Cathay Financial Holding Co Ltd

TWSE:2882

Earnings Call Transcript 2018-Q1

[Operator]

Welcome everyone to Cathay Financial Holding Co.'s First Quarter 2018 Conference Call. [Operator Instructions]

And now I would like to introduce Mr. Sophia Cheng, CIO of Cathay Financial Holding Co. Ms. Cheng, you may begin.

[Sophia Cheng, executive]

Thank you. Good afternoon and good morning to investors from Europe. Welcome to Cathay Financial Holding's 2018 First Quarter Analyst Meeting. My name is Sophia Cheng. I'm the Chief Investment Officer for Cathay Financial Holding. Today, I will host the conference call and thank you very much for joining us today.

Before we start the conference call, I like to have 2 reminders. First one, because we are in a process of issuing preferred shares right now, so the quiet period will last until the end of June, we cannot provide forward-looking guidance. And therefore a typical schedule in May we announce 2017 embedded value that would be postponed until late June when we complete the preferred share issuance. As soon as we complete the preferred share issuance, we will upload the embedded value information to our IR website and we will send a -- we will notify you as well. The second thing is that the company has decided to propose to AGM for issue -- for providing cash dividend per share of $2.5, that is more -- over 4.5% dividend yield upon announcement. So these are the 2 things to highlight at the beginning.

So before we start the presentation, let me introduce the senior managers who are with us today. Today, we have Ms. Grace Chen, CFO of Cathay Financial Holding; Mr. Daniel Teng, Senior EVP of Cathay Financial Holding and Head of Corporate Banking in Cathay United Bank; Mr. Abel Lin, Senior EVP of Cathay Life; [ Ms. Grace Hong ], EVP of Cathay Life.

Today's conference call I will ask Wendy from IR team to present the first quarter number first and after the presentation, we will open for Q&A session, in which we are more than happy to answer your questions.

Without further ado, let me pass the call over to Wendy for the briefing of first quarter result.

[Wendy Juan, executive]

Thank you, Sophia. Good afternoon, everyone. Let's start with Page 3, which provides you with a quick overview of financial performances of our subsidiaries for the first quarter of 2018. First of all, Cathay United Bank reported mild growth in both loan and deposit, growth rates were [ 3% and 4% ], respectively. Fees income increased 13% year-on-year. Credit quality was still good and overseas expansion continued. Foreign currency loans grew 21%.

Now we move down to Cathay Life. Cathay Life carried on with its value-driven strategy and continued to generate the highest amount of FYP and FYPE among industry peers. Investment yield after hedging was 4.5% and overall investment performance remained stable.

Next, our general insurance subsidiary, Cathay Century. Its premium income grew 6%. It remained in second place with 11.8% of market share. Overseas written policy premium increased steadily. As for our asset management subsidiary, Cathay Securities Investment Trust have firmly established itself as the market leader with asset under management amounted to TWD 608 billion. Lastly, for Cathay Security, its brokerage business continued to grow and its sub-brokerage business ranked #1 in the industry in terms of market share.

Please look at Page 4 for our net income and earning per share. Cathay Financial Holding reported after tax net income of TWD 23.3 billion for the first quarter, which show a staggering increase of 116% on the same period last year. Earnings per share reached TWD 1.84.

On the next page, Page 5, you can see net income and return on equity of our subsidiaries. Cathay United Bank's earning grew 16% driven by insurance and fee income growth. Cathay Life's earning have more than doubled over the past years because of a big increase in investment income. On consolidated basis, the holding company's return on equity was 14.9%.

Our book value is listed on the next page, Page 6. The holding company's book value for the period was around TWD 609 billion and book value was TWD 43.7.

Please turn to Page 8 and 9, you will find our footprint in Southeast Asia and China. The holding company continued to expand the growth in order to facilitate the operation of our overseas business. So far, Cathay United Bank has actively expanded its footprint to 9 other countries. Since 2013, it has accumulated a 23% stake in Philippines' RCBC Bank and 40% shares in Indonesia's Bank Mayapada. Our acquisition of Bank of Nova Scotia Berhad was canceled because it can't be completed before the loan start phase and all parties agreed to terminate the agreement. Our Labuan Branch and Kuala Lumpur marketing office continued to serve customers in Malaysia.

