Credit Card Use Grows on Inflation, High Oil Prices

Despite lower consumer spending amid the economic slowdown, credit card companies are seeing sales rise due to the growing use of plastic and inflation, a report said yesterday.

The country’s five major credit companies - Shinhan, Samsung, Hyundai, Lotte and BC – posted combined operating profits of 3.34 trillion won (2.64 billion U.S. dollars) in the third quarter this year, up 28.4 percent from the same period last year. Their net profits for the third quarter was 445.4 billion won (352 million dollars), up 4.65 percent.

“Rising inflation, including soaring oil prices, led to an increase in credit card payments,” said an official at the Credit Finance Association of Korea. “A growing number of credit card franchises and diverse benefits also raised credit card use more than before.”

The increase in net profit, however, was outpaced by that of sales due to a drop in handling fees charged to small-size card franchises. Rising borrowing costs stemming from the global credit crunch also ate away the profits of credit card companies.

Bracing for worsening economic conditions in the latter half of the year, the credit card industry is refraining from aggressive marketing. Four of the five credit card companies saw cash advances rise a meager 1.4 percent in amount in the second quarter and that of card loans drop 2.5 percent over the same period.

rews@donga.com