After the Asian financial crisis in 1998, the Korean government vigorously promoted the development of the credit card industry in order to promote domestic consumption and increase fiscal revenue. From 1998 to 2002 the Korean credit card market showed extraordinary growth and became the largest credit card market in Asia. But by 2003, South Korea had a serious credit card debt crisis. This was highlighted by the fact that 16 percent of cardholders defaulted and the rate of bad debts on credit cards increased to 30 percent, which led to the near bankruptcy of credit card companies, negative impacts on the economy and finance, as well as a series of social problems.
There were three factors involved in South Korea’s credit card crisis:
- Firstly, the south Korean government pushed credit card industry development while ignoring the need for proper risk management control and the construction of a unified personal credit registry system.
- Secondly, issuers spammed credit card issuance without preplanning the risk implications
- Finally, consumers borrowed blindly because of their lack of experience
In order to curb the worsening of the credit card debt crisis and the emergence of systemic risks, the Korean government was forced to turn to intervene to establish a credit information sharing system, provide emergency assistance loans, strengthen the credit card restructuring plan, and implement a personal debt rehabilitation program. Through the efforts of the government, since 2005, the credit card market in South Korea has gradually returned to normal. The government has also begun to pay attention to the supervision and prevention of excessive risks in the industry, to improve the industries risk control capabilities, to construct a market credit environment to promote the mature development of the credit card industry.
South Korea’s credit card debt crisis has important reference significance for the development of China's credit card industry. Firstly, it is important to strengthen risk monitoring and early warning, and effectively prevent and control credit risks; Second, adhere to the principle of prudential supervision, limit the credit card companies expansionary competitive behavior; Third, improve the personal credit system; Fourth, strengthen the publicity and education of financial knowledge and consumer rights and interests protection.