WSJ BLOGKorea Real Time Govt To Credit Card Firms Were Watching You
July 5th, 2011 | Commodity NewsWSJ BLOG/Korea Real Time: Govt To Credit Card Firms: We’re Watching You
Tue Jul 05 05:26:00 2011 EDT
(This story has been posted on The Wall Street Journal Online’s Korea Real
Time Report blog at http://blogs.wsj.com/korearealtime.)
By In-Soo Nam
In their recent plan to tackle high levels of household debt, South Korea’s
regulators included steps to prevent overspending using credit cards.
For good reason.
South Koreans are particularly fond of plastic money, with almost one million
credit cards issued each month in this nation of around 48 million people, and
every economically active Korean holding on average 4.8 cards. That’s up from
4.3 in 2002, when excessive borrowing using credit cards caused a lending
bubble. The government spent several years repairing household balance sheets.
With analysts warning of another bubble unless consumers exercise some
restraint, the government has chosen to focus on the credit card issuers rather
than the holders. As part of the household debt plan, the regulators will make
weekly checks on the asset size and marketing costs of all credit card firms.
This reflects the fact that Koreans out shopping or heading to the movies
often get targeted by credit-card marketers offering an array of benefits for
new cardholders. And these days you could be forgiven for thinking major Korean
celebrities appear more often in TV commercials for new credit cards than in
actual programming.
Analysts say that Korea’s high inflation adds to the risks associated with
credit cards.
“It is essentially dangerous during inflationary periods, when an individual
with little savings wants to continue spending despite higher prices, then
he/she can resort to credit cards,” says Sharon Lam, a Morgan Stanley
economist, in a research note.
The warning signs are clear: Koreans’ household expenditure has been rising
faster than income for an extended period of time. The ratio of money Koreans
save relative to their disposable income dropped to one of the lowest levels in
the world at 2.8% last year from 24.7% in 1988.
That may reflect more expensive tastes. Sales at Louis Vuitton have increased
almost three-fold in Korea since 2006, while sales at Gucci have almost doubled
in the past five years.
-For continuously updated news from The Wall Street Journal, see WSJ.com at
http://wsj.com.
(END) Dow Jones Newswires
07-05-11 0525ET
Copyright (c) 2011 Dow Jones
Tue Jul 05 05:26:00 2011 EDT
(This story has been posted on The Wall Street Journal Online’s Korea Real
Time Report blog at http://blogs.wsj.com/korearealtime.)
By In-Soo Nam
In their recent plan to tackle high levels of household debt, South Korea’s
regulators included steps to prevent overspending using credit cards.
For good reason.
South Koreans are particularly fond of plastic money, with almost one million
credit cards issued each month in this nation of around 48 million people, and
every economically active Korean holding on average 4.8 cards. That’s up from
4.3 in 2002, when excessive borrowing using credit cards caused a lending
bubble. The government spent several years repairing household balance sheets.
With analysts warning of another bubble unless consumers exercise some
restraint, the government has chosen to focus on the credit card issuers rather
than the holders. As part of the household debt plan, the regulators will make
weekly checks on the asset size and marketing costs of all credit card firms.
This reflects the fact that Koreans out shopping or heading to the movies
often get targeted by credit-card marketers offering an array of benefits for
new cardholders. And these days you could be forgiven for thinking major Korean
celebrities appear more often in TV commercials for new credit cards than in
actual programming.
Analysts say that Korea’s high inflation adds to the risks associated with
credit cards.
“It is essentially dangerous during inflationary periods, when an individual
with little savings wants to continue spending despite higher prices, then
he/she can resort to credit cards,” says Sharon Lam, a Morgan Stanley
economist, in a research note.
The warning signs are clear: Koreans’ household expenditure has been rising
faster than income for an extended period of time. The ratio of money Koreans
save relative to their disposable income dropped to one of the lowest levels in
the world at 2.8% last year from 24.7% in 1988.
That may reflect more expensive tastes. Sales at Louis Vuitton have increased
almost three-fold in Korea since 2006, while sales at Gucci have almost doubled
in the past five years.
-For continuously updated news from The Wall Street Journal, see WSJ.com at
http://wsj.com.
(END) Dow Jones Newswires
07-05-11 0525ET
Copyright (c) 2011 Dow Jones
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