South Korean credit card companies are cutting their borrowing costs as the bond market is attracting investors this year.

According to sources on Tuesday, the average interest rate on three-year credit card bonds from Shinhan Card Co., Samsung Card Co. and KB Kookmin Card Corp. stood at 4.328 percent on Jan. 30. The credit rating of these companies is AA+. That is almost 2-percentage-point drop from a peak of 6.088 percent in November last year.

Unlike commercial banks, which have huge customer deposits, credit card companies raise their funds only by selling bonds. As the new year began, investors flocked to loan-specified financial bonds amid growing optimism that inflation will cool further to enable the U.S. Federal Reserve to ease tightening.

Credit card companies are taking advantage of the situation to sell new bonds. On Jan. 6, Lotte Card Co. sold bonds worth 110 billion won. It was followed by Samsung Card’s 130 billion won sale, Shinhan Card’s 120 billion won and Hyundai Card’s 20 billion won. Due to popularity for loan-specified financial bonds, credit card firms are now selling bonds at an interest rate nearly 0.5 percent lower than the average proposed by private rating companies.

This is also good news to card users as credit card companies have more room to lower their interest rates on credit card loans. According to the Credit Finance Association, the average interest on card loans from seven credit card companies was 15.06 percent per year as of December. It rose by 0.22 percentage point from 14.84 percent in the previous month, but the growth pace has slowed.

By Choi Keun-do and Minu Kim

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]