3-Line Briefing
- As prolonged high interest rates increase the funding-cost burden on the lending industry — card and capital companies alike — diversifying funding channels has become a key theme.
- Moving beyond a sole reliance on won-denominated corporate bonds (specialized-credit-finance bonds), Kimchi bonds (foreign-currency bonds issued domestically) and overseas asset-backed securities (ABS) are emerging as alternatives.
- Diversifying funding sources is a buffer against rate swings and market freezes, but it brings new variables in the form of exchange rates and hedging costs.
What Is Changing
Specialized credit-finance companies have no deposit-taking function, so they raise operating funds by issuing corporate bonds. Until now, won-denominated specialized-credit-finance bonds have made up an overwhelming share, but as the high-rate environment has dragged on, the weakness of relying on a single market has become apparent. If the bond market freezes or credit spreads widen, funding rates can post a sharp gain (surge), and refinancing at maturity itself can become difficult.
In response, the industry is pivoting toward broadening its funding channels. Kimchi bonds — issued domestically in foreign currency — and ABS issued overseas against held assets are prime examples. Diversifying the issuance currency and investor base can reduce the degree to which a firm is buffeted by the volatility of any single market, and it also creates room to trim some funding costs by tapping demand from overseas investors.
That said, foreign-currency funding only pays off when currency risk is hedged through instruments such as currency swaps. If hedging costs rise, they can offset the rate advantage of foreign-currency funding, making the financial capability to precisely calibrate timing and scale the decisive factor.
The Numbers and the Context
The funding rate on specialized-credit-finance bonds is directly linked to the benchmark interest rate and credit spreads. In a high-rate phase, rising funding costs squeeze margins on cards, installment financing, and leasing, and when combined with the risk of borrower defaults, profitability faces a double burden. Diversifying foreign-currency funding is a response to this structural pressure, and it should be viewed as having a strongly defensive character aimed at improving funding stability.
Beneficiary and Affected Stocks
- Samsung Card: As a domestically listed card company, it is a direct party to funding diversification. Successful foreign-currency funding would be positive for funding stability and margin defense.
- Financial holding companies (KB Financial, Shinhan Financial Group, Hana Financial Group, Woori Financial Group): With card and capital subsidiaries under their umbrellas, they are tied to group-level funding strategy and earnings.
- Securities and IB sector: If demand for underwriting Kimchi bonds and overseas ABS grows, they stand to benefit on the issuance-arrangement fee front.
- If a prolonged high-rate, rising-hedging-cost phase persists, margins across the capital and card sectors lean toward the affected side.
Risk Check
- A sharp gain (surge) in exchange rates and rising hedging costs on instruments such as currency swaps could erase the rate advantage of foreign-currency funding.
- If prolonged high rates push up delinquency rates and credit-loss costs, funding diversification alone will not defend profitability.
- In the event of a global credit-market freeze, demand for overseas ABS could shrink, risking a renewed narrowing of funding channels.
- Issuance conditions can be shaken by regulatory or credit-rating changes, so timing risk around issuance persists.
One-Line Conclusion
Diversifying foreign-currency funding is a rational survival strategy for the lending industry in an era of high rates, but because it carries the new variables of exchange rates and hedging costs, investors must weigh the positive of improved funding stability against the risk of margin pressure.
This article is content automatically summarized and analyzed based on the original news report. View original (Yonhap News, Securities)
