South Korea's financial regulator said Tuesday it plans to limit credit card firms' excessive credit issuance and marketing costs as part of efforts to put the brakes on burgeoning household debts.
Credit card firms' heated competition to issue credit and market their credit card products are adding to the country's
much-feared household indebtedness, prompting the Financial Services Commission (FSC) to take measures to slow down the sector's asset growth.
The FSC will adopt "appropriate growth rate" guidance on credit card firms' asset increases, new card issuance and marketing costs, the regulator said in a statement, without giving specifics.
The FSC will come up with detailed regulations this month to put them into force immediately, it said.
"The FSC took the measures in order to prevent the credit card sector and other credit issuers from triggering risk factors to the local financial industry," it noted.
Local credit card firms saw their assets and marketing costs soar at much faster paces last year than in previous years as the emergence of new credit card firms pushed up competition in the sector.
Local card companies' credit assets grew 6.3 percent annually during the 2006-2009 period before jumping 14.7 percent in 2010, the FSC said. Their marketing costs increased 30.3 percent last year, compared with a 27.1 percent annual gain seen during the 2006-2009 period.
The Financial Supervisory Service, the executive arm of the FSC, is currently conducting one-month inspections till June 24 to look closely into credit card firms' card issuance practices. After the examination, the FSC will come up with proper punishments for the firms that illegally issued credit cards and loans to unqualified customers, the regulator said.
The FSC also plans to revise a law within this year in a bid to rein in credit issuers' excessive borrowing and asset inflation.
Through the revision, a ceiling will be imposed on leverage rates of credit card firms and other credit issuers like consumer finance companies to limit the amount of assets they can hold in comparison with their net equity, the FSC said.
The regulator will also revoke a special law that allowed credit card firms to sell bonds worth up to 10 times their net equity, it said, adding that the abolition is expected to curb credit issuers' excessive borrowing.
The credit card industry expressed discontent over the measures, saying they may severely cripple credit card business.
"Given that credit issuers run their business through money borrowing, the limit on fund raising virtually means prohibition of credit card firms' business," an official at one card firm said. "If firms fail to meet the new regulations, which have yet to come, they may face massive turmoil in the second half of this year."