Credit, debit card spending up 6 percent, delinquency at 9-year high in 2023

Advertisements for card loans are adhered to a wall on a street in Myeong-dong, central Seoul, on Sunday. [YONHAP]

Card spending increased 6 percent on year in 2023, while the delinquency rate reached a nine-year high and nonperforming loans surged.

According to preliminary data from the Financial Supervisory Service (FSS) released on Monday, the volume of credit and debit card transactions rose 5.8 percent last year from the previous year to 1,139.3 trillion won ($853.4 billion). Credit card spending increased 6.5 percent to 941.8 trillion won, while debit cards saw a 2.5 percent increase to 197.5 trillion won.

However, the collective sum of annual net profit for eight card companies in Korea inched down by 0.9 percent to 2.58 trillion won. The decline was attributed to increased bad debt expenses and interest expenses, which cost them an additional 1.15 trillion won and 1.12 trillion won, respectively.

Card loans shrank 1.7 percent to 102 trillion won. Short-term card loans amounted to 57.5 trillion won, up 0.2 percent on year, while long-term loans decreased by 4 percent to 44.5 trillion won.

Meanwhile, the delinquency rate — which covers overdue payments including credit card bills, installments, and loans over a month late — jumped by 0.42 percentage points from the end of the previous year to 1.63 percent. The figure is the highest since 1.69 percent was posted in 2014.

The ratio of nonperforming loans out of total gross loans also increased by 0.29 percentage points to 1.14 percent during the same period.

However, the overall loss-absorbing capacity remains stable, according to the financial authority.

The bad debt coverage ratio, which indicates the card companies’ allowances for bad debts compared to nonperforming loans, increased by 3.2 percentage points to 109.9 percent by the end of last year. All eight card companies had a coverage ratio in excess of 100 percent, according to the FSS.

The risk-adjusted capital ratio, a gauge of a card company’s ability to mitigate financial risks, also rose by 0.4 percentage points to 19.8 percent, far surpassing the recommended 8 percent threshold.

Elsewhere, non-card credit finance companies saw a 20.7 percent drop in net profit last year to 2.7 trillion won, weighed down by interest and bad debt expenses. The delinquency rate stood at 1.88 percent, up 0.63 percentage points from the previous year.

“While the delinquency rate came in higher than the previous year, the bad debt coverage ratio has been improved and the risk-adjusted capital ratio also far surpassed the recommended level, which shows that the loss-absorbing capacity remains stable,” said the FSS in a release.

The regulator added that it will continue to encourage financial institutions to improve their loss-absorbing capacity to mitigate any potential liquidity risks.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]