Fubon Financial Holding Co Ltd
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Earnings Call Transcript

Earnings Call Transcript
2019-Q1

from 0
Operator

Thank you for standing by, and welcome to Fubon Financial's First Quarter 2019 Financial Results. [Operator Instructions] This call is being recorded. If you have any objection, you may disconnect at this time.

Now I'll hand the call over to your host, Ms. Amanda Wang, IR Officer of Fubon Financial Holdings. You may begin.

A
Amanda Wang
executive

Thank you. Thank you, everyone, for joining our call today. It is the first quarter financial results announcement for Fubon Financial Holdings. And in this call, we will also share with you Fubon Life's embedded value for 2018.

So in this presentation today, I have Christine Fung, the IR Officer, to give to you the first quarter financial results and followed by the embedded value disclosure from Grace Chiu, the actuarial of Fubon Life, and also the Deloitte Consulting's comments afterwards.

So we will start from Christine speaking to you. Thank you.

C
Christine Fung
executive

Please turn to Page 4 of the presentation. I'll start with overview of financial highlights for the first quarter. First quarter earnings reached TWD 12.5 billion compared to TWD 16.4 billion in the same period last year. This decline was due to Fubon Life while banking and securities subsidiaries delivered earnings growth.

In Taipei Fubon Bank, net interest margin and interest spreads improved along with asset and liability adjustment and U.S. interest rate rise. And the sound insurance sales led to 7.2% wealth management fee growth. We also see revenue growth from treasury activities and the overseas branches.

In Fubon Life, low earnings in the first quarter was mainly because of increase in underwriting cost as FYP growth of 34%, lower capital gains and onetime tax benefit of TWD 1.8 billion, which was booked in the first quarter last year. In terms of the spread performance, we continue to see recurring return increase and a steady improvement in cost of liability. We maintained top 2 position in FYPE, which led to about 30% VNB growth in the first quarter. In addition to business developments, Fubon Life prepared IFRS 17 adoption following the timetable of Taiwan regulator.

In Fubon Insurance, we keep our top line market share with 24.2%. The combined ratio maintained at benign level of 86.2%. Finally, in Fubon Securities, the top 3 position in brokerage and the emerging stock trading business maintained and ETF business continues to be the focus.

Please turn to Page 5. The overall net profit came down in the first quarter while EPS of TWD 1.22 per share is the #1 in the market.

On Page 6, the earnings performance by each subsidiary. Here, you can see that our 3 banking units, including Taipei Fubon Bank, Fubon Bank (Hong Kong) and Fubon Bank (China) as well as Fubon Securities delivered earnings growth in the first quarter. And in terms of the earnings contribution, 3 banking subsidiaries contributed more than half of the earnings.

In Page 7, the overall asset growth at 12.5%, reaching another new high of TWD 7.8 trillion at the end of March. And the net worth also hit record-high level with a significant recovery of 17% from the trough time at the end of year 2018.

In Page 8, the ROA and ROE on an annualized base came down to 0.65% and 10%, respectively, which was because of the earnings decline.

And please turn to Page 10, the next section regarding Taipei Fubon Bank. The revenue growth of 13.6%, which contribution mainly came from net income and treasury-related gain. You may notice moderate decrease in net interest income, which is mainly due to contributions from RMB interbank was higher in the first quarter last year.

In Page 11, the credit growth of Taipei Fubon Bank. You can see mortgage and other consumer loans are the key growth drivers. And loans to government segment, which is more like [indiscernible] of benefits to our bank, declined 41% year over year. If we exclude loans to government sector, our credit outstanding balance grew by 2% year-over-year.

In Page 12, we further break down the corporate credit portfolio. As you can see, foreign currency credit up by 2.7% year-over-year. That is primarily driven by our overseas branches' strong growth. And from current pipeline, we expect the momentum to gradually pick up. For the NT dollar book, the corporate credit continued to focus on SME segment. Here, you can see our SME credit continues to expand with contribution up to 44.2% in the first quarter.

Next page, regarding our margin performance. Loan-to-deposit spread improved by 12 basis points year-over-year to 1.39% in the first quarter mainly because of our adjustment of loan and deposit mix as well as U.S. interest rate rise. With the loan-to-deposit spread increase, we also deployed excess liquidity into loan-dated bonds. And also considering the lower interest-earning asset as a result of less RMB interbank business opportunities, our net interest margin improved by 4 basis points to 1.1%.

