Pressure to Lower Credit Card Commissions?
There is confusion over domestic credit card companies' net profits in the first half of the year as the financial watchdog has provided an estimate that is widely different from that of the card companies themselves.
The eight credit card companies said their net profit in the first half plunged 31.9 percent compared to the same period a year earlier, while the Financial Supervisory Service (FSS) said the figure surged 50.9 percent.
The FSS announced on September 13 that the combined net profit of the eight credit card companies amounted to 810.1 billion won (US$721.69 million) in the first half, showing a whopping 50.9 percent growth from 537 billion won (US$478.4 million) during the same period a year ago.
However, the credit card companies said their combined net profit in the first half totaled 966.9 billion won (US$861.38 million), down 31.9 percent from 1.42 trillion won (US$1.26 billion) a year earlier.
This is due to a different accounting standard applied to calculate results. The credit card companies calculated the results based on the international accounting standard IFRS 9, which is used by all financial firms, including banks, while the FSS did a calculation based on the internal standard, which is used to manage and supervise financial companies.
The FSS and the credit card companies announced conflicting business results because they interpreted the allowance for bad debts differently. The FSS has been calculating the credit card companies’ business showings according to specialized credit finance industry supervision regulations that require an additional 30 percent of allowance for bad debts on more than one credit card loans from June last year. As the new regulations were applied for the first time in the first half of last year, the net profit of credit card companies showed a sharp decline at that time. However, the figure rebounded in the first half of this year and credit card companies needed less allowance for bad debts. As a result, the net profit jumped up owing to last year’s base effect. On the other hand, credit card companies calculated their net profit based on the IFRS 9 standard, instead of the supervision regulations. The industry said that it had consistently applied the IFRS 9 standard this year for two years in a row so there is no distortion phenomenon, including base effects. It added that its net profit actually dropped due to lower commission charges.
The market said the result of the FSS is not wrong but credit card companies’ semi-annual report based on the IFRS 9 standard is more accurate considering some distortion effects caused by the base effect from the supervision regulations. In regard to a 50 percent or more increase in net profit, an official from the FSS also said, “The accounting standard has changed because of the supervision regulations last year so the businesses’ net profit dropped sharply and showed a rebounding effect this year.” In short, the business environment of credit card companies has not improved.
The problem is that the FSS was aware of such an illusion in results but officially announced the conflicting results from credit card companies and can cause confusion in the market. In particular, investors in the stock market and foreign investors are very sensitive to business performance but the FSS made an announcement of completely different results, growing confusion.
Some say that the government made the impractical announcement to put more pressure on credit card companies to lower credit card commission charges further in order to suppress opposition of small business owners caused by a higher minimum wage.