As to our footprint in China, Cathay United Bank's conversion of Shanghai branch into a subsidiary is scheduled to be completed this year. Cathay Lujiazui Life fast-growing business was marked by premium growth of 52% year-on-year. Cathay Century China's premium income continue to grow. New business are running smoothly in partnership with Ant Financial. Also, Cathay Securities Honk Kong and Conning Asset Management continued to deliver steady result. In the future, we will continue to strengthen our operational capability and seize opportunities for overseas growth.

Now let me walk you through Cathay United Bank's financial performances from Page 11 to 17. On Page 11, with proper risk management, we continue with the loan portfolio adjustment process by increasing mortgage and foreign currency loan. Loan balance climbed at 2% year-on-year to TWD 1.5 trillion in the first quarter. Deposit growth remained steady. The total amount stood at TWD 2.1 trillion at the end of March 2018, representing a 4% increase year-on-year. The loan to deposit ratio was around 70%.

Interest yield is shown on the next page, Page 12. The mortgage and foreign currency loan growth and [ wage ] increase led to margin improvement. You can find our quarterly spread and NIM in the table below. Compared with last quarter, spread further improved by 5 basis points to 1.81% and NIM was up 2 basis points to 1.24%.

On Page 13, you will see the bank's credit quality. In compliance with our prudent lending policy, Cathay United Bank maintained low NPL ratio at 20 basis points and coverage ratio at 778%. During the first quarter, gross provision was only TWD 800 million, among which the majority came from a regulation requirement of general provision, 1% against performing loan and 1.5% from mortgage. Recovery was TWD 300 million.

Now please turn to Page 14 for SME and foreign currency loan. We made an effort to maintain good credit quality, while pursuing growth. SME loan balance reached TWD 157 billion in the first quarter, which accounted for 11% of total loan. Foreign currency loan began to grow in 2016 when Asia Pacific region's recovery picked up in momentum. Foreign currency loan balance grew to TWD 228 billion in the first quarter, which accounted for 15% of total loans.

Our offshore earnings what is shown on the next page, Page 15. Overseas profit of TWD 1.9 billion represented 29% of total income before tax. This decline was due to a decrease in overseas investments mainly caused by an upheaval in the financial market.

Let's look at our fees income on Page 16 and 17. With our redundant effort in improving our noninterest income, Cathay United Bank generated fees income of TWD 5.2 billion in the first quarter, signifying a 13% growth. Credit card fee growth momentum continued with 20% of growth year-on-year. Wealth management fee was up 12% to TWD 3 billion. Mutual fund [ sales ] fees grew nicely, up by 51% year-on-year.

Now we are about to move on to Cathay Life. So please turn to Page 19 and 20. In the first quarter, total premium was TWD 176 billion, down 9% year-on-year. The decline was due to the [ problem mix change ] with lower FYP and some of the [ hot sell ] regular pay policy premium paying terms ended resulting in lower renewal premium. FYP was TWD 68 billion, down 11%. High year-on-year base explained the decline as we have witnessed a certain sales of investment-linked products in the previous year. This year, our focus would be on protection product which contributes more to mortality gain. FYP for protection product increased 61% in the first quarter. The annualized premium FYPE was TWD 21.4 billion dropped by 15%, due to an increase of short-term premium pay income policy. Nevertheless, our annualized premium amount was still the highest in the industry.

Please turn to next page, Page 21 shows our emphasis on regular paid traditional policies. Cathay Life stays dedicated to its value-driven strategy by focusing on regular paid products. Single paid product accounted for only 5% of the total traditional life products. As we increased the proportion of protection products, value of new business increased 1% to TWD 14.5 billion in the first quarter.

On the next page, Page 22, you will find our cost of liability, which continued to show its improvement. The reserve based liability cost was 4.1% by the end of March this year which has improved by 1 basis point year-to-date compared to last year's end.

Please refer to Page 23 for our investment portfolio. Cathay Life total investments reached TWD 5.6 trillion as of the end of March 2018. Cash position accounted for 2.4% of the invested assets and overseas investment accounting for [ 63% ]. The investment returns of each asset class are as follows: For cash and cash equivalents was 0.5%; for domestic equity was 9.8%; for international equity was 18% pre-hedged; for domestic bond was 2.8%; for international bond, 4.9% pre-hedge; for mortgage and secured loans was 1.9%; for policy loan was 5.6%; and 2.6% for real estate.

