Credit card installment purchases hit 15-year high: report
Credit card installment purchases rose to a 15-year high in the first quarter of this year as household tried to reduce their repayment burden in the face of mounting debt, a report showed Sunday.
The Credit Finance Association of Korea report showed 17.4 percent of all card purchases made in the January-March period were installments, the highest reached since 19.2 percent tallied for the whole of 1997, when the country was rocked by the Asian financial crisis.
Reflecting this, credit card firms' earnings generated by installment fees rose sharply in the three month period, compared to the year before.
The latest findings showed Samsung Card Co. and KB Kookmin Card Co., both reporting higher earnings. Samsung and KB Kookmin reported earnings reaching 161.5 billion won ($141.6 million) and 50.1 billion won, respectively. Other credit card companies such as Lotte Card Co. also said they made more money through installment fees.
South Korean households are struggling to cope with debt hovering at around 850 trillion won. This condition is further exacerbated by slow economic growth caused by eurozone woes and problems facing the global economy as a whole. Asia's fourth largest economy is expected to grow 3.3 percent in 2012, down from 3.6 percent last year.
"A rise in installment purchases is a sign of hard times because it shows people are strapped for cash, and can only buy more expensive products by spreading out their repayment over several months," the association said.
It, meanwhile, said that despite people buying products through installment, fewer people opted to use cash withdrawal services offered by credit card companies.
In the first quarter, the percentage of cash services made up about 14 percent of all transactions using plastic.
The drop is the lowest reached and is mainly due to card companies charging a very high interest rate of 20 percent for this service.