On Page 14, here you can see our deposit structure, which both in NT dollar book and the foreign currency book looks better with increasing demand deposit contribution. And we continue to enhance our foreign currency deposit deployment. If we combine the loan and bond investments, the level will be 69.7% of our foreign currency deposits. That is 12.8 percentage increase compared to same period last year.

Now in Page 15, as for the asset quality, the bank continued to outperform. NPL ratio maintained at a very good level of 0.18% compared to the industry average at about 0.25% and the coverage ratio of over 700% also outperformed.

In Page 16, regarding the fee. From the chart on your left-hand side, the fee revenue shows 5.7% growth year-over-year. The main contributor is wealth management fee, which we delivered 7.2% growth, with strong insurance fee growth of [ close to ] 22% and sales increase in fixed income type of products despite the mutual fund decrease because of the market volatility.

And next page shows our overseas branches' performance. Although revenue growth reached 76% along with our loan growth. The pretax profit contribution from overseas branches reached 16.7% in the first quarter. Next, as shown in Page 19, regarding Fubon Life performance. Starting with the underwriting side, total premium grew by 13.5%, driven by the strong FYPE growth of 34.3%.

And the next page from the breakdown of FYPE, you can see the growth largely driven by the rush sale before our single paid, interest-sensitive, traditional NT dollar policy being sub sales. And regular paid policy remain our focus, which also show quite nice growth in the first quarter. Our strategy is to focus more on traditional regular paid policy and protection type of products.

Next page, regarding the FYPE and VNB. Because of strong FYPE growth and higher contribution from regular paid type of products, we saw FYPE and VNB grow by 23.1% and 30%, respectively. And the VNB to FYP ratio slightly came down due to rush sale effect of the single paid NT dollar policy.

In terms of the channel mix in Page 22, we see growth in FYP and FYPE across all the channels with contribution from external banks increased in the first quarter. The momentum actually came from the rush sale we mentioned earlier and the short-term payment on regular paid policies. Our strategy in the long term is to continue enhance our agents' productivity and their contribution.

For the investment in Page 23, although our investment portfolio has annual growth at about 9.3% in the first quarter, we had slightly increasing domestic fixed income assets. In order to enhance our recurring return, we aim to increasing domestic equity officially because of yield play and overseas fixed income assets, along with market conditions in the rest of the year. In Page 24, in overseas fixed income portfolio, we keep overweight the investment-grade on corporate credit and financial bonds. The issuers of overseas fixed income portfolio remain largely in North America.

In Page 25, regarding investment income, the growth in the first quarter primarily came from recurring income, which delivered a higher growth rate of 17.2% compared to 9.3% of our total investment asset growth. We also see some realized gains from foreign investments. And total investment return came down mainly due to higher base of [indiscernible] generated from our equity investment. We also see FX-related expense improved from TWD 13.4 billion in the first quarter last year despite there's still some increase year-over-year.

Next page, you can also see our hedging cost performance. In the first quarter, the annualized number is 148 basis points, which has significantly improved from over 200 basis points in the fourth quarter last year. With the NDF contract reduction and currency swap contract, which carries higher costs virtually matured, we should see recurring hedging cost improve further in the second quarter. We continue to dynamically adjust our hedging ratio in response to market volatility.

In terms of our recurring return, both on a before hedge and after hedge basis, we see the improvement year-over-year mainly driven by overseas foreign investment increase and a better yield -- new money yield we see nowadays and dividend income from our bond and ETF investments. And along with the cash dividend to come in the [ first ] quarter, we expect recurring return for the full year to increase to higher level compared to 3.6% we've seen in the year 2018.

In Page 27, regarding cost of liability. As new business average down the total cost, cost of liability continues to improve, which was down 2 basis points quarter-over-quarter to 3.65%, which is also in line with 5 basis point improvement of our full year guidance. For the breakeven point, in the first quarter we see the numbers ending at 2.88%, which slightly increased because of the higher underwriting cost as a result of strong FYP growth in the first quarter.