Overall investment yield are shown on Page 24 and 25. After-hedge investment yield was 4.48% in the first quarter. Cathay Life will maintain proper risk management and dynamic portfolio management in the face of market volatility. Pre-hedge recurring yield was 2.86%. The first quarter recurring yield is usually unrepresentative given that most cash dividend comes in the second and third quarter. Cathay Life have to take the rate hike opportunity to increase the fixed income investment with higher yield and better credit rating. In terms of hedging, the annualized hedging cost was 1.32% while Taiwan dollar appreciated [ 2.5% ] and traditional hedging instrument cost continued to rise in the first quarter. Cathay Life will continue to exercise dynamic hedging strategy to ensure the effectiveness of our cost control.

Please look at Page 26 for dividends and the regional breakdown of overseas fixed income. Cathay Life cash dividend income has been growing for the past 5 years. And for overseas fixed income investment Cathay Life allocated 45% in North America, 16% in Europe, 22% in Asia Pacific and 16% in the rest.

On Page 27 shows the book value and unrealized gain of financial assets. The consolidated book value of Cathay Life reached TWD 433 billion as of the end of March 2018. And the unrealized gain of financial assets was TWD 35 billion.

Lastly, please look at Page 31 to 33 for the performance of Cathay Century. Cathay Century's premium income reached TWD 5.3 billion, increased by 6% year-on-year. Market share of 12% was the second largest among peers. Cross selling synergy continued to perform well as products sold by the group channels contributed more than 60% to total premium. Combined ratio and retention ratio grew steadily to 79.4% and 92.1%.

That concludes our 2018 first quarter operating highlights. We appreciate your participation and look forward to discussing more in detail with you in a following QA session. Thank you.

We’re now ready for Q&A. Thank you.

[Operator]

[Operator Instructions] And our first question is coming from Jemmy Huang from JPMorgan.

[Jemmy Huang, analyst]

I ask for 2 questions. The first one could you tell us what's the cost of liability for new product is in the first quarter compared to the level in 2017, whether you see an increase or a decrease for both Taiwan dollar and also U.S. dollar policies? The second question is, I think you already have a quite comprehensive platform in China, but now the China is talking about lifting the foreign ownership under financial sectors. So just want to hear your thoughts on whether this would change your strategic deployment in China.

[Chao-Ting Lin, executive]

Jemmy, about our new policies for the Taiwan dollar this first quarter total liability is 2.2% and the U.S. dollar policy is 3%. So total liability is 2.8% after new policy compared then to 2017 last year, the average is 2.9%. So actually our cost of liability of the new policy has decreased by 10 basis point.

[Sophia Cheng, executive]

And Jemmy for your second question, our thought on China opportunity given that China has a stabilized financial market -- a financial industry. Currently, our life insurance is a half-half JV with Lujiazui group where P&C insurance we own 49% and Ant Financial group own 51% for the P&C JV. We also have 33% of the asset management JV with China Development Bank Securities. As of today we are quite happy with the JV operation. So there is no immediate urgency for us to think about applying for the full license at all. We would think of how to further deepen the current cooperation and platform and of course it would depend on how the future opportunity emerge. But as of today, we do not have any specific plan to leverage that China announcement.

[Operator]

Next, we'll have Anthony Lam from HSBC for questions.

[Anthony Lam, analyst]

A few questions from my side. I think the first one, could you remind us the amount of tax benefit [ you booked in the ] first quarter, so excluding that what could be the income line in first quarter? Second question is on the hedging cost breakdown. Just wondering if you could give us a sense about the split between the cost of hedging fee instruments, NDF and CS versus the transaction losses in the second -- I mean, first quarter? And perhaps a question on the amount of OTC international bond as of the end of first quarter and a couple of questions on the back side. I think...

[Sophia Cheng, executive]

Anthony, can you -- a little bit distance on your phone cause the voice is not clear. So if you can a little bit distance from that.

[Anthony Lam, analyst]

Is this better now?

[Sophia Cheng, executive]

Oh, much better. Thank you.

[Anthony Lam, analyst]

Yes. So could you hear my previous 3 questions?

[Sophia Cheng, executive]

Kind of, yes.

[Unknown Executive]

Is hedging cost of the different instrument, are you asking that?

