Financial Authorities to Convene Card Issuers This Week to Block the 'Balloon Effect' of Lending Regulations

Record-High Card Loan Balances Prompt Urgent Review of Credit Finance Companies
Household Loan Oversight Expanded Beyond Banks and Insurers

This week, financial authorities will convene credit finance companies—including card issuers—to call for strengthened management of household loans. This marks the third industry-wide inspection following banks and insurers. In order to prevent the 'balloon effect' stemming from tightened lending regulations in the banking sector, authorities plan to further tighten oversight of unsecured loans in the secondary financial sector.

According to the financial industry on June 28, the Financial Services Commission plans to call a meeting of credit finance companies, such as card issuers that failed to meet the household loan growth management target, on either July 2 or 3. At the meeting, the commission will review the current state of loan management and discuss future response measures.

The decision by authorities to directly summon card companies comes in response to card loans reaching an all-time high. As of the end of last month, the outstanding card loan balances at nine card issuers—including Lotte, BC, Samsung, Shinhan, Woori, Hana, Hyundai, KB Kookmin, and NH Nonghyup Card—stood at 43.2543 trillion won, marking a record level.

This trend is attributed to both increased demand for leveraged stock investment amid greater market volatility and the 'balloon effect,' whereby demand has shifted to card loans as banks have reduced limits on unsecured loans.

Following the inspection by financial authorities, it is expected that card issuers will review their own management measures, such as adjusting card loan limits and tightening screening processes.

This year, the authorities lowered the household loan growth target for the financial sector to 1.5%, down from 1.7% last year. However, the outstanding balance of household loans across the financial sector has continued to rise for six consecutive months. The monthly increase has steadily expanded from 1.4 trillion won in January to 9.3 trillion won in May, with the upward trend persisting in June.

In fact, as of June 25, the outstanding household loans at the five major banks increased by 3.6735 trillion won. During the same period, household loans provided by credit finance companies and insurers also grew by 700 billion won and 600 billion won, respectively.

The growth in household loans is seen as the result of both the expanded demand for leveraged stock investments and the delayed impact of active housing transactions that occurred in April and May ahead of the end of the temporary suspension of increased capital gains taxes.

After convening card issuers, financial authorities also plan to summon certain mutual finance companies soon to review their household loan management. As group lending has increased particularly in parts of the mutual finance sector, authorities intend to strengthen supervision across the entire secondary financial sector.

This content was produced with the assistance of AI translation services.