Increasing Fund-Raising Costs Corner Card Firms
By Na Jeong-ju
Staff Reporter
Credit card firms face a gloomier business outlook amid rising fund-raising costs and dwindling fee income.
Analysts forecast card issuers will see their net profits drop by 15 percent next year, if they fail to improve their bottom lines.
As of the end of November, the average interest rate on 3-year bonds issued by card firms reached 6.55 percent, up 1.4 percentage points from the end of last year. In light of the fact that card firms raise some 60 percent of operating capital by issuing bonds, the interest rise caused some 50 billion won in losses to each card firm.
``Usually, card firms pay higher interest than banks to issue bonds. Money market rates have also surged recently, adding pressure on card firms,'' an official from Shinhan Card said.
Dwindling fee income is also one of their main concerns.
Last month, card firms cut payment service fees for shops and stores. Large-sized issuers are expected to suffer up to 130 billion won in losses, and smaller issuers' net income will dip by up to 70 billion won due to the cut.
This accounts for about 10 percent of their annual net profits, according to card firms.
After months of controversy, regulators ordered the firms to cut fees charged to small retail shops, benefiting 1.47 million stores, or nearly 92 percent of the country's 16 million businesses taking plastic as a payment option.
In the third quarter, card firms saw their profits decline by 45.2 percent from three months ago on increased corporate taxes and sluggish growth in card issuance, according to the Financial Supervisory Service.
The combined net profits of five card issuers unaffiliated with banks _ Lotte, BC, Samsung, Shinhan and Hyundai _ came at 449 billion won in the July-September period, falling 45.2 percent from 818 billion won in the second quarter.
Samsung Card posted the largest drop in earnings among all card issuers, falling 73.1 percent to 78.8 billion won.
Shinhan Card, the country's largest card firm, also saw its net profits fall 36.8 percent to 247.8 billion won.
Hyundai Card posted 52.3 billion won in net profits in the third quarter, down 27.1 percent from the second quarter, while Lotte Card recorded a drop of 11.2 percent to 34 billion won.
``Most independent card firms will see their income drop significantly, while engaging in escalating competition with bank-affiliated issuers,'' said an official from the Credit Finance Association, which represents card issuers.