[Anthony Lam, analyst]

Yes, the second one is on the split of cost of hedging instrument and the FX translation loss that contribute to the hedging cost of I think a little bit over 1.3% in first quarter. So that's the second one. And the third one is on the amount of OTC international bond at the end of first quarter.

[Sophia Cheng, executive]

Okay. And sorry, your first question, can you repeat that?

[Anthony Lam, analyst]

So this year I think most financial companies recorded a tax benefit. Just wondering the amount of tax benefit that Cathay booked in the first quarter and how that split across subsidiaries.

[Sophia Cheng, executive]

Okay. So you want to know is -- the holding company and major subsidiaries there first quarter profit without tax credit, is that correct?

[Anthony Lam, analyst]

Yes.

[Unknown Executive]

Okay. First quarter the group income tax benefit is TWD 1.4 billion and within it we have [ TWD 3.3 billion ] one-time deferred tax benefit so you can just deduct it.

[Anthony Lam, analyst]

How much is that, again, could you give TWD 3.6 billion one time...

[Unknown Executive]

So it's TWD 1.9 billion -- without deferred tax benefit we have a TWD 1.9 billion tax expense.

[Sophia Cheng, executive]

That's for?

[Unknown Executive]

That's for first quarter.

[Sophia Cheng, executive]

Cathay Life or for the group?

[Unknown Executive]

For the group.

[Sophia Cheng, executive]

TWD 1.9 billion.

[Unknown Executive]

TWD 1.9 billion, yes, the tax expense.

[Sophia Cheng, executive]

So [indiscernible] credit TWD 3.3 billion.

[Unknown Executive]

Yes, but one-time.

[Sophia Cheng, executive]

That’s one-time. Yes, and the net profit was TWD 23 billion for the group in first quarter. Your second question is on the hedging cost. In first quarter it was 1.32%. And you like to know a little bit breakdown of that, is that correct?

[Anthony Lam, analyst]

Yes.

[Sophia Cheng, executive]

In our normal disclosure -- actually, we do not provide that detail into ForEx gain/losses and hedging all the detail. But what I can share is if you look at the first quarter market -- the currency volatility at some point currency [indiscernible] quite costly at sometimes even than 3%. Our hedging cost in the first quarter was 1.32% and -- due to April as Taiwan dollar was weaker. So if I look at first 4 months our hedging has further improved. The cost annualized forecast improved to 1.1%. There was a further improvement in April. And your third question is our updated exposure to the international bond, the [indiscernible], right?

[Anthony Lam, analyst]

Yes.

[Unknown Executive]

I think it is around 5% of our total investment [indiscernible].

[Sophia Cheng, executive]

Still maintain at about 5%. We will try to look at if there are investment opportunity but if it should be stretched further than 10%, we are quite cautious on the credit fee risk in this for most of our banks. So we may buy some that we will exercise caution and the total exposure to my portfolio.

[Operator]

[Operator Instructions] And our next question is coming from Chung Hsu from Credit Suisse.

[Chung Hsu, analyst]

I just have 2 quick questions. The first question is for Abel. Just wanted to ask the new money yield and as -- that you can get at the moment using the current hedging cost and if we compare that to the first quarter this year and also 2017 can we just do a sequential comparison of your new money yield? Second question is on loan growth. If I could look at loan growth on a year-to-date basis it's very strong, it's up 4.7% year-to-date. Just wanted to get a sense if there's any seasonality to that because if I look at 2017's quarterly loan growth there seems to be a little bit of up and down in the second and fourth quarter last year.

[Chao-Ting Lin, executive]

Chung, I think that -- because right now the interest rate is rising and also credit spread is widened, so I think the -- I gave you some indication that in March and April, actually our new investment yield for the overseas fund is around before hedge is around 4.4% to 4.5% compared then to the last fourth quarter the new money investment yield for the overseas fund is around 4% to 4.2% before hedge. So you can see actually right now the new investment yield for the new overseas fund actually picking up around at 40 to 50 -- 30 to 40 basis points. This is before hedge. But actually our hedging cost -- you can see actually even though -- we think that we can control quite stable. We just follow our long-term guidance, it's 1% to 1.5% and actually this year actually we are below this guidance.

[Unknown Executive]

Okay. For the loan growth, yes, first I would like to say, definitely I would like to grow the loan all the way. But to be honest, due to the capital restraint I don't think we can continue to grow the -- I mean the loan portfolio like the last couple of years all the way down. So we'll try to know and adjust our loan portfolio.

