Cathay Financial profit jumps as credit crisis eases

By James Peng, Bloomberg

Cathay Financial Holding Co., Taiwan’s biggest financial services company, tripled third quarter profit from a year earlier as fewer customers defaulted on credit-card repayments.

Net income at the Taipei-based company, which owns Taiwan’s largest life insurer, rose to NT$12.2 billion from NT$4.09 billion a year earlier. Earnings were calculated by subtracting the company’s first-half results from unaudited nine-month figures released in a statement yesterday. Lee Chang-ken, Cathay executive vice president, couldn’t be reached for comment.

“In addition to the credit-card crisis easing, stock gains this year and continuous increases in interest rates have helped Cathay,” Charles Chen, who helps manage the equivalent of US$3.7 billion at JF Asset Management Co. in Taipei, said before the figures were released. He said his fund doesn’t hold Cathay Financial shares.

Taiwan’s banks are recovering after a surge in defaults on credit-card loans crimped earnings the past two years. Banks wrote off NT$45.2 billion of credit-card debt in the first eight months of this year, about 55 percent of the amount in the same period in 2006, according to the Financial Supervisory Commission.

Pretax profit at Cathay United Bank, Taiwan’s second-largest issuer of credit cards, more than tripled to NT$8.92 billion in the first nine months, Cathay Financial said in an Oct. 2 filing to the Taiwan Stock Exchange.

Chen said a rising stock market may have boosted Cathay Financial’s profit in the third-quarter. Taiwan’s benchmark stock index rose 6.7 percent in the quarter compared with a 2.7 percent gain a year earlier.

The central bank raised its key interest rate Sept. 20 for a 13th straight quarter to curb rising prices and stem a surge in investment overseas. The bank increased the discount rate on 10- day loans to banks by 12.5 basis points to 3.25 percent. A basis point is 0.01 percentage point.

Cathay Financial said nine-month profit more than doubled to NT$32.9 billion, based on unaudited figures, from an audited NT$13.1 billion a year earlier. The company, the island’s largest financial services provider by assets, is scheduled to release a full, audited report before the end of October.

Shares of Cathay Financial, which have risen 14 percent this year, closed 1.2 percent lower at NT$84 before the earnings announcement.