Eight major Korean credit card companies adjusted their card loan interest rates in May, with rates decreasing for low-credit borrowers and increasing for high-credit borrowers. According to the Korea Federation of Credit Finance Associations, the average interest rate across all eight companies (Lotte, BC, Samsung, Shinhan, Woori, Hana, Hyundai, KB Kookmin) fell 0.03 percentage points from 13.57% in April to 13.54% in May. For borrowers with credit scores below 700, rates dropped 0.09 percentage points from 17.18% to 17.09%, while borrowers with scores above 900 saw rates rise 0.47 percentage points from 10.52% to 10.99%. The divergent rate adjustments reflect card companies' response to the government's inclusive finance policy and regulatory incentives that exempt mid-rate loans from up to 80% of total household loan volume calculations. This rate adjustment occurs as card companies face a 1.5% annual household loan growth cap and rising funding costs, with financial bond rates (AA+/3-year maturity) climbing from 3.3% in January to over 4.2% by end of May.
Card Companies Lower Rates for Low-Credit Borrowers While Raising Rates for High-Credit Borrowers
Four of the eight major card companies — Lotte Card, Samsung Card, Hyundai Card, and BC Card — exhibited the pattern of raising rates for high-credit borrowers while lowering rates for low-credit borrowers. Samsung Card increased rates for borrowers with credit scores above 900 by 2 percentage points, from 12.86% to 14.86%, exceeding the industry average increase of 0.06 percentage points. For borrowers with scores below 700, Samsung Card reduced rates by 0.05 percentage points, from 17.54% to 17.49%. Lotte Card raised rates for high-credit borrowers by 0.15 percentage points from 10.5% to 10.65% and lowered rates for low-credit borrowers by 0.13 percentage points from 17.78% to 17.65%. Hyundai Card increased high-credit borrower rates by 1.05 percentage points from 10.84% to 11.89% and decreased low-credit borrower rates by 0.39 percentage points from 17.58% to 17.19%.
Financial Bond Rates Rise from 3.3% in January to Over 4.2% by End of May
Funding costs for credit card companies rose steadily during the period of rate adjustments. According to the Korea Financial Investment Association's Bond Information Center, the interest rate for financial bonds (Financial Institution Bonds II/Unsecured/AA+/3-year maturity, average of 5 rating agencies) increased from 3.3% in January to over 4.2% by end of May. Credit finance companies without deposit-taking functions rely on bond issuance as their primary funding source. Funding costs typically reflect in final loan rates with a 3-to-4-month lag. Card loan balances reached an all-time high in May. Financial authorities summoned card companies showing concerning household loan growth trends and instructed them to manage lending proactively. Card companies currently report daily, weekly, and monthly loan trends to authorities.
Government Inclusive Finance Policy and Mid-Rate Loan Incentives Drive Rate Adjustments
Industry sources identified the government's push to expand lending to low- and mid-credit borrowers as the primary factor driving rate reductions for low-credit segments. A Lotte Card official stated, "We have been expanding mid-rate loan offerings in line with the government's inclusive finance expansion policy." Regulatory incentives for mid-rate loans also contributed to the rate adjustment pattern. Authorities exempt mid-rate loans from up to 80% of total household loan volume calculations to ensure adequate supply capacity. Card companies must manage household loan growth within 1.5% for the year. One industry official analyzed, "Institutional factors such as the mid-rate loan exemption incentive that reduces impact on household loan growth rates appear to have acted as positive factors for mid-rate expansion." Another industry official noted, "There is an atmosphere that card companies need to increase inclusive finance even if it means giving up margins. Since mid-rate loans also receive incentives under household loan quota regulations, it seems companies considered this comprehensively." A third industry official stated, "From an inclusive finance perspective, some card companies are increasing marketing to people with low credit scores to actively supply loans, while reducing marketing to high-credit borrowers due to concerns about not meeting total volume regulation limits if they lend too much to high-credit borrowers."
Mid-Rate Loan Products Scheduled for Launch This Month and Saitdol Loan in October
Additional mid-rate loan product launches are scheduled for the second half of the year. The private "Mid-Rate Living Stability Loan" for low- and mid-credit borrowers, which began sales at six savings banks at end of last month, is expected to launch in the credit finance sector this month. The credit finance industry initially considered launching last month but the timeline was delayed due to IT system coordination issues. The Saitdol Loan, a policy-backed guaranteed product for mid-credit borrowers that the credit finance sector will newly offer, is scheduled to launch in October.
FAQ
Why did Korean card companies lower rates for low-credit borrowers while raising rates for high-credit borrowers in May?
Card companies adjusted rates in response to the government's inclusive finance policy and regulatory incentives that exempt mid-rate loans from up to 80% of total household loan volume calculations. This allows companies to expand lending to low- and mid-credit borrowers while managing the 1.5% annual household loan growth cap.
What specific rate changes occurred for different credit score brackets in May?
For borrowers with credit scores below 700, the average rate decreased 0.09 percentage points from 17.18% to 17.09%. For borrowers with scores above 900, the average rate increased 0.47 percentage points from 10.52% to 10.99%. The overall industry average fell 0.03 percentage points from 13.57% in April to 13.54% in May.
When will new mid-rate loan products launch in the Korean credit finance sector?
The private "Mid-Rate Living Stability Loan" for low- and mid-credit borrowers is expected to launch this month in the credit finance sector after beginning sales at six savings banks at end of last month. The Saitdol Loan, a policy-backed guaranteed product for mid-credit borrowers, is scheduled to launch in October.