[Sophia Cheng, executive]

So Chung, if you look at the loan growth and the margins there are a couple of things you can look at. Number one, we do not pursue an aggressive loan growth and we put more attention into enhancing loan deposit ratio and loan mix. If you are looking for quarterly volatility that tend to be true for majority caused by our decision how we park the money. We tend to consider loans to government, loans to jumbo corporates and share trade kind of the relative attractiveness for parking our surplus liquidity. So if you see very sizable quarter-over-quarter change they tend to be the change from loans to government related. But if you look at year-on-year comparison we have sizable growth in mortgage, we have some growth in regular corporate loans, we have growth into personal loans and the others. The major decline if you look into that, very detail into that it was a decline in loans to government. So it's kind of a relative decision when we compared the yield and that's versus treasury and other investment tools.

[Operator]

And the next one is from Anna Guo from Goldman.

[Yingqiang Guo, analyst]

I've got 2 questions. The first is on bank side. Since we are now expecting the NT dollar interest rate hike maybe in the second half this year so say a one-time NT dollar interest rate hike of 12.5 basis point, so how much do you think it can pass on to your lending rate and on to deposit rate respectively? And second one is on the fee income. We see quite good fee income growth mainly coming from the mutual fund. So does that mean a shift in the consumer preference for mutual fund or do you have any outlook for your wealth management growth this year?

[Sophia Cheng, executive]

Before I turn to the answer, I need to remind just that we cannot provide any forward guidance in our operation until we complete the preferred share. So I need to apologize and seek for your understanding that we can't provide the kind of 2018 total outlook.

[Chung-Yi Teng, executive]

Okay. For the first question according to our experience if the interest rate goes up maybe 1 basis point it's only 1/4 I mean a 0.25 basis point I mean the bottom line and adding the revenue it goes up by maybe well of course a quarter of the impact, yes, for the NT dollar.

[Sophia Cheng, executive]

And fee income?

[Chung-Yi Teng, executive]

I think -- okay, for the mutual fund sales it really depends on the capital market. So I can't tell you now what will be going on in the future.

[Sophia Cheng, executive]

What we can think of is if you look on Slide 16 and 17, on Slide 16 you will notice that despite the product consumption in Taiwan, it's only growing at low single-digit growth. We are very happy to see that our branding, our offer on credit card is helping to deliver very, very strong credit card fee income. That is quite positive. And then on Page 17 if you look into wealth management fee breakdown, yes, we see mutual fund growth financially as Daniel mentioned, depends on the market. But bear in mind that last year in first quarter we still have some delayed booking of revenue from the [ hot sale ] in 2016. And therefore January last year 2017 was quite strong. So having rather felt only tiny increase in bank issuance fee in my view, it's already quite outstanding. If you look in the next slide, first quarter last year bank issuance fee of TWD 2 billion accounts for 35% of whole year. So there is a high base last year more front-end loaded. So again from this you can try to do your own assessment, how you think the fee income like. So cost management has kind of recovered a little bit, rather credit card fee is quite strong.

[Operator]

[Operator Instructions] Next, we'll have Anthony Lam from HSBC for questions.

[Anthony Lam, analyst]

Two follow-up questions on bank side. Firstly, if you think -- in the Chinese session you mentioned that the reaction to net interest margin from the market is a little bit quicker because of actual repricing on the asset side. Just wondering the repricing spread for the asset side and liability if you could share some colors on that. I think that's the first one. And the second one is on the cost income ratio. I think it has improved quite a bit in the first quarter on a year-on-year basis for the bank. So I'm just trying to understand the drivers behind.

[Unknown Executive]

As the interest rate goes up, the impact for the asset side will be much more earlier than the liability side that's why our interest spread for this quarter was up by -- on year-on-year basis more than maybe 10 basis point, right.

[Sophia Cheng, executive]

So the yield and asset will start to move up as you capture repricing into loan and also on treasury. But later to some extent it's why we have surplus liquidity in the market. Eventually you will still have to pass some of that to the depositor. So you will some benefit and later part of that can be offset by higher deposit cost despite totally net more positive.

[Unknown Executive]

[ Cathay ] is setting an example because for our loan portfolio most of the loan portfolio, I mean FX loan portfolio is based on the LIBOR plus, right. So if LIBOR goes up the interest rate will go up directly, immediately I mean for the asset side. But for the deposit side, it's a kind of LIBOR related but will be a lag for some time. It will be depending on the liquidity of the -- I mean the FX -- I mean, U.S. market in Taiwan.

