Wing Lung Bank's aggressive expansion into higher-yielding credit cards in the second half of last year returned to haunt management in the bank's latest interim result.
The mid-tier family-owned bank reported yesterday that net profit at the halfway mark this year was down 13.7 per cent to HK$381.8 million.
Tumbling interest rates weighed on the outcome - dragging net interest revenues down 5 per cent to HK$598.2 million; along with a big jump in operating expenses (up 11.4 per cent to HK$268.6 million).
However, the main damage to the bottom line was done by a 38.5 per cent rise in bad debt charges to HK$65 million, about half of which was due to new charges to cover defaults in credit card and personal lending, according to executive director and general manager Chung Che-sum.
Most of those provisions went towards credit card charge-offs, which more than doubled to 13.5 per cent of outstanding items, versus just 5.35 per cent at the end of last year.
Combined with lower credit limits and card spending as the Hong Kong economy went into a decline, the result was a 16.5 per cent fall in outstanding card advances at June 30 to HK$395.07 million - still a small percentage of the bank's HK$30.47 billion in customer advances.
With almost half of its loans in low-yielding mortgages, and another 24 per cent in corporate lending, Wing Lung made an effort to lift its consumer business in the second half of last year - growing its credit card portfolio 45 per cent in the process.