South Korea's love affair with plastic on the rocks

Shanghai Star. 2003-05-29

LEE Kyoung-shin had eight credit cards until last year. Now the 31-year-old school teacher carries only three and plans to scrap two more as her love affair with plastic fades.

Card issuers grappling with ballooning bad loans - one in 12 South Korean adults are now classified as credit delinquents - have recently stopped offering discounts at fancy restaurants, amusement parks and movie theatres. That takes away the very reason why Koreans carried more than four cards on average in their wallets at the end of last year.

"Some of my friends used to get credit cards as if they were collecting stamps," Lee said. "Like myself, they are dumping many of their cards. I think two is more than enough."

South Korea's US$97 billion credit card market, stimulated by tax incentives on card spending and aggressive marketing, grew about 50 per cent last year after almost doubling in 2001.

"Many credit card firms went overboard when they engaged in an aggressive card volume competition," said Lee Hyeon-hee, vice president of Kookmin Credit Card Co, South Korea's third-largest card issuer. "They issued cards to students and people without jobs, literally anyone who came to them."

The bubble burst late last year as the economy started sputtering, and now about 10 per cent of credit card debt is more than one month overdue in Asia's fourth-largest economy.

Suicides

In a sign of the devastating impact of card debt, a 60-year-old man killed himself last month after agonising over his daughter's card debt, which had reached more than US$120,000.

"She is 30 years old, has no job and there is no way for me to repay the bill, given that my total assets are just 23 million won (US$19,230) in housing rent fees," he wrote in a suicide note addressed to President Roh Moo-hyun.

"I am indignant about credit card companies issuing credit cards to my daughter who has no ability to repay."

A reckless spending spree on credit drove two young men in their twenties to hang themselves on Wednesday after running up more than 100 million won in card debt.

"A wrong use of credit cards swooped on me like a snare," said one in his will.

About 24,500 people killed themselves in the past two years, often over bad debts, police said.

Banks hurt

Card issuers are facing losses and plummeting stock prices from ballooning debt defaults, one of the big challenges facing South Korea's already twitchy financial markets.

The ratio of credit card payment overdue for more than one month crept back to around 10 per cent in April after months of government and industry efforts pushed it below 9.5 per cent in March, said executives at card companies.

Some analysts said card delinquency rates would remain high throughout this year as a slowing economy takes its toll on consumer income and strengthened regulatory controls on credit cards lead to more defaults. They, in turn, will hit card firms and banks.

Nine credit card companies have swung to a combined loss of 1.1 trillion won in the first quarter from a profit of about 700 billion won.

Shares in LG Card Co, the country's biggest card issuer, have fallen by around 60 per cent so far this year, lagging far behind the main stock index, which dipped 3.4 per cent in the period.

Never again

Card firms said they would also try to ban their customers from juggling with several different cards and take other stern steps to lower delinquency rates.

"In the past, card companies used to give a few more months to pay back if someone didn't repay credit card loans," said Jae Koo, a consultant at IBM Business Service Consulting Co. "But now they immediately halt services if I delay my payment by just one month. I have become more careful in using credit cards."

The value of credit-card-based transactions fell almost 14 per cent to 116.3 trillion won in the first quarter from the previous quarter, according to the Financial Supervisory Service.

"There may never be a credit boom again like the one we saw a couple of years ago," said Kim Seok-dong, a director general at the Financial Supervisory Service.

(Agencies via Xinhua)



Copyright by Shanghai Star.