December 11, 2003
Delinquency ratio in Korea hit 30%
The credit card industry in Korea suffers from higher delinquency ratio. Worri Cards see delinquency ratio to hit 30%, according to FT.
Woori Card sees delinquency ratio hit 30%
By Andrew Ward in Seoul
Published: December 10 2003 12:41
Woori Card, the credit card unit of South Korea's third-largest financial group, on Wednesday said its delinquency ratio hit a record high of 30.7 per cent in October, highlighting the crisis gripping the country's credit card industry.
The announcement came as the directors of Woori Financial, the parent group, prepared to meet on Thursday to decide how to rescue the troubled card business. Options include a share issue to raise cash or a merger with the group's flagship banking unit.
Woori Card is among companies mostly badly hit by the bursting of a consumer credit bubble in South Korea this year.
Default rates have been surging in the past few months, as households find themselves unable to repay heavy credit card debts after the country's economy entered a slump and lenders cut off fresh credit.
LG Card, which was most severely hit by the country's consumer credit problems, was saved from bankruptcy last month by a $1.7bn creditor bail-out.
Woori's delinquency ratio - the proportion of payments overdue by more than one month to total payments receivable - was up from 26.4 per cent at the end of September.
A Woori spokesperson said the higher ratio reflected the group's more prudent classification of loans than other lenders. He said Woori's listing on the New York Stock Exchange in September had forced the group to become more transparent and conservative.
Rival lenders kept their delinquency ratios artificially low by refinancing loans that were unlikely to be paid, said the Woori official.
However, analysts said Woori's high delinquency ratio reflected the relatively poor quality of its customer base. "Woori was late getting into the credit card market," said one analyst. "By the time it started recruiting customers, the credit cycle was already turning down."
Woori is planning to issue Won600bn ($506m) in asset-backed securities later this month to help ease the financial strains.
A decision to merge Woori Card with Woori Bank would be an embarrassment to the parent group because the card unit was spun off less than a year ago. Korea Exchange Bank and Kookmin Bank have both folded their troubled card units back into their core banking units in recent months.
The number of consumer credit delinquents in South Korea hit a record high of 3.6m at the end of October, out of a population of 47m. Industry-wide average delinquency ratio is 11 per cent, compared with 4 per cent in the US.
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The customer database in credit cards/consumer finance industry is unlikely to be well organized in Korea, acording to my acquaintance. He says some Korean credit card is hit quite higher delinquency ratio by more than 50%...
The development of legal systems should be one of the reasons for a surge of personal bankruptcy. Bankruptcy looks not to be a shame as ever not only in Japan but in Korea.
What does happen in Korea?
Since Oct 1, 2003