And in the following page, regarding our unrealized balance. With financial markets' rebound, unrealized balance in FVOCI & FVTPL with overlay recovered to positive territory of TWD 7.2 billion, which was around TWD 53 billion higher than the end of 2018, which was fully to Fubon Life shareholders' equity reached TWD 265.7 billion. We also have unrealized balance movement under amortized cost disclosure in the footnotes for your reference. The unrealized balance also significantly recovered by around TWD 66.7 billion.

The next section is Fubon Insurance in Page 30, which delivered 7.7% year-over-year growth in premium in the first quarter with a leading market share of 24.2%. The premium growth actually came across all our major business lines. And the underwriting performance has been outstanding with a net combined ratio maintained at a very good level of 86.2%.

On Page 32, regarding Fubon Securities. The market ranking of brokerage and emerging stock trading has been steadily in the top 3 position. And the AUM of our asset management business continues to deliver a very strong growth of 77% in the first quarter. The operating revenue and finance growth in the first quarter are significant with financial market rebound.

Next section regarding Fubon Bank (China) in Page 34. Here, you can see our deposit and loans outstanding balance reached the record-high level with our client base expansion. And with the help of the loan growth, we see our asset growth reached 5% year-over-year. And now the asset size is set higher, TWD 729 billion -- TWD 73 billion.

On the final page, regarding profit performance. You can see we delivered a very strong result in the first quarter, mainly because of the growth of net interest income and trigger activities. You can see on the upper right-hand side, the net interest margin expanded by 12 basis points in the past 12 months. That reflects the increase in the lending rate and also the growth in our retail lending through the last [indiscernible]. And overall asset quality remains at a very good level. As you can see here, the NPL ratio is down to 1.36%. That is 14 basis point improvement compared to 12 months ago.

G
Grace Chiu
executive

Okay. Thank you, Christine. Please turn to Page 37, value creation summary. Similar to past practice, Deloitte Consulting is invited to perform a full scoped review of Fubon embedded value disclosure.

On this page, it shows the value creation summary. Embedded value shows a negative growth on a year-on-year basis. It is much more explained by the lower net worth due to the market turbulence at 2018 year-end, which is much recovered at the end of the first quarter. The result is very, very good. It remains at growth at a steady pace as the value of in-force continue to contribute value creation. The key components of value creation will be elaborated more on the following pages.

Please turn to Page 38, the adjusted net worth movement. This page shows the net worth movement between 2017 and 2018 and the adjustments made to get adjusted net worth for the EV calculation. In 2018, Fubon Life posted a TWD 24.9 billion profit. However, the net worth is much affected by the financial market turmoil, which resulted in a negative TWD 100 billion unrealized capital gain and loss change in FVOCI. This quarter, the net worth is much recovered by more than TWD 60 billion to reach TWD 265.7 billion. The others component of TWD 3.2 billion include a positive TWD 9.5 billion IFRS 9 reclassification impact as 2018 opened and a negative TWD 6 billion cash dividend paid to the financial holding company.

The adjustments made to get adjusted net worth are similar to the last year. And it mainly reflects the TWD 14.4 billion of unrealized capital gain for fixed income originally booked as market value basis. This is mainly due to value of in-force investment return assumption is based on the book year return. Therefore, we need to deduct the URCG from the accounting book.

Next page, the movement analysis for value of in-force before cost of capital. This rollover from 2017 to 2018 shows a positive 5% increase mainly explained by the expected earnings of TWD 25.8 billion transferred to the net worth. The unwinding of 11% discount rate contributed TWD 43.2 billion negative impact on economic assumption change, and then lastly and most importantly, the value of new business issued in 2018.

Investment return is adjusted to reflect higher initial cash cost due to the surge of U.S. dollar short rate after last year. Our long-term cash cost assumption remains at the same level as last year from 100 to 150 basis points. The overall impact is around negative 7% if purely considering investment return adjustment. And there is a small gain of 0.4% from the U.S. dollar appreciation as noted at the bottom. The equivalent return of 2017 value of in-force was 4.47%, increased to 4.53% after 1 year rolling-over effect, which was 11 basis points higher than the 2018 VIF equivalent return of 4.42%.

