Economy of Japan

Aeon aims to grow credit card base after bad year

PUBLISHED : Thursday, 21 April, 2011, 12:00am
UPDATED : Thursday, 21 April, 2011, 12:00am

Smaller companies trying to expand in Hong Kong's loan and credit card business found last year especially tough as competition intensified. This was the case with AEON Credit Service (Asia), which posted a 2.7 per cent drop in profit for the financial year to February.

AEON Group has substantial operations in department stores and supermarkets, especially in Japan, but its consumer finance services in Hong Kong have remained relatively small over the past two decades.

AEON Credit Service (Asia) said yesterday revenue shrank about 3.5 per cent to HK$1.01 billion in the last financial year, mainly because interest income from loans and revenue from late charges dropped.

'The economy basically started to recover, but borrowing appetite still hasn't fully come back,' said Derek Y.K. Lai, deputy managing director of AEON Credit Service (Asia). Because lending opportunities were low, banks in Hong Kong offered promotions and discounts on loans.

The drop in loan interest rates across Hong Kong's banking sector eroded AEON's net interest margin (NIM), a measure of lending profitability. Its NIM dropped by about one percentage point to about 22 per cent.

On the other hand, a gradual recovery in the economy led to less revenue from late charges in both loans and credit cards. Handling and late charges dropped by 26.8 per cent to HK$ 51.5 million.

The company's share price remained flat at HK$ 6.35 yesterday. It has dropped 3.79 per cent since late March.

Paul Lee, an analyst at Haitong International Securities Group, said the results were within expectation as the company's net profit also declined for the first half last year.

'AEON offered a lot of discounts on personal loans last year because of growing competition. This would have hurt their NIM,' Lee said.

The company said the nuclear crisis in Japan would have a negative impact on its Hong Kong credit card business. AEON has promotion agreements with many Japanese restaurants and supermarkets in the city.

Barry Fung, executive director of AEON Credit Service (Asia), said fortunately the company did not only focus on working with Japanese companies in expanding its credit card business.

The company aims to expand its credit card base by another 140,000 cards this year by strengthening card benefits, such as working on promotions with malls and hotels.

It had about 1.05 million credit card accounts as of February.