Card Loan Balance Hits Record High... Will the 'Balloon Effect' in Non-Bank Lending Grow?
Card Loans Attract Borrowers for Investment and Living Expenses
Cash Advances and Revolving Payments Also Rise
"Caution Against Overinterpretation" as Calls for Prudence Grow
The outstanding balance of card loans has surpassed 43 trillion won, reaching an all-time high. As loan regulations tighten in the banking sector and demand for funds grows amid a bullish stock market, concerns are rising that demand is flowing into card loans, potentially intensifying the balloon effect in non-bank lending.
According to the Credit Finance Association of Korea on June 24, as of the end of last month, the card loan balance at nine credit card companies (Lotte, BC, Samsung, Shinhan, Woori, Hana, Hyundai, KB Kookmin, and NH Nonghyup) stood at 43.2534 trillion won, up 270.4 billion won from the previous month. The card loan balance, which was 42.585 trillion won at the end of January this year, continued to rise in February and March, saw a slight decrease in April, but increased again in May, surpassing the 43 trillion won mark.
Industry experts believe that temporary demand for funds in May, a month with many family-related expenses, along with the balloon effect from tighter bank lending regulations, contributed to the increase in card loans. As banks continued to reduce credit loan limits and strengthened the management of overdraft accounts, some demand shifted to card loans. An official from the credit card industry stated, "It is true that as banks faced stricter total household loan regulations, some demand has moved to card loans," adding, "However, it would be excessive to interpret the card loan balance figures alone as a sign of a sharp surge in demand."
There are also suggestions that, amid the recent bullish stock market, some borrowers may have used card loans as investment funds. Although card loans carry higher interest rates than bank loans, the process is relatively simple, and it is difficult to track the use of funds, making it easier for short-term demand to flow in.
Other short-term loan indicators are also on the rise. As of the end of May, the outstanding balance of cash advances stood at 6.5037 trillion won, up by more than 300 billion won from the previous month. The revolving payment balance also increased slightly to 6.7998 trillion won. There are concerns that the growing balance of refinancing loans—where borrowers take out new card loans to repay existing ones—is increasing the repayment burden on borrowers.
Financial authorities are closely monitoring the upward trend in card loans. The Financial Supervisory Service recently reviewed some card companies, where card loan balances have grown rapidly, to check their compliance with household loan management limits and their internal risk management. Some card companies are said to be considering temporarily suspending the exposure of credit loan products on loan comparison platforms, adjusting card loan limits, managing inflows by channel, and tightening screening criteria. These measures are intended to align with the authorities' policy of managing overall loan volumes by adjusting the speed of new originations.
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Meanwhile, as the interest rate on specialized credit finance bonds (asset-backed securities issued by card companies) remains high, the funding burden for card companies is also increasing. Unlike banks, card companies cannot raise funds through deposits and instead rely on market-based funding, such as issuing credit finance bonds. If elevated funding costs persist, upward pressure on card loan interest rates could result. However, considering the financial authorities' stance on household debt management and competition among financial sectors, it is unlikely that card loan rates will rise sharply in the short term. An official in the financial sector commented, "Card companies are currently having to manage increased loan demand, regulatory controls on total loan volume, and rising funding costs all at once."
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