Page 40, the VNB movement. The 2018 FYP increase 9% from 2017 translates the same basic VNB sales and increase of 9%. The product mix of negative 16% impact can be explained by a couple of factors. Firstly, a onetime effect, the 2016 subsidy effect of some high VNB margin products spilled over to 2017. Secondly, selling more investment products to meet our balanced product strategy. Investment product is generating more capital-light. Thirdly, slightly lower foreign currency-denominated traditional policy. The economic assumption change reflects higher initial interest rate level and higher initial hedge cost, net is a positive impact. The noneconomic assumption change mainly reflects a slightly higher expense ratio due to short-term market competition.

Page 41 to 44 summarize our economic assumptions. Page 41 is a summary of underlying economic assumptions used for better reporting. The methodologies are the same as 2017.

Page 42 is the value of in-force portfolio return. For NTD policies, the initial period return shows a higher reduction due to 2018 market downturn and higher hedge cost. The [ ultimate ] return is slightly lower than last year. In the middle, the investment return grows very slowly in between. For U.S. dollar policies, the return assumption is slightly higher initially due to the initial yield curve increase while the [ ultimate ] assumption remains at the same level as we don't change long-term assumption.

Page 43 is the VNB total return assumption. For NTD policies, the trend is similar to VIF return assumption. But the reduction is not as much as for the VIF because the initial yield curve increase. The U.S. dollar policy initial return increased more than VIF because the higher new money return that we can enjoy.

Page 44 is the discount rate assumption. The methodology is the same as last year. 11% and 10.5% are used for VIF and VNB, respectively. Page 45 summarize the basis for cost of capital projection on the latest regulation changes. Page 46 and 47 [ describes ] the sensitivity analysis for economic assumption.

Now let me pass this call to Ophelia from Deloitte Consulting. Thank you.

O
Ophelia Au Young

Thank you, Grace. Good afternoon, everyone. This is Ophelia Au Young, partner of Deloitte Consulting speaking. While Deloitte Consulting is very pleased that Fubon Life will be reviewed again this year, I will now give a brief update on the scope of our review, our review approach and our comments.

On Slide 48, the scope of review includes the reasonableness of EV as of 31st December 2018 and value of the new business written from 1st January 2018 to 31st December 2018, both of which are calculated by Fubon Life. When we review the reasonableness of these results, we perform a review of the underlying assumptions, both economic and noneconomic with respect to Fubon Life's actual experience and also the outlook of the Taiwan life insurance market.

We also performed a high-level review of the changes made to the actuarial model from the dataset into that model to ensure a strict [indiscernible] and all the relative [ quarter ] data has been included in the calculations. In terms of the calculation, we reviewed various parts of the [ calculation ] methodology and results, including the cost of capital projection, adjusted net worth and movement analysis of the value of in-force from the last valuation date.

Now turning to Page 49. We are going to give a brief summary of our review comments on a number of key assumptions. Slides 49 and 50 cover the risk discount rate assumption. The RDR assumption has remained unchanged since the last valuation date with 11% used on the in-force business and 10.5% on the new business. We have shown in the slide deck an independent validation of the RDR with our own view. And the assumption used by Fubon Life became a reasonable range of this independent calculation. And we are satisfied with the assumption being used in Fubon Life's EV and VNB calculation.

Turning to Slides 51 and 52. Another key assumption is the rate of investment return. Our review focused on ensuring that the derivation methodology is consistent with previous years' methodology. We check and ensure that the assumption is derived based on the actual risk as of the valuation date and that the assumptions of in-force business reflected the runoff of the existing assets on Fubon Life's book. The ultimate long-term risk rate for NT dollar and U.S. dollar appeared to be reasonable, given the current market condition and serves as a good benchmark for comparison of the EV result with last year's results. Overall, economic assumptions appear to be reasonable and consistent with how the adjusted net worth was derived.

Turning to Page 53. We have also reviewed the full range of noneconomic assumptions applied in the EV and VNB calculation. Now all these assumptions are listed from slides -- all these assumptions have been reviewed. And based on our review, we conclude that the assumption derivation methodology is consistent with previous years. The assumptions are in line with Fubon Life's actual experience and future business outlook. And overall, the assumptions appear reasonable for the purpose of the EV and the VNB calculations.

