South Korea’s credit card industry faces a complex balancing act as regulatory adjustments for secondary financial institutions intersect with rising funding costs, according to data released by Korea Ratings. While stricter household debt controls over recent years successfully lowered the proportion of high-risk borrowers, upcoming policy shifts allowing expanded medium-rate loans threaten to test these credit improvements.
Credit Card Asset Quality and Portfolio Shifts
The proportion of revolving funds, cash services, and card loans relative to total card assets dropped from 31.0% at the end of 2024 to 29.5% by June 2026, driven primarily by tightening household debt regulations, according to Korea Ratings data. During this same window, high-risk card loans—defined as borrowers with credit scores below 600 holding three or more overlapping debts—contracted from 9.3% in 2021 down to 6.2%.
Potential risk card loans held by individuals with credit scores between 600 and 800 similarly shrank from 47.3% to 44.4%. Average credit scores improved across every major product category tracked by Korea Ratings. Card loans rose from 696 to 702 points, cash services climbed from 658 to 686 points, payment revolving balances advanced from 743 to 769 points, and loan revolving balances moved from 643 to 663 points. Although overall lending volumes cooled, the underlying creditworthiness of remaining borrowers strengthened.
Regulatory Adjustments and Expanded Lending Flexibility
The regulatory landscape shifted when the Financial Supervisory Service announced an exception for second-tier financial institutions, including savings banks, mutual finance companies, and specialized credit finance businesses. During an August 21 briefing with industry representatives, regulators declared that increases in secondary-sector mid-rate loans would be fully excluded from household debt total management caps.
Concurrently, financial authorities raised the aggregate household debt growth ceiling from 1.5% to 3.0%, initiating new target allocations across individual firms and sectors. However, regulators maintained a management stance regarding general card loans and unsecured credit lines. Consequently, additional lending room is relatively more open for mid-rate credit products directed at middle-to-low-credit borrowers. According to industry reports, institutions with strong historical compliance records regarding debt caps are receiving larger supplementary lending allowances.
Funding Costs and Profitability Pressures
Card issuers must now navigate competing pressures between expanding loan portfolios and maintaining asset soundness. Expanding medium-rate loans allows card companies to target broader consumer segments without breaching strict total volume caps, but this demographic frequently overlaps with the high-risk and potential-risk cohorts previously reduced in portfolios.
Meanwhile, funding pressures are intensifying. Data from Korea Ratings indicates that the spread between newly issued and maturing card bonds turned positive following the second quarter of 2026, signaling a gradual increase in debt-servicing costs. As borrowing expenses rise, aggressive expansion into mid-rate lending could strain profitability and asset quality simultaneously.
An industry official noted that because these total-limit exemptions remain in early implementation stages, market observers must monitor third-quarter asset metrics and card bond issuance costs closely to determine the long-term impact on issuer stability.
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