Credit card sector found most lucrative in finance

By Kang Seung-woo

Following the high risk, the credit card industry has been found to be the most lucrative sector in the financial sector, a report from the financial watchdog showed Tuesday.

According to the Financial Supervisory Service (FSS), return on assets (ROA) of local credit card companies averaged 5.45 percent last year, compared with banks’ 0.54 percent, capital firms’ 1.91 percent and savings banks’ minus 0.67 percent. The number of the secondary lenders is a record from July to December 2010.

ROA is a key profitability ratio which measures the amount of profit made per dollar on the assets that they own.

Card issuers’ ROA has been consistently higher than those of other financial players which have been between 4 percent and 7 percent over the past five years.

Their ROA tallied 6.91 percent in 2006 and peaked at 7.42 percent in 2007 before falling to 4.17 percent in 2008 due to the global financial crisis. It landed at 4.3 percent in 2009.

In comparison, banks have been stuck at around the 1 percent level in the cited period, ranging from 0.39 percent in 2009 to 1.11 percent in 2006.

The outcome came after Korean credit card companies saw their earnings surge 46.1 percent last year from a year earlier due to one-off gains.

The combined net profit of six local credit card-only companies reached 2.72 trillion won ($2.4 billion) in 2010, compared with 1.86 trillion won in 2009, according to the FSS.

In the card industry, leading players have put up solid numbers in terms of profitability last year.

Samsung Card posted 9.41 percent, while Shinhan Card and Hyundai Card logged 5.56 percent and 4.32 percent, respectively. Lotte Card came to 2.77 percent.

“Over the past four years, credit card companies’ ROA averaged 5.7 percent, while banks managed 0.8 percent,” said a Seoul-based analyst.

The solid figures in ROA have pushed local banks to spin off their credit card units.

Hana Financial Group, the nation’s No. 4 financial services company, launched an independent credit card business called Hana SK Card in 2009 in collaboration with telecommunications giant SK Telecom, while KB Financial, Korea’s largest financial holding firm, also separated from its card arm in March.

However, the profitable credit card sector bears external high-risk factors.

Its ROA tallied 0.37 percent in 2002, but it plummeted to minus 20.26 percent due to a crisis that involved more than 3 million people defaulting on their credit cards, indicating the industry is very sensitive to economic fluctuation.

For the banking industry, the biggest gap in ROA over the past 10 years was 1.86 percent, with minus 0.59 percent in 2000 and 1.27 percent in 2005.

Meanwhile, the nation’s credit card spending gained 16.3 percent in April from a year earlier due to a rise in consumer prices and increased consumer spending.