Turning to Slide 54. We performed a high-level review of the valuation result with a focus on movement analysis which explains changes in the value of in-force since the last validation date. We are satisfied with the reasonableness of the movement analysis results for understanding the drivers of the movement. And overall, the EV and VNB results appear reasonable and the underlying assumptions and calculation methodology have been set on a sound basis and also in line with current actuarial principles and guidance.

Now this concludes our brief report on the review of Fubon Life's EV and VNB result as of 31st December 2018. Details of our review comments can be found in our opinion letter.

I will now hand over to Amanda.

A
Amanda Wang
executive

Okay. Thank you. So operator, now we can open the floor for Q&A.

Operator

[Operator Instructions] Speakers, we have our first question coming from the line of Yafei.

Y
Yafei Tian
analyst

I have three questions. The first is around the fee income, particularly the very strong wealth management fee income. So just wondering, you mentioned that the FYP growth could be modest on the insurance side going forward. Does that mean that the wealth management-related fee, which is the key contributor to the growth, could also slow down in coming quarters? What kind of fee growth should we be thinking of for this year? And along that, there is also the structured equity and the bond product, where you see a strong growth as well. Can you give us color on, are there new products? Or what's driving that increase? So that's the first question.

The second question is Page 25 related to the investment income. So you can see that the recurring income increase is predominantly driven by the interest income. I'm just wondering with U.S. rates getting much lower at the moment, what is the outlook for recurring investment yield going forward? So the final question is around capital and your comment around IFRS 17, management preparing for that, along with regulatory guidance. I just wanted to check, what are the regulatory timetable or your expectation at this moment as you understand? One of the peer mentioned that they would like to get to the market ahead of peers to raise capital, likely in second half of this year. Just wondering how does Fubon thinking about raising capital maybe sooner than later, given the current market volatility could also impact the RBC ratio somewhat? Sorry, that's all the questions I have.

Y
Yao Hui Cheng
executive

The first question is for me now?

A
Amanda Wang
executive

Yes, the management fee outlook.

Y
Yao Hui Cheng
executive

Okay. The first -- okay. You can see on Page 15, the fee income revenue increased by 5.7% in the first quarter. And you can see that right-hand side on the page, wealth management fee income increased by 7.2%. The second quarter momentum will be a little bit slower than the first quarter because of the seasonal impact. But if you consider first quarter and second quarter, the first half number for the other fee income, we have covered this, will still remain at high single-digit for us.

A
Amanda Wang
executive

You relay the insurance premium slowdown to the banking side. I think it's kind of -- one thing to highlight is that actually we are focused on more regular pay. So in the life insurance side, the first quarter, we have very strong stop-selling effect. That's why FYP is strong in the life insurance side. But for the rest of the quarter, our life insurance side will focus on regular pay. And the same for the insurance [ sales ] in the bank channel. So actually that will also help the commission performance in the bank side as well.

Y
Yafei Tian
analyst

I mean just to confirm, so we shouldn't be expecting significant reduction in the insurance commission, which is close to TWD 1.6 billion in the first quarter? You think this level could continue to grow from this base?

U
Unknown Executive

No, that's not what we are saying. The product mix to be sold in the second quarter will be different from the first one. And for regular paid products, usually we enjoy a higher margin. And the other thing is if we don't sell insurance products, we will emphasize on selling other type of products. As you can see in the first quarter, we had pretty high sales in our fixed income type of product. So it's kind of a balance in the portfolio that we sell or sold to our investor. As Roman has pointed out that it's usually the second quarter is slower season for the entire industry in terms of a wealth management business.

A
Amanda Wang
executive

Okay. And I think your second question is regarding the recurring return outlook, right? So we will have our management team to respond.

U
Unknown Executive

Particularly in the context of interest income.

G
Grace Chiu
executive

Yes, I understand. I will say that outlook of our current yield actually [indiscernible] to include for this. And just because the first reason, we are targeting to increase our cash dividend maybe just 10% on the year-on-year basis. It is the first one. And the second addition, I would say, that our investment location now also diversifying into the NTD dominate the ETF in considering of the higher current yield hedge cost. And also we will increase our foreign overseas fixed income provision when interest rate is down. That maybe help us in the second half of this year, which is our [ commentary ].

