loans as consumption bounces back in the wake of economic recovery.

The five major card firms excluding BC poured 1.37 trillion won into marketing and promotion during the first three quarters of 2010, with around 585 billion won spent just between July and September, the FSC said.

The number of card salespeople surged to nearly 71,000 as of September, which once plummeted to about 17,000 in 2003 as a result of LG card’s woes, it added.

But the race is likely to get tougher this year, observers say, as major creditors such as Kookmin Bank, Woori Bank, Citibank Korea, the National Agricultural Cooperation Federation and Korea Exchange Bank are gearing up to spin off their credit card unit to enter the lucrative field.

By Shin Hyon-hee (