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June 07, 2011

  • News:  Tougher Rules For SK Card Issuers 

    During the 3rd quarter 2009, an increase in credit card spending indicated that South Korea's economy was recovering from its government's economic stimulus package, tax breaks for new car sales, and consumer price increases. It appears that South Korean cardholders continued to increase spending to the point that today the average household is overwhelmed with heavy credit card debt. Concerned over the continued increase in debt, the Financial Services Commission (FSC) announced that it will soon implement new rules that will slow down the growth of its nation's credit card debt and strengthen supervision of card issuers' assets and leverage ratios.

    The nation's top financial regulatory agency said that they intend to stop any further growth of South Koreans' household debt by adopting "appropriate growth rate." Part of the plan includes restrictions on the number of new credit cards lenders issue as well as the amount of credit extended to each individual. The FSC will also design rules related to credit card issuers' total assets and the amount of money allocated to marketing expenditures. Each card issuer will be required to create a plan with monthly and annual goals using these rules which will become a binding contract with the Commission.

    One area that will be specifically targeted by the FSC relates to the current policy which allows financial institutions to utilize issued bonds for up to 10 times of the company's net equity. According to the Commission's statement, this figure is higher than the guidelines set down for other companies. Increased competition in the credit card market is said to have motivated card issuers to target individuals that may not be in a position to financially manages any added debt and pushing the nation's debt to unsafe levels. South Korea is the fourth largest economy in Asia and currently estimated to have the heaviest household debt among developing country.

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