When the soundness of credit card companies is needed

 Recently, the demand for revolving services by credit card companies has been increasing. At the end of June this year, the balance of revolving carryover by credit card companies (7 companies) in all industries was 6.5 trillion won, the largest since 2012, when the balance of revolving carryover was tallied.

This is an increase of 1 trillion won in two years. Revolving service is a service that pays only a part of the amount used in the payment month, and the remaining balance is delayed to the next. The revolving service usage fee is high, ranging from 14.83 to 18.52%. In fact, the revolving commission rate is a high-interest financial service that is close to the legal maximum interest rate (20%).

Based on the increase in high-cost revolving services, it is believed that a red light has been turned on for the soundness of credit card companies. This is because consumers who use revolving services are generally vulnerable borrowers. Moreover, an increase in the revolving balance at the time of the interest rate hike is likely to lead to delinquency. For reference, according to the Bank of Korea's announcement, the delinquency rate of vulnerable borrowers increased by about 2% during the past interest rate hike period (Q4 2016~Q1). However, the current time is expected to be faster than in the past, so the delinquency rate of vulnerable borrowers is expected to increase further.

Credit card companies that do not have reception functions have smaller capital sizes than banks and are vulnerable to liquidity risks. Moreover, if the money supply of multiple debtors using multiple cards is blocked, there is a concern that this may spread to loan insolvency in the credit card industry. Although regulations such as the obligation to accumulate additional loan-loss reserves and restrictions on the use of credit cards in preparation for the increase in multiple debtors, it is necessary to be wary of the rapid deterioration of debt.

Although the increase in revolving services is due to a decrease in household income due to high prices and the sluggish economy, policy improvement is also needed in that it is related to strict regulations on credit card loans (strengthening the application of the total debt repayment ratio by borrowers). Regulations on credit card loans, which are real-demand loans, will be tightened, and vulnerable borrowers who need urgent money are believed to be using revolving services instead of credit card loans.

In other words, the balloon effect of 구로셔츠룸 increasing the use of revolving services has occurred due to the strengthening of so-called card loan regulations. At first glance, from the perspective of credit card companies, it can be judged that an increase in revolving services with a high commission rate will lead to improved profitability. However, the increase in revolving services can be a burden on credit card companies as the increase in credit card companies' loan-loss reserves in preparation for insolvency risks is accompanied by an increase in costs.

According to my recent study, which analyzed the credit card companies' future risk perception, domestic credit card companies show remarkable characteristics. The actual amount of loan-loss reserves accumulated by credit card companies varies by credit card company, because credit card companies have a certain level of discretion. This is called discretionary provision for bad debts.

Therefore, there is a difference in the discretionary loan-loss reserve behavior according to the risk level determined by the credit card company. However, domestic credit card companies showed the characteristics of profit flexibility to avoid accumulating provision for bad debts when the level of profitability decreases. In other words, when a high level of net profit is expected, discretionary bad debt allowance is increased, and when net profit decreases, discretionary bad debt allowance is rather reduced.

This is interpreted because credit card companies do not want to increase profit volatility. This fact is of great concern in that if credit card companies are expected to see a decrease in profitability in the second half of the year, credit card companies may be passive in setting aside provisions for bad debts.

In fact, credit card companies' 신림셔츠룸 profitability outlook for the second half of this year is not very optimistic. This is because the financing cost of credit card companies will increase significantly as the benchmark interest rate rises.

Recently, the three-year interest rate on AA+ credit bonds has been rising steeply, surpassing 4%. The increase in financing costs should naturally lead to a rise in credit card loan rates, but the financial authorities' tightening of DSR (Debt Service Ratio) regulations on household loans and the weakening of discrimination between credit card companies, savings banks and Internet banks' lending rates are making it difficult to raise credit card loans. Moreover, it is not easy to arbitrarily raise interest rates on credit card loans at a time when credit card loan borrowers have shifted to blue-chip borrowers due to stricter regulations on DSR.

In the end, it is not easy for credit card companies to raise loan interest rates to increase credit card loan margins, which is expected to limit the profitability of loans.

Recently, I confirmed through a study that the proportion of credit card companies issuing high short-term loans related to financing negatively affects the profitability of credit card companies. This is consistent with the theoretical basis that the stability of financing contributes to enhancing the profitability of financial institutions. On the other hand, it was also confirmed that the increase in the issuance of liquidated securities helped improve the profitability of credit card companies.

However, looking at the recent procurement structure of credit card companies, it appears that they are increasing short-term financing such as corporate bills (CPs) instead of reducing the proportion of financing through credit card bonds. In the case of credit card companies in all industries with a high market share, short-term funds such as CP and electronic short-term bonds account for about 17-20% of total loans. In the case of some credit card companies, CP procurement has increased more than six times faster than corporate bond procurement in the past six months.

Also, according to data from the Financial Supervisory Service, credit card companies issued 38 trillion won in CP and electronic short-term bonds within one year of maturity in the first quarter of this year, up 62 percent from a year earlier.

The main reason why credit card companies are increasing the issuance of CP and electronic short-term bonds, which are short-term financing methods, is due to a sharp rise in interest rates on credit card bonds. In the case of CP, the short-term credit rating of the company is reflected, so interest rates are relatively low and the issuance process is not complicated. As a result, credit card companies' recent financing patterns also dim the outlook for improving profitability of credit card companies.

In conclusion, the soundness of credit card companies is severely threatened at a time when there is a possibility of a decrease in profitability or a slowdown in profit growth in the second half of this year.

For the time being, credit card companies 광명셔츠룸 need to escape from their passive behavior in accumulating discretionary bad debt provisions in preparation for a decrease in profitability. In addition, it is necessary to actively increase the provision for bad debts in preparation for the increase in rebolling services.

In addition, financial authorities need to consider easing DSR regulations on credit card loans for the time being to reduce the amount of revolving use that increases due to balloon effects caused by stricter regulations on credit card loans.