Lotte Card faces heavy sanctions over a massive customer data breach, and analysts warn that substantial non-performing assets could further strain profitability. The company carries over 1 trillion won in factoring receivables and project financing (PF) loans. Risks are materializing, with 21 billion won in assets recently classified as non-performing.
Lotte Card's factoring receivables totaled 704.9 billion won at the end of last year, up 7.3% from 657 billion won a year earlier, according to financial industry sources on the 10th. The company's total factoring receivables have grown steadily from 471.5 billion won in 2023 to 657 billion won in 2024. "Lotte Card has been expanding factoring receivables to diversify revenue," an industry official said. "The scale is relatively large compared to other card companies."
Factoring receivables carry higher default risks during economic downturns. The structure involves companies securing or selling funds using their trade receivables as collateral. When a company's payment capacity deteriorates, defaults inevitably spread. Last year, Lotte Card recognized 33.8 billion won in bad debt expenses after large-scale defaults occurred on factoring loans provided to small and mid-sized rental companies.
PF-related problems also persist. Lotte Card halted new PF lending after 2023 and has focused on asset recovery, but still holds 418.8 billion won in PF loans as of the end of last year—356.6 billion won in main PF loans and 62.2 billion won in bridge loans.
In March, a 10 billion won PF bond was classified as "recovery doubtful" following a project viability assessment. With the total outstanding balance reaching 20 billion won, additional losses remain possible.
Additionally, Lotte Card disclosed earlier this month that 11 billion won in asset-backed securities had become non-performing. Rolling stock manufacturer Dawonsys filed for court receivership, making it difficult to recover the 11 billion won in asset-backed loans (ABL) held by a special purpose company established to finance Dawonsys.
Lotte Card plans to recognize 8.3 billion won in bad debt expenses for the ABL default in its first-quarter results. The loss from this default alone is not substantial.
However, Lotte Card must also book the 9.62 billion won penalty imposed by the Personal Information Protection Commission in March as a non-operating loss in the first quarter. The combined losses amount to 23% of Lotte Card's consolidated net profit of 78.9 billion won last year.
This burden is significant given years of declining profitability. Consolidated net profit plunged from 367.9 billion won in 2023 to roughly one-third that level at 137.2 billion won in 2024, then fell below 100 billion won last year.
Return on assets (ROA) has dropped below 1%. Card companies without deposit-taking functions hold assets mainly in credit card receivables and card loans, making ROA a key profitability indicator. Lotte Card's ROA declined from 1.7% in 2023 to 0.6% in 2024 and 0.3% last year.
The business suspension period will likely have the greatest impact on profitability. Core business activities including new member acquisition, card loans, and credit limit increases will be restricted for several months. "Credit cards have expiration dates, so membership inevitably declines without new business," a card industry official said. "The longer the suspension, the greater the damage, and massive marketing spending will be required after the ban is lifted."
The final sanction level will be determined on the 16th. Lotte Card plans to fully explain at the sanctions hearing that the information leak resulted from external hacking, that it responded afterward, and that no secondary damage occurred. However, an industry official said, "It seems difficult to reduce the penalty below the maximum level of 5 billion won." Lotte Card has already set aside provisions for up to 5 billion won in penalties for violations of the Credit Information Act and the Specialized Credit Finance Business Act since the end of last year.