Y
Yafei Tian
analyst

So I understand the rationale behind the rising or continuous increase in the recurring investment return. So in the unlikely scenario or likely scenario, assuming hypothetically that yields stay low at the current level for the remaining of the year, will that change your guidance of investment you're going to improve, so assuming that we're going to have lower yield going forward?

G
Grace Chiu
executive

It's really hard to say, I would say that, also get to market. But I would say right now, we try to benchmark our new money rate at, say, maybe 4% to 5% level is our target here.

U
Unknown Executive

We are pretty sure in the defined strategy to improve our current yield. If the yield rate continue to drop, then maybe we will adjust our portfolio more dramatically to other type of product to continue improve our recurring yield. But the market is market. We really can't comment too much how it would affect us, I mean, in our favor or in our disfavor.

A
Amanda Wang
executive

Okay. For IFRS 17 preparation, the regulatory meant -- currently, we would like to have a 3-year later implementation schedule than IASB announced for global implementation. So for Taiwan, it's about 2025. But the regulator would like Taiwan insurance company to prepare earlier, so would like us to have several years of a real run. The schedule stipulated by the regulator is personally we need to finish the first version of [ gap ] analysis by the end of this year. And for the discount rate, which is very important for the IFRS 17 fair value liability calculation, this is going to be much more controlled by the regulator. But the actuarial society here and the TII here are very dedicated to study how to construct the discount rate. And the regulator would like the schedule for the discount rate construction and the actuarial principle first draft version to be announced by the end of the year. So for next year, we can start the trial calculation for every company from 2020.

And also for next year, 2020, the regulator would like us to do a data inventory check. Because FY '17 will need a lot of airtight information, so the regulator would like every company to check the revenues of the data inventory readiness and make appropriate adjustment accordingly or planning for any further revision. And also by the end of next year, the regulator want the insurance company to come up with the planning for -- related strategy for product investment, risk management and accounting policy adjustment. And for the following next -- following year, 2021, the regulator want to have the -- wants the insurance company to finalize the insurance contract, IFRS 17 fair value liability calculation engine and system buildup so as to plan for the opening in 2023. Investments -- every company here in Taiwan would have more years to have done a real run and prepare for 2025 implementation date.

Y
Yafei Tian
analyst

And how about the question on capital? What do you think is the management's plan if you think that it's better to -- or maybe there is no need for capital at all? Or if there is, when do you think during this period would be a good time to raise capital?

U
Unknown Executive

At the moment, we don't have plan to raise capital. Based on the IFRS 17 [ transit ] or interim cash requirements set by the local regulator, we are complying in all the requirement they have been asking. But that doesn't mean we will not raise capital. We certainly will give you further advice if we decided to do so. But at this moment in time, we don't have -- we don't need to raise capital and we don't have to raise capital.

Operator

Thank you, speakers, and thank you for the questions. At this time, there are no questions on queue. [Operator Instructions] We have a question on the line. One moment, please.

Speakers, our next question is coming from the line of Jemmy.

J
Jemmy Huang
analyst

Just one question from me. If we look at your FYPE mix in the first quarter this year compared to first quarter last year, from a very top-down perspective, the mix actually seems to improve because your regular paid accounts were a higher proportion and then single paid and investment-linked products actually accounting for the lower proportion. However, I think that your VNB margin still declined slightly year-on-year. Just trying to figure out, is that because your foreign currency policies account for much lower portion this year? And if that's the case, should we expect FY -- foreign currency policy proportion to pick up in the coming quarters, given the single paid Taiwan dollar policy is already no longer on the share? And also could you give us some idea in terms of like VNB margin difference between the Taiwan dollar and foreign currency policies?

G
Grace Chiu
executive

Okay. The first quarter, because we stopped the single premium NT dollar policy, so there was a hard sale and make the mix towards single premium. But second quarter, we tried to push more regular paid product. And we expect the VNB margin will improve slightly.

J
Jemmy Huang
analyst

And so it's not because of Taiwan dollar policy versus foreign currency, it's because regular paid versus single paid?

G
Grace Chiu
executive

Right. And for your standard policy, we still have single premium policies. So we expect the new standard policy potentially will increase slightly.

Operator

Our next question is coming from the line of Steven.

