Economic Downturn Fuels credit Card Debt Crisis

South Korea’s credit card companies are facing a significant challenge as delinquency rates have surged to levels not seen in nearly a decade. This concerning trend reflects the broader economic struggles impacting households and businesses alike.

Rising Delinquency Rates Across Major Card Issuers

Data reveals a consistent pattern of increasing delinquency across major card issuers in the first quarter of 2025:

• Hana Card: Reached a delinquency rate of 2.15%, marking the highest point since December 2014. This represents an increase of 0.21 percentage points year-over-year and 0.28 percentage points from the previous quarter.
• KB Kookmin Card: Reported a delinquency rate of 1.61%, a 0.31 percentage point increase from both the same period last year and the previous quarter. This is the highest since the end of 2014.
• shinhan Card: Experienced a delinquency rate of 1.61%, the highest since the end of 2015, with increases of 0.05 and 0.10 percentage points, respectively.
• Woori Card: Saw a delinquency rate of 1.87%, up 0.40 percentage points from the first quarter of the previous year and 0.43 percentage points from the end of last year.

Card Loan Rates Reach Multi-Year Highs

Adding to the financial strain, the average card loan rate among nine major card companies climbed to 14.83% annually last month. This represents the highest level in two years and three months, since December 2022, making borrowing more expensive for consumers already struggling with debt.

Vulnerable Borrowers Bear the Brunt

Industry experts point to vulnerable borrowers, notably small business owners and self-employed individuals, as being disproportionately affected by the rising delinquency rates. These groups frequently enough face fluctuating incomes and limited access to traditional financing, making them more reliant on credit cards and more susceptible to economic downturns.

The delinquency rate is rising, especially in vulnerable borrowers such as small business owners and self -employed workers.
Card Industry Official

Economic Factors Contributing to the Crisis

The surge in delinquency rates is attributed to a confluence of negative economic indicators, including sluggish domestic economic growth and an overall slowdown in economic activity. These factors are impacting consumers’ ability to manage their debt obligations.

The delinquency rate has risen due to various economic indicators such as sluggish domestic economic growth and slowing economic growth.
Financial Analyst

Reliance on Alternative Lending Options Increases

As traditional bank loans become harder to secure, individuals are increasingly turning to card loans and insurance contract loans as alternative sources of funding. This trend is reflected in the growing balances of these types of loans.

Card loan balances reached a record high of ₩42.98 trillion in February of this year, before slightly decreasing to ₩42.37 trillion at the end of last month due to bad debt depreciation. Insurance contract loans also saw a significant increase, reaching ₩71.6 trillion at the end of last year, up from ₩68 trillion at the end of 2022 and ₩71 trillion at the end of 2023, according to the Financial Supervisory Service (FSS).

Card Companies Focus on Soundness Management

In response to the rising delinquency rates, card companies are prioritizing soundness management to mitigate risks and protect their financial stability. These measures include:

• Enhanced customer grade assessment
• Close monitoring of customer groups
• strengthened asset management

These efforts are aimed at minimizing risks associated with non-performing loans and navigating the uncertain economic landscape.

We plan to minimize risks through customer grade, monitoring management by customer group, and strengthening soundness management by asset, and actively respond to negative impacts of internal and external economic uncertainty.
Card Company Official

Economic Recovery Key to Stabilizing Delinquency Rates

Industry experts emphasize that a sustained economic recovery is crucial for stabilizing delinquency rates and alleviating the financial pressures on borrowers. Until the economy rebounds,card companies will likely continue to face challenges in managing credit risk.

The delinquency rate will be stabilized only if the economic recovery is to be stabilized.
Card Industry Expert