Korea’s credit card spending jumped nearly 10 percent last year despite regulators’ policy that attempted to keep the purchases through plastic at bay, data showed Wednesday.
According to the Bank of Korea and the Credit Finance Association, the country’s credit card spending last year is estimated at upward of 540 trillion won ($478.5 billion) as of the end of 2011, up from 493.7 trillion won in the previous year.
The 2011 figure ranked second-highest after 622 trillion won recorded in 2002, a year before the credit card bubble burst with an impact that jeopardized the entire economy.
The updated yearly figure for 2011 was bigger than a former projection of 500 trillion won, underscoring that the country’s policymakers did not tame the surging demand for credit cards in buying new goods and securing fresh loans.
The financial authorities here implemented a series of policy initiatives aimed at reining in the snowballing household debt. One of the key measures was the tightening of loan channels at banks that resulted in a noticeable slowdown in retail lending.
But the demand for capital by Korean households did not subside. Rather it resurfaced in the credit card industry in the form of bigger purchases and more micro loans. Compared with going through a myriad of procedures to get a loan at banks, withdrawing a quick on-the-spot loan from credit card firms via ATMs is much easier, thanks to loose regulations.
The outstanding amount of household loans extended by credit card companies and credit finance firms, which stood at 38.2 trillion won in end-September, is estimated to top 40 trillion won in the first half of this year.
The drastic increase of credit card use, especially given that some of the money involved credit card loans, is seen as a worrying sign.
Korea’s broader economy faced steep downward pressure last year, with demand from overseas falling and domestic spending also in a slump.
The regulators intensified the move to limit the use of credit cards from August, but the monthly amount of money handled by credit cards was still hovering at 45-46 trillion won.
In December, consumers spent more through their credit cards to buy presents and other big-ticket items, raising the figure to 50 trillion won.
Korea’s total household credit that includes bank loans and credit purchases is estimated at some 900 trillion won, an alarming level that has pushed the financial regulators to take steps that have turned out to be less than effective.
By Yang Sung-jin (
insight@heraldcorp.com)