[Anthony Lam, analyst]

So would it be fair to say...

[Unknown Executive]

In terms of the Taiwan, is already equated for the U.S. dollar.

[Anthony Lam, analyst]

Okay. So I'm just wondering if it would be fair to say there will be about I think a 3 to 6 months [indiscernible] for that to reflect on the liability side to catch up with the asset side movement. Just trying to understand the kind of time lag here?

[Unknown Executive]

It really -- it really depends on -- it depends on the market. I mean, the deposit -- the U.S. deposit market in Taiwan. But 3 to 6 months is a reasonable guess.

[Anthony Lam, analyst]

Reasonable guess. Okay. And the second one on [ costs were back ] just wanted to see if there are any particular drivers that help internal or just purely a function of faster [ referral ] growth here?

[Sophia Cheng, executive]

Sorry, I missed your first few words, what was the question?

[Anthony Lam, analyst]

There is quite a bit of a cost-income ratio improvement in the first quarter.

[Sophia Cheng, executive]

Oh, cost income ratio.

[Anthony Lam, analyst]

Yes.

[Sophia Cheng, executive]

The cost income ratio, if you look on quarter-on-quarter usually first quarter will be higher because you are paying booking for the upcoming bonus, and first quarter it will come back. And if you look at year-on-year income a little bit as we mentioned in the past 3 years that the bank has put investment into our infrastructure upgrade. So you will be seeing a little bit cost income ratio increase that later will transfer into revenue and that as of now still on the track. And actually so far the past year and half, the cost income ratio increase has been slow but better than I thought. I need to apologize we can't give forward guidance at this time.

[Anthony Lam, analyst]

I totally understood from this -- [ this respect ] I'm just wondering if the -- you think spend on infrastructure has been -- has reached the peak already?

[Sophia Cheng, executive]

It is CapEx we've done. So it will go through depreciation and amortization. So there will be -- I need to check the schedule into the detail. But it should be -- as we said before, it should be higher than, say, 3 years ago. Cost income ratio will be a little bit higher. 2015 was above 51.7%, slightly below 52% and 2016 was 52.7%, last year was 53%. So this already is showing some high already. But you can see the bank earnings. 2017 it was nice for the growth. So eventually I think it should be positive. Wait until the next quarter when we have analyst meeting, maybe we can provide a bit more guidance after we see the -- if I share the reason.

[Operator]

[Operator Instructions] Next, we'll have Steven Lam from Bloomberg Intelligence for questions.

[Steven Lam, analyst]

I was just going to have a few follow-up. I think one of the analysts mentioned about the impact of the taxes. So I was curious if you don't mind to repeat again. So I guess on a like-to-like basis in the first quarter of what would the net profit for the group be without the tax benefit. So that's the first question. Second one, it's on the new business margin. So we saw a very big increase there. That was great. I was just curious from my understanding if it has to do with the increase in terms of the proportion of the health insurance. And I was curious what did the company do to achieve that increase in terms of health insurance. Has there been the incentive -- how do you incentivize the agents or some other method that you guys have used? And then the third one, it's on the investment breakdown. So I've noticed that the allocation to North American bonds have increased quarter-on-quarter to 45% from 43% 3 months ago. So I was curious what kind of bonds were those, were they mostly in government or if there is any indication that the management can provide that will be great? And just to wrap up for the bank NIM, if you can just highlight again what was the key cost in terms of the spike in the first quarter? Was it mostly because of loan mix? I see that there is a little bit of loan growth in the first quarter. But what kind of loan mix change has contributed to the spike in the NIM?

