Bracing for a rough patch in the credit cycle, Providian Financial Corp. has jettisoned more than 500,000 unprofitable credit card accounts.

The nation's ninth-largest card lender has funneled more money to collections and has taken other steps to shield against a possible economic downturn. It also has discontinued customer enticements such as teaser rates on balance transfers.

The half-million accounts that were closed this year were inactive or simply did not meet the company's new standards.

"Banks make the worst loans in good times," said Shailesh J. Mehta, chairman, president, and chief executive officer of San Francisco-based Providian. "The question to ask is, 'What are we going to do in a recession?'"

All card issuers must grapple with this issue as economists warn of a deterioration in consumer spending power.

Mr. Mehta said his organization's solution has been to pursue account growth-internally and through portfolio acquisitions-while at the same time reevaluating lending standards.

The results have been positive so far.

For the third quarter, net interest income increased by 70%, to $82.6 million, thanks to what Mr. Mehta said was a constant focus on customers and generating profits.

For the quarter, net income rose 31%.

Mr. Mehta, a card industry veteran steeped in the science of data mining, said loose lending is inevitable in a strong economy. One example he cited was the fallout from certain big banks' lending to hedge funds.

These and other credit losses result from bankers' losing sight of "the one doctrine that we believe in," he said, which is to "make good loans."

Mr. Mehta said money-losing lenders were guilty of "giving billions of dollars to some mathematical modeler and saying, 'Look, make money for us.'"

As an additional safeguard, Providian has embarked on making check-up calls to all its customers this year.

It has enhanced its scoring models that look for "trigger events" that might indicate trouble down the road.

Providian has repriced the portfolios it purchased from First Union Corp., totaling $2.2 billion of receivables.

Providian continues to seek growth in the subprime market.

In May it introduced Visa Plastic, for customers with impaired credit.

It has opened 200,000 accounts and hopes to have 500,000 by yearend 1999.

Mr. Mehta said lending decisions must come down to knowing the customer: "You price for risk, and you should know what risk you're taking."

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