South Korean Card Companies Post 5.6% Profit Increase in First Half, Driven by Consumer Spending

South Korea's credit card industry experienced a notable recovery in the first half of 2023, with major card companies reporting a 5.6% increase in net profit compared to the same period last year. The total net profit for the eight major card issuers reached approximately 1.29 trillion won (about $990 million USD).

This rebound follows a significant 18.3% decline in profits during the first half of the previous year. The improved performance is largely attributed to a resurgence in domestic consumption, which directly benefits card companies through increased transaction volumes. Key revenue streams, such as merchant fees and installment plan fees, saw substantial growth. Merchant fee revenue increased by 196.3 billion won, while installment plan fee revenue rose by 100.2 billion won, reflecting higher spending by consumers.

However, when adjusted for provisions for bad debts, the net profit figure stood at 926.6 billion won, marking a 26.0% decrease. This adjustment is due to an increase in provisions for unused credit limits. Financial regulators require financial institutions to set aside funds to cover potential future losses. In this case, the card companies increased their provisions for unused credit limits, which are considered potential credit risks by the Financial Supervisory Service (FSS), leading to a lower adjusted net profit.

The growth in private consumption is evident in the broader economic indicators, with real GDP showing private consumption increasing by 2.7% in the first quarter and 2.5% in the second quarter year-on-year. This sustained consumer spending has provided a favorable environment for the card industry's core business operations.