Cosmos says profits will rise in 2002

For Cosmos Bank Taiwan (萬泰銀行), embarrassment is a moneymaker. The lender says its profit for next year may double to NT$2 billion (US$59 million) from business generated from a cash-advance card that lets people borrow money in private.

"Our profit growth is directly related to the growth of our `George & Mary' card business," Executive Vice President Shih Kung-liang (施坤良) said in an interview. The card, whose name sounds like "emergency loans" in the local dialect, accounted for a third of last year's profit, he said.

Cosmos is profiting from its card strategy, and attracting imitators and potential suitors, even as consumer defaults rise elsewhere in Asia. Credit-card delinquencies rose by a quarter in South Korea last month from a year ago, while two-thirds of Hong Kong's 9,100 personal bankruptcies last year were related to credit cards.

In Taiwan, the credit-card default rate stands at just 3 percent, analysts estimate, even though the island-state is only now emerging from recession and more than a tenth of all loans are in default. Cosmos charges 18.25 percent annual interest on cash advances, with interest accruing from each transaction, compared with an average 19.9 percent on credit cards, based on unpaid monthly balances.

"When people need money, they don't want to beg," said William Fong (方偉昌), an analyst at Primasia Securities Co. "This allows them to borrow money without exposing themselves to their bankers."

Cosmos Bank advances a maximum NT$300,000, Shih said. The average credit allowed on cards is NT$50,000.

Cosmos' success -- first-quarter net income jumped 44 percent, and its stock is up more than 58 percent this year -- hasn't gone unnoticed. China Development Financial Holding Corp (中華開發金控) and CTB Financial Holding Co (交銀金控) are among potential buyers, local Chinese-language media reported.

"Cosmos Bank, like most of the younger and smaller banks, has a chance of being bought as financial holding companies seek expansion," said Darwin Chang (張達文), who manages about NT$500 million at Reliance Securities Investment Co (德信證券投信) and doesn't hold Cosmos shares.

Cosmos shares, which reached a 28-month high last week of NT$12.35, fell 2.5 percent Monday to NT$11.80.

The bank expects to have 1 million cash-advance customers by the end of the year, from 720,000 now. It expects the outstanding balance on card accounts to rise to NT$50 billion by year-end, from more than NT$30 billion.

The bank's focus on consumer lending helped it overcome sluggish demand for mortgages and corporate loans in Taiwan, which is struggling to emerge from its worst recession on record.

Total loans fell for a ninth straight month in April, declining by 3.4 percent from a year earlier to NT$13.7 trillion, according to the central bank.

"The interest-spread on corporate lending is getting squeezed and banks have also become more conservative," said Fong at Primasia.

Rising bad loans are adding to banks' reluctance to lend to companies. Taiwan's central bank said 11.7 percent of bank lending, or NT$1.68 trillion, was non-performing or in danger of default as of March, as companies struggle with the economic slump.

Defaults on consumer credit haven't yet reached worrying proportions. The credit-card default rate in Taiwan is estimated at less than 3 percent, Fong said.