The Financial Supervisory Service of South Korea is tightening its supervision of the country’s credit card companies over concerns that rising card loans may lead to an unmanageable default crisis, the regulator announced Apr 25.
The agency plans to establish a division to supervise and inspect card issuers, a spokesperson for the financial services regulator tells PaymentsSource. Setting up the new division is a preemptive move aimed at combating the rise in credit card loans and cash advances issued to borrowers with low creditworthiness, he adds.
“We will respond preemptively to block any expansion of credit card firms’ small-amount credit loans in the near future,” the spokesperson says.
Loans issued through credit cards jumped 19% last year, outperforming the rest of the financial sector, where lending grew by an average of 6.3%, the agency noted in a statement.
The Financial Supervisory Service in March this year warned card issuers of an impending default crisis similar to the one that rattled the country in 2003 (
Revolving loans grew to 5.5 trillion won (US$5.1 billion or 3.5 billion euros) at the end of last year from 5.1 trillion won a year earlier, according to the Financial Supervisory Service.
The combined assets of the country’s card issuers reached 75.6 trillion won at the end of 2010, close to the critical level of 78.9 trillion won at the end of 2003, when the last crisis occurred, according to the regulator.
In addition, the sales force employed by the issuers reached 50,000 as of the end of December, up 30% from 35,000 a year earlier.
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