S
Steven Lam
analyst

I've got a few here. So I'm going to start with the bank. Just want to follow on the question on the insurance commission. I was trying to understand the dynamics because it seems that on the bank side, the insurance commission went up quite a bit, it's like 21% or so. However, when we look at the FYP by channel or FYPE by channel, it seems that the -- those figures that are generated from the bancassurance channel, they don't have as much impact. You already alluded to the fact that a lot of these actually went to external banks. So perhaps if we can get some comment on what was really driving the relationship with the external banks and then at the same time what happened with the Taipei Fubon Bank. So that's one.

The other one is just want to get the management outlook on NIM. Is there any guidance in terms of whether it can continue? I suppose you're thinking about sort of a few basis point increase [indiscernible]. And then on the overseas business, I recall that there is a very strong growth in Singapore or Vietnam. Is there any specific segment -- client segment or industry that you can give us some color? Just want to see what was really driving that. So that's for banks.

For life insurance, mostly surrounding on investment, so I was curious to understand that I think that there's a decent expansion in the overseas corporate and credit. Any specific sector or region that you can provide? I suppose the region will be U.S. But is there any specific sector or types of investments that you can provide a little bit more color? Also there's quite a decent increase in the domestic equity and bond in terms of NT dollar-wise. So was it mostly because of the mix of mark-to-market? Or there is -- you got at a position on purpose to seize some opportunities?

And lastly, just on the recurring yield. There's a decent pickup. However, it seems that one of your peers had quite a bit of an increase. And they sort of mentioned that lengthening duration or probably investing into other -- down the value chain, probably in corporate bond or things like that. Can we also see similar trend to surface probably later this year?

U
Unknown Executive

[indiscernible]

G
Grace Chiu
executive

Okay. Okay, regarding the first quarter sales, because the rush sale, the external banks, their sale increased substantially, so the percentage increased. We expect the second quarter, it will go back to normal.

S
Steven Lam
analyst

I see. And can I just ask that the surge in 1Q through the external banks, those are mostly Taiwan dollar product, not the foreign currency?

G
Grace Chiu
executive

Yes. In the first quarter, because the rush sale, mostly NT dollar policies. But from second quarter, it's almost half-half, half foreign currency and half NT dollar policies.

A
Amanda Wang
executive

And your second question is regarding the NIM guidance in Taipei Fubon Bank, correct?

S
Steven Lam
analyst

Yes.

Y
Yao Hui Cheng
executive

Okay. The NIM increased by 4 basis points in the first quarter of this year without factoring into the swap-related profits. In the second quarter, we foresee the NIM will continue the increased momentum by another 1 basis point. So in the first half of the year, year-on-year comparison, we foresee the NIM will have a high single-digit basis point increase.

A
Amanda Wang
executive

And then the third question is regarding the overseas banks and then...

S
Steven Lam
analyst

Yes, sorry for the interruption. I just want to catch on -- so second quarter, 1 basis point. Now if I understand the situation correctly, in first quarter, there is a deliberate sort of portfolio mix change that you guys lowered the government bond. So I suppose as a result of that, that's why you have a nice pickup in 4 basis points. Would that be the same backbone driver for the second quarter or actually you're seeing some sort of other dynamics in play?

Y
Yao Hui Cheng
executive

In the first quarter, the NIM increase, it's not a government bond, it's a government loan, okay?

S
Steven Lam
analyst

Right, government loan.

Y
Yao Hui Cheng
executive

We intentionally reviewed some outstanding of the government loan, which the spreads are not good enough by our standard. And now the reason is we managed to reduce our foreign currency deposit cost -- foreign currency deposit, especially U.S. dollar deposit, we had much higher level of demand deposit rather than the time deposit. I think the momentum, we will keep in the second quarter.

U
Unknown Executive

And especially, the government bonds is hard for our treasury functions. We have planned the NT dollar liquidity in the markets -- I mean in the banks. So we saw just to [indiscernible] access any dollar liquidity into the government bonds. So it's more for liquidity management purpose, particularly in the context if we're facing higher competitions on the deposit side, we will technically reduce that, reduce the deposit base, and then also at the same time, give up our granting of loan to the government.

S
Steven Lam
analyst

I see. That makes sense.

Y
Yao Hui Cheng
executive

Okay, regarding your question about our...

