By Park Hyong-ki
The country's seven credit card companies saw their delinquency rates rise in the first quarter of this year, according to the Financial Supervisory Service (FSS), Monday.
This came as they increased their lending to the self-employed and households.
Given the economic slowdown, the borrowers faced difficulties in paying back their loans.
When they miss their repayment deadlines, the borrowers face the risk of their personal credit ratings being lowered.
If this happens, they will not be able to borrow from other financial companies, and end up going to private moneylenders for loans.
Those who have borrowed money from card companies have mostly been rejected from commercial banks.
Therefore, the rise in their delinquency rates could pose a greater risk to the financial market.
As for the credit card companies, their net profits could drop further as they will have to set aside more funds to cover potential losses from delinquencies or defaults.
However, credit card companies say their loan portfolios remain intact, despite the negative press raising the alarm on the year-on-year rate rise.
Shinhan Card, the biggest credit card company, acknowledged that the delinquency rate increased, but dismissed concerns about it.
"Yes, we had a slight increase of 0.01 percentage point in the first quarter of the year. But it is not time to panic as the rate will drop in the second quarter," a Shinhan Card spokesman said.
The FSS data showed the credit card sector's lending to households dropped 400 billion won ($380 million) in April from the same period a year ago.
Given that card loans account for a small portion of their overall business, industry sources say the first-quarter rate rise should not be a concern.
"Lending is regulated. This means we cannot extend it as much as we like. The increase in the first quarter was a one-off effect due to the slowdown," a Hyundai Card spokesman said.
A card source said companies' risk management operations have been in full gear because of the slowdown.
This will help them to efficiently manage their finances and portfolios under the circumstances.
"The sector's risk management is in full force. Do you really think its risk management capacity cannot contain less than a 1 percent increase?" the source said.
Nevertheless, the regulator said it will keep a watch on non-bank lending.
"We will stay vigilant to prevent a negative impact on the market," an FSS official said.