The credit card debt balance has increased for two consecutive months... The "borrowing from Peter to pay Paul" style of refinancing is also rapidly increasing.

Due to loan regulation, the credit card loan balance, which had previously stagnated, resumed growth for two consecutive months in October and November of last year. Especially with an increase in re-lending loans among credit card companies, amid an economic slowdown and banking industry loan restrictions, household financial conditions are showing signs of increasing tension.

According to the Credit Finance Association, as of the end of November 2023, the credit card loan balances of the nine major credit card companies (Lotte, BC, Samsung, Shinhan, Woori, Hana, Hyundai, KB Kookmin, NH Nonghyup Card) totaled 42.5529 trillion KRW, a 1.14% increase from the previous month. This is the highest monthly growth rate in over a year, and following a 0.57% increase in October, it has maintained an upward trend for two consecutive months. This stands in stark contrast to the four consecutive months of decline from June to September last year.

Credit card loans are generally easier to process and have lower approval thresholds than bank credit loans, making them a primary financial tool for those with urgent funding needs. In June last year, the Financial Committee, aiming to strengthen household debt management, limited the total credit loan amount to about 100% of an individual’s annual income, including credit card loans. As a result, demand for credit card loans temporarily contracted but rebounded to growth in the fourth quarter.

Of particular note is the increase in the balance of credit card re-lending loans. This refers to customers who, unable to repay their existing credit card debt, borrow again from the same credit card company to pay off old debts. The balance of these loans grew from 1.3611 trillion KRW in September to 1.5029 trillion KRW in November. Industry experts believe that since the fourth quarter, due to stricter household loan total restrictions by commercial banks, consumers who find it difficult to obtain loans from banks have increasingly turned to credit card companies.

Behind this trend are also structural factors such as the overall economic slowdown and deterioration of private funds. Some individual investors, seeking to ride the wave of rising stock prices, have re-engaged in “borrowing for investment.” In November, it is also believed that the delayed demand for funds following the Mid-Autumn Festival in October contributed to this surge.

The credit card industry expects the situation to remain challenging this year. On one hand, fee income from traditional revenue sources has decreased due to lower merchant fees; on the other hand, loan business growth is limited by regulatory controls. Korea’s credit rating agencies forecast that the credit card industry will have to continue its cautious and conservative management approach this year.

This trend is likely to persist in the short term. If the banking industry maintains its conservative lending stance, credit card loans as an alternative channel for urgent funding needs may continue to grow. However, given the ongoing high interest rate environment, managing household interest burdens and overdue risks will become increasingly important issues.