Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Murky earnings prospects prompt credit card firms to push staff into early retirement
Financial Services Commission Chairman Koh Seung-beom speaks during a meeting with leaders of card firms here in Seoul, Nov. 17. Joint Press Corps-Yonhap
By Lee Min-hyung
By Lee Min-hyung
Card companies are expected to push more employees to apply for early retirement next year, amid growing fears of possible declines in their earnings due to the introduction of tough regulations.
The companies are making preemptive moves to reduce risks at a time when most credit card firms will not be able to achieve drastic earnings growth in 2022, when an unprecedentedly tighter set of regulations will take effect.
Ten employees from KB Kookmin Card have already applied for voluntary retirement this year, in exchange for receiving 36 months of a worker's average monthly salary. Lotte Card also recently put up a notice on voluntary retirement. Those who worked for more than a decade can apply for retirement and can receive up to 48 months of their monthly salary.
No other card companies here have confirmed their plans to initiate similar early retirement programs this year, but industry watchers expect most of them to do so in 2022, due to murky earnings outlooks. Talks are underway between Woori Card's labor union and management over whether to introduce the program.
The nation's eight major card firms, including Samsung Card and Shinhan Card, saw their cumulative net profit during the first three quarters of this year reach a combined 2.22 trillion won ($1.84 billion), up 32 percent from the previous year.
This increase was driven by revived private consumption after the initial outbreak of COVID-19 weakened consumer sentiment throughout last year.
But this will not be the case next year, as financial watchdogs are moving to introduce tighter rules on household lending using the debt service ratio (DSR). DSR is used to gauge how much financial burden a borrower should take on when paying for the principal and interest on their loans. It is calculated by dividing the borrower's total debt payment by their total income.
Credit card loans have so far been excluded when calculating DSR, but starting from the beginning of 2022, the Financial Services Commission (FSC) has decided to include card loans as well, saying that the move will help curb escalating household debt.
Customers will then be less motivated to take out card loans, whose interest rates are much higher than those of conventional banks. It is feared that this situation will weaken card firms' earnings growth next year.
Card companies will also have to charge lower processing fees in 2022 after the FSC announces a revision of the incumbent card processing fee system later this month.
“The business environment of the card industry will likely take a turn for the worse next year, due to these multiple regulatory hurdles, even at a time when the pandemic shock is showing no signs of abating,” an industry source said.