SEOUL, April 11 (Korea Bizwire) – Seven major credit card companies are being accused of exploiting their customers after reports emerged showing they profited handsomely from high-interest loans despite prevailing low interest rates.
Low interest rates in South Korea are seeing credit card companies enjoy some of the biggest profit spikes in recent years, with some companies reporting yields on procurement costs of up to 167 percent.
According to the financial statistics information system provided by the Financial Supervisory Service (FSS), the seven major South Korean credit card companies spent over 1.5 trillion won last year to pay off debt interest on private loans.
Despite the capital procurement expense, credit card companies earned nearly 4.4 trillion won in the same year.
The ratio of procurement expense to profit last year was 1 to 1.67, an increase of nearly 35 percent from the previous year.
Profit rates on personal loans by credit card firms have been on the increase since 2014, a point at which cash and loan services began to become profitable.
Among the major credit card issuers, Woori Bank boasted the highest profit rate at 205 percent, which means the profit they gained through interest charges was more than the original sum of money lent to their clients.
Shinhan Card and Hana Card followed close behind. Hana Card’s profit rate jumped 62 percent from the previous year, while Shinhan enjoyed the second biggest spike in profit rate with an increase of 58 percent.
Lotte Card was the only credit card firm to report a decrease in yields from last year.
The recent surge in profit rates credit card firms are experiencing is attributed to the low interest rates in South Korea, which maximizes the market opportunity for credit card firms when the interest rate of their financial services remain high.
While the procurement expenses for financial corporations fell 17 percent, interest rates for personal loans from credit card firms only fell 1.6 percent over the last year.
Jo Nam-hee, an official at the Financial Consumer Agency, said, “by procuring money at a low interest rate without lowering the interest rates of their services, credit card firms are trying to exploit the situation.
“Financial supervisory authorities need to launch an investigation into what is going on.”