[Sophia Cheng, executive]

Thank you for your question. Would you mind can you push to -- turn to Page #4 that shows net income for the financial holding company? In first quarter the net income was TWD 23.3 billion of which we had enjoyed a one-off TWD 3.3 billion of tax credit, because of the tax rate change. So if you remove TWD 3.3 billion from that number, the net income will increase from TWD 10.8 billion first quarter last year into TWD 20 billion first quarter this year. Your second question on how we can successfully sell health insurance that Abel will answer in a minute. The next question is your question for investment breakdown when our fixed income in overseas free income we have 45% in North America. I need to apologize, usually we will inform investor what we have done is after we make the earnings. For the detailed portfolio it's really getting a little bit too detail that for the disclosure. So I prefer not to provide effectually the very detail. I will think about what we can do next time. And the next -- the final question is bank net interest margin. As you can see on the NIM it further improved by 2 basis points versus last quarter if you look at quarterly basis. If you look on Page 14 we have further grown a little bit in foreign currency loan and SME loan. So it will be a combination of some rate hike benefits, the better loan mix shifting from low margin generation into better yielding assets. So a bit of both. So Abel, would like to highlight how we promote healthy insurance policy?

[Chao-Ting Lin, executive]

I think the first one is the -- through the [ trending ] more educated skill for to tell the possible demand for the health insurance, that will be helpful. And second major key factor is that we will also put more focus on compensation scheme through maybe more incentive in health insurance and also more protection type life insurance that have more incentive on new salary, so to make them sell this kind of product more and to have that -- have more salary. I think this is mainly 2 major factors.

[Sophia Cheng, executive]

And I'd like to highlight again that our first quarter for a financial group, typically -- especially insurance company there is always volatility in investment return. So each year, each quarter it's different depending on the market opportunity. So we we've been -- are working better so good luck in first quarter in our one-off gains, that should not be as a guidance for whole year. So despite very strong year-on-year profit, all we can say is we'll try work hard to predict the market and to maintain the [indiscernible] investment that the one-off is never guaranteed.

[Steven Lam, analyst]

If it's okay can I have a quick follow-up on the life side? So I think there were a lot of discussion about the fact interest rate hikes and whatnot. Now I was just curious in the dynamics that you've seen when will be the point where your customers will begin to ask -- demand higher return on be it life insurance policies or even deposits, term deposit and would that have a little bit of pressure in terms of cost -- funding costs?

[Sophia Cheng, executive]

I'll answer a little bit and Abel can add some point to that. First of all in Taiwan, it's very marketing push driven. And yes sometime the policyholders the new money come in, once they can see very obvious rate hike it depends on the rate in Taiwan not just on the rate in U.S. So we will have Taiwan dollar policy and also foreign currency -- foreign currency policies. It will also depend on the market competition, depend on the peers. And what I'd like to highlight is it'll also depends on how much you sell in fixed rate and floating rate. For example, in last year our insurance policies in the total FYP, we have about 17% policy sold that was based on floating rate. So if you sell fixed rate and if you had good service, once they roll over the -- it will be less sensitive to rate movement. So we have relatively lower contribution from floating-rate policy. We have been doing that for quite a few years and we will hope that [ we have the similar stance ] to minimize the risk from surrender. And then the second one is every day we think of the value add that we can provide. So we are very lucky that we can always offer a little bit lower in the currency rate and maintain a slightly better pricing policy. And so we really hope with the effort we can continue to do so.

[Operator]

[Operator Instructions] And the next one is from Anthony Lam from HSBC.

[Anthony Lam, analyst]

Sorry, just final one from me I think Wendy mentioned in the presentation that the increase in health protection products have contributed to mortality gain. Just trying to understand what's the right estimate for mortality loading or that sort of number is that in the portfolio right now?

[Chao-Ting Lin, executive]

I think generally speaking right now it's around at 40 basis points.

[Anthony Lam, analyst]

So that's not much change actually, right?

[Chao-Ting Lin, executive]

Yes, this is why we want to increase the protection type because as you know for the last 5 years all the industry saving is more -- most of them is savings type. So [indiscernible] actually it's very little. So this is why right now I think the total mortality loading gain is only around 40 basis points. So we have a number we want to -- in general we have a high target to make our protection type and we can increase significantly. So as you can see, the first quarter, here now we have over [ 50% ] growth Q-on-Q.

[Operator]

There appears to be no further questions at this point. And Ms. Cheng can we close the conference call now?

[Sophia Cheng, executive]

Yes. Thank you for participating in Cathay Financial Holdings conference call. And I'd like to highlight again that by late June once we finish -- complete the preferred share issuance, we will have vote about the value information and we will inform you at that time. Thank you. And if you have further questions, our IR team and senior management are here for you. Thank you and good bye.

[Operator]

Thank you. And ladies and gentlemen, we thank you for your participation in Cathay Financial Holding Company's conference call. You may now disconnect. Goodbye.