Emily Pun, a personal assistant in Hong Kong, usually spends about half her monthly salary on designer clothes and accessories. Her three credit cards keep the shopping spree going.
"I just can't stop myself from buying," said Pun, 27, after loading up on HK$1,000 (US$128) of cosmetics at Giorgio Armani's new Hong Kong emporium. "Brand-name things are so tempting."
Pun, who makes about US$2,300 a month and wears a Rolex watch, said she only pays part of her monthly credit-card bills.
More and more of the people who fill Hong Kong's dozens of high-end shopping malls are as overextended as Pun. Record credit-card defaults, exacerbated by low interest rates and lax credit-screening rules, are cutting profit at the city's banks and may prolong a slump in an economy that's barely growing.
Five years after Hong Kong returned to Chinese rule, unemployment has more than tripled and property prices have fallen by three-fifths. The economy will probably grow 1.5 percent this year, less than a third of 1997's pace, as Hong Kong loses jobs and investment to China. As consumers keep spending on credit, personal bankruptcies are at a record high.
"Having been addicted during the boom years to a lifestyle, it is very difficult to curtail it," said Samir Mehta, who helps manage US$2 billion in Asian investments at Lloyd George Management in Hong Kong. "The economy could face a problem" as rising defaults threaten to curb spending.
Hong Kong profits at HSBC Holdings Plc, Hang Seng Bank Ltd and other lenders fell in the first half of this year and may drop further as credit-card delinquencies rise.
First-half income at HSBC's Hongkong & Shanghai Banking Corp, the city's biggest lender, fell 10 percent as charges against bad loans doubled. Profit at Hang Seng, the city's No. 2 bank, fell 3 percent during the period as credit-card write-offs rose. Local banks wrote off 15 percent of the credit-card debt owed to them last quarter, the highest in at least four years.
Officials at Standard Chartered Plc, Hong Kong's biggest credit-card issuer, say some of the UK bank's local customers have loaded up on luxury goods including Bulgari watches, stereos and jewelry days before filing for personal bankruptcy.
One borrower used his daily credit limit to buy gold the same day he declared bankruptcy, according to Richard Burn, who advises Standard Chartered and other Hong Kong banks on bankruptcy issues.
Stephen Hodges, Standard Chartered's Hong Kong-based bankruptcy manager, said lenders are partly to blame for doling out easy credit. Even so, he places most of the fault with borrowers.
"They did know that they had 14 credit cards and US$75,000 in credit card bills," Hodges said. "They must have known that was a situation that was not tenable given their income."
While retail sales in Hong Kong have fallen from year-ago levels for 14 of the past 15 months, dropping to a 19-month low in September, consumers haven't cut back enough to avert rising defaults.
A record 20,000 people filed for personal bankruptcy in Hong Kong in the first 10 months of the year, more than double the number for all of last year. Courts issued 2,777 bankruptcy orders last month, the highest since record-keeping began in 1989.
Surging defaults haven't damped credit-card spending. The number of credit cards issued in Hong Kong rose almost two-thirds between the end of 1999 and the end of September, according to the Hong Kong Monetary Authority -- enough for every one of Hong Kong's 6.8 million people to have 1.4 cards.
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