[Lotte Card]
[Lotte Card]

Lotte Card posted a sharp rise in profit in the second quarter despite a contraction in overall revenue.

According to the semiannual report the company disclosed Friday, Lotte Card's consolidated net profit for the period in the second quarter came to 44 billion won ($31.1 million), up 16.8 billion won, or 61.8 percent, from 27.2 billion won in the same period last year. Operating profit rose 41.4 percent year-on-year to 56.5 billion won from 40 billion won.

Operating revenue, however, fell 16.7 percent to 750.3 billion won from 900.5 billion won a year earlier. Foreign exchange transaction gains plunged 93.1 percent to 15.6 billion won from 225.4 billion won, but derivative-related expenses also all but disappeared from 220.6 billion won over the same period. The net figure — foreign exchange and derivative gains minus related losses and costs — actually improved, swinging from negative 1.1 billion won in the second quarter of last year to positive 13.7 billion won this quarter.

Core business revenue, excluding currency-related items, was essentially flat. The combined total of card revenue measured at amortized cost, effective-interest-rate income and other operating revenue came to 630.8 billion won, up 5.4 billion won, or 0.9 percent, from 625.4 billion won a year earlier. Within that, card fee revenue rose 9.7 percent to 125 billion won from 114 billion won, while effective-interest-rate income — which covers card loans, installment credit and revolving balances — edged down 1.9 percent to 464.3 billion won from 473.5 billion won.

The profit improvement was driven primarily by cost reductions. Second-quarter credit loss provisions fell 14.4 percent to 170.1 billion won from 198.8 billion won a year earlier, and financial expenses declined 7.0 percent to 172.2 billion won from 185.1 billion won.

On a cumulative first-half basis, net profit for January through June reached 64.7 billion won, up 23.1 billion won, or 55.5 percent, from 41.6 billion won in the same period last year. Operating profit surged 76.6 percent to 95.7 billion won from 54.2 billion won.

First-half operating revenue slipped 1.7 percent to 1.58 trillion won from 1.61 trillion won a year earlier. Card fee revenue grew 6.2 percent to 243 billion won from 228.9 billion won, up 14.2 billion won, providing a growth driver, but effective-interest-rate income fell 4.0 percent to 918.5 billion won from 956.3 billion won, down 37.8 billion won, weighing on the top line. Breaking that down, card loan interest income dropped 5.4 percent to 331.1 billion won from 350 billion won, a decline of 18.9 billion won, and installment service revenue fell 2.5 percent to 286.3 billion won from 293.6 billion won, a decline of 7.3 billion won. Core business indicators — merchant fee revenue of 104.6 billion won and annual membership fee income of 83.8 billion won — rose 3.9 percent and 6.8 percent, respectively.

The biggest driver of first-half profit growth was also the reduction in loan-loss provisions. Credit loss provisions shrank 19.9 percent to 345.1 billion won from 431 billion won, a reduction of 85.9 billion won — more than three times the size of the 23.1 billion won increase in net profit.

Despite the sharp drop in provisions, profit growth was limited by rising selling and business expenses. First-half selling and business expenses increased 10.1 percent to 300.7 billion won from 273.1 billion won. International transaction fees climbed 28.2 percent to 80.1 billion won from 62.5 billion won, up 17.6 billion won, amid growing overseas card use, and customer acquisition costs rose 32.2 percent to 35.3 billion won from 26.7 billion won, up 8.6 billion won. General and administrative expenses, however, were essentially unchanged, edging down 0.3 percent to 227.5 billion won from 228.2 billion won.

Funding conditions improved. First-half financial expenses fell 8.0 percent to 343.9 billion won from 373.9 billion won a year earlier, a decline of 30.1 billion won. The average funding rate on a standalone basis came to 3.55 percent in the first half, down 0.18 percentage points from the full-year average of 3.73 percent last year. Average funding balances stood at 18.83 trillion won.

Asset quality indicators, however, deteriorated from the first quarter. The delinquency ratio as of end-June stood at 2.21 percent, up 0.08 percentage points from 2.13 percent at end-March. The substandard-and-below loan ratio also rose 0.10 percentage points to 1.99 percent from 1.89 percent. Both figures represent a modest improvement from year-end 2025 levels of 2.22 percent and 2.15 percent, respectively, but mark a reversal from the lows recorded in the first quarter. The adjusted equity capital ratio stood at 15.91 percent, well above the 8 percent minimum required under specialized credit finance business supervisory regulations. The company had about 9.68 million cardholders on a standalone basis, and first-half credit card spending totaled 54.306 trillion won.

The second half, however, will still feel the impact of sanctions stemming from last year's personal credit information leak. The Personal Information Protection Commission fined Lotte Card 9.62 billion won and imposed an administrative penalty of 4.8 million won on March 11. Then on July 31 — after the end of the reporting period — the Financial Services Commission handed down a 1.5-month business suspension and a 5 billion won fine. As of end-June, 13 civil damages suits related to the incident had been filed, with total claimed damages of 3.7 billion won. In its semiannual report, Lotte Card said it expects additional lawsuits to be filed over the same issue going forward.

"After the business suspension ends, we plan to diversify our sales channels and continuously introduce new products reflecting customer spending patterns and demand in order to expand our customer base," a Lotte Card official said. "At the same time, we will continue proactive asset quality management, diversification of our funding structure, and cost efficiency efforts to pursue a medium- to long-term recovery in profitability and improvement in our business fundamentals," the official added.


won@heraldcorp.com