U
Unknown Executive

Sorry, in short, the improvement really is mostly on the asset liability adjustment, the improvement on the liability side.

Y
Yao Hui Cheng
executive

Okay. Regarding your question about the momentum of the loan portfolio inquiries in Vietnam and Singapore, the high level of the year-on-year growth was due to several reasons. One is that the base is low in the first quarter last year. The second reason is that our penetration into some of the blue-chip Taiwanese companies [ before we went to Formosa ] has increased. The third reason is we managed to lead several blue-chip local conglomerate overseas fundraising programs. For example, one of them is the Vingroup, one of the leading conglomerates in Vietnam. We managed to become their lead arrangers for their overseas funding. They provide us 50% year-on-year growth for the Vietnam exposure. And the third is 7% increase for the Singapore-based loan portfolio. And with those three, the momentum will keep increasing in the second quarter. So we are very positive on the year-on-year increase in the loan portfolio contributing for the overseas branches.

A
Amanda Wang
executive

And your next question regarding the asset location in Fubon Life, right, you mentioned about fixed income overseas and domestic equity. Okay.

G
Grace Chiu
executive

For your question about expansion in the overseas corporate, please just look at the full Page 24, which is highlighting the title page. I'll answer the question in foreign investment, actually major focus in the U.S. and also [ track ] in the corporate bank and there's the higher investment-grade. It's our strategy. And the second question about the increase of the domestic and also equity and funds, and I would say that domestic bonds actually increased in last quarter, both from the provision increase and as well as the market value recovered. But most likely it's from new investment increase. And the second part about local equity. Actually, it was mostly came from market value recover. And the third question is about our strategy for recurring yield. And as just we earlier mentioned, we were [indiscernible] about the domestic stock dividend increase as planned and also the overseas fee income. And we are also diversifying into NT-denominated ETFs. But about the duration, I would say that not much changed at the current stage.

S
Steven Lam
analyst

That's very helpful. Yes. So yes, I was looking forward to within the corporate credit, is there any specific -- is it mortgage-backed securities or others or a different sector that you've increased allocation in the sector that you're very confident in or just more like a general increase in that class?

G
Grace Chiu
executive

I would say you are subject to a rate we can earn at current stage. If the mortgage then we say the rate is too low then, I don't think you could target this moment to get to the market. So maybe corporate is most attractive because we can think about to diversify to all regions or even [indiscernible] that you will be, the credit spread will be quite wide and we can think about it this way.

Operator

Speakers, we have two more questions on the line. Next question is coming from the line of Yafei.

Y
Yafei Tian
analyst

I just have a very quick one on hedging cost. The NT dollar depreciated quite a lot relative to U.S. dollar recently. Is that going to be helping with the hedging cost going forward? And do you maintain the hedging cost guidance of 1.2% to 1.5% range?

G
Grace Chiu
executive

Okay. Yes, you are right. Actually, the depreciation of the NT dollar actually quite helped or benefit to our hedge cost. And our guidance to the net U.S. dollar position will be ranging from 8% to 15% is our strategy. And as our foreign reserve actually has increased substantially, which will provide more buffer for us to -- against the foreign volatility. And that means that we can have a more [indiscernible] in our hedge strategy. So in terms of guidance, we will say that we try to make our hedge cost to be under or even less than 140 basis points. And for your information, actually current hedge cost has already lowered significantly.

U
Unknown Executive

Actually, the current hedging cost is much lower than our indicated level for the entire year.

Operator

Our next question is coming from the line of [indiscernible]

U
Unknown Analyst

I just want to follow up on the potential capital raising plan. So is the plan now purely for common equity raising only, meaning no more planning for preferred share issuance?

U
Unknown Executive

Correct. But we don't have -- I mean this is a backdrop plan. There's a general mandate to raise the capital if needed from business side. But having said that, we don't have a concrete plan to raise capital. Okay?

Operator

Speakers, at this time, there are no questions on queue.

A
Amanda Wang
executive

Okay. So if no more questions, then we will stop the conference call today here. And as always, we always welcome you for the feedback and comment to the IR team. Thank you.

Operator

Thank you, everyone. And that concludes today's call. Thank you all for joining. You may now disconnect.