Cathay Financial Holding Co Ltd

TWSE:2882

Earnings Call Transcript 2018-Q4

[Operator]

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

And now I would like to introduce Ms. Sophia Cheng, the CIO of Cathay Financial Holding Co. Ms. Cheng, please begin.

[Sophia Cheng, executive]

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

In the beginning, I would like to introduce the senior managers who are with us today. Today, we have Mr. Daniel Teng, Senior Executive VP of Cathay Financial Holding; Ms. Grace Chen, Chief Financial Officer of Cathay Financial Holding; Mr. Abel Lin, Managing Senior EVP of Cathay Life; Mr. Joseph Wang, Senior EVP of Cathay Life; Mr. Edward Yung, Senior EVP of Cathay United Bank; and [ Ms. Grace Han ], EVP of Cathay Life.

For today's conference call, our IR Manager, Yajou, will present the fourth quarter results. And after the presentation, we will open up for Q&A session in which our senior management will be more than happy to answer your questions.

Without further ado, let me pass this call over to Yajou for the briefing of our fourth quarter results. Yajou?

[Yajou Chang, executive]

Thank you, Sophia. Let's start with the 2018 business overview on Page 3, which provides a quick highlight on each subsidiary. Cathay United Bank delivered solid deposit and loan growth with benign asset quality. The foreign currency loan growth momentum continued. Fee income grew by 10% year-over-year. Credit card fee was up 13% year-over-year. Active card number ranked #1 in the industry.

Cathay Life continued its value-driven strategy. Protection-type policies grew nearly 50% year-over-year. Both first year premium and annualized premium FYP ranked #1 in the industry. Cost of liability continued to improve. Pre-hedging recurring yield increased to 3.5%. RBC ratio was 292%. Capital level remained solid.

Next, Cathay Century, the general insurance subsidiary. Premium income grew by 6% year-over-year. Market share was 13%, maintains its #2 in the industry. Asset management subsidiary, Cathay SITE, has AUM of TWD 631 billion, ranked #1 in the industry. Lastly, Cathay Securities continued to enhance digital applications to optimize customer experience.

Next, Page 4 shows Cathay Financial Holding's outlook for the year of 2019. Cathay United Bank will continue to adjust the loan mix and maintain benign asset quality. The bank will continue to increase the fee income and expect its overseas business to contribute more to bank earnings growth. Cathay Life will focus on regular-paid policies, foreign currency denominated policies and investment-linked policies to increase the value of new business. On the investment side, Cathay Life will continue to enhance its capital efficiency and maintain stable hedging cost.

Cathay Century will grow both personal and commercial insurance. The company will pursue higher risk-adjusted returns and continue to expand overseas business.

Cathay Securities Investment Trust will continue to broaden the product line to meet customers' needs and leverage group's resources to increase AUM. Cathay Securities will actively utilize digital technology to expand cross-selling opportunities and will continue to develop overseas business.

Please look at Page 5. Cathay Financial Holding's net income and EPS. Cathay Financial Holding reported TWD 51.8 billion of earnings for the year of 2018. It declined by 9% year-over-year. EPS was TWD 3.95.

Page 6 shows the subsidiaries' net income and ROE. Cathay United Bank's earnings rose 8% year-over-year, driven by increase in fee income growth. Cathay Life earnings declined due to the higher volatility in equity, fixed income and FX market. On the consolidated basis, the holding company ROE was 8.8% in 2018.

Please turn to Page 7 to see the book value of Cathay Financial Holding. The consolidated book value of the holding company was TWD 529 billion. Book value per share was TWD 34 in the year of 2018.

Page 9 and 10 shows our overseas expansion, which is on the right track. Cathay Financial Holdings continues to expand its overseas business by deepening its overseas presence and reinforcing the relationship with local partners. As of today, Cathay United Bank has footprint in 9 out of 10 ASEAN countries. The overseas banking footprint contributed to the solid growth of the foreign currency loans.

Cathay Life Vietnam total premium increased by 51% year-over-year, and Cathay Century performed steadily in Vietnam.

For the subsidiaries' operation in China. Cathay United Bank launched its China subsidiary by September, and all the businesses on the right track. For Cathay Life joint venture in China, the total premium grew by 46% year-over-year. For the general insurance, the strategic alliance with Ant Financial Holding was going very well in China.

Please turn to Page 12 for more details about our banking performance. With proper risk management, we continue to adjust our loan mix by increasing SME and foreign currency loans. Cathay United Bank loan balance increased by 10% year-over-year to TWD 1.6 trillion in 2018. Deposits grew by 6% year-over-year. The loan-to-deposit ratio was over 70% as of the end of 2018.

Please look at Page 13 for interest yields. The solid SME and foreign currency loan growth led to the margin improvement. The interest spread was 1.85% for the year of 2018, and the net interest margin was 1.25%, improved 7 basis points comparing to the end of 2017.

Page 14 shows the asset quality of Cathay United Bank. Due to our prudent lending policy, Cathay United Bank maintained its low NPL ratio at 16 basis points and coverage ratio at 932%. In the year of 2018, gross provision was TWD 5.5 billion, about half was a general provision for the regulation requirements on the loan growth. Recovery was TWD 1.1 billion.

Next, please turn on Page 15, SME and foreign currency loans. SME loan balance reached TWD 178 billion by the end of 2018. It grew by 17% year-over-year. Foreign currency loan balance was TWD 233 billion. It accounted 15% of total loans.

Page 16 shows offshore earnings, which was TWD 6.5 billion that accounted for 27% of overseas investments caused by market volatility in 2018 and loan provision in the fourth quarter.

Please turn to Page 17 for the fee income. Cathay United Bank continued to enhance their noninterest income. Fee income was TWD 19.7 billion in 2018, up 10% year-over-year. Credit card fee performed very well with 13% growth year-over-year.

Page 18 shows the breakdown of wealth management fee. Wealth management fee income came to TWD 9.2 billion. It increased by 4% year-over-year. Bancassurance fee grew steadily.

Please move to Page 20 and 21 for Cathay Life premium performance. In 2018, total premium was TWD 681 billion, down 11% year-over-year. The decline was due to the product mix change with lower first year premium and some of the wholesale regular-paid policies' premium payment term ended that result in lower renewal premium.

On Page 21, first year premium was TWD 212 billion, down 9% due to the high year-over-year rate of investment-linked policies. Last year, we grew into more profitable traditional life and protection-type policies. The protection-type policies first year premium increased around 50% year-over-year in 2018. The annualized premium FYPE was TWD 71 billion, down 9% due to an increase of short-term premium payment term policy. However, our annualized premium FYPE was still the highest in the industry.

Page 22 shows percentage of regular-paid traditional life policies and value for new business. Cathay Life continued the value-driven strategy by focusing on regular-paid products. Single-paid products accounted a relatively small portion of the traditional life products. Value of new business increased by 2% to TWD 51.5 billion in 2018. The growth was due to the product mix change of increased proportion in traditional life and protection policies.

Page 23 shows our cost of liability, which continued to improve. The reserve base liability cost was 4.03% at the end of 2018, improved 8 basis points comparing to the end of 2017.

Please look at Page 24 for the investment portfolio. Cathay Life total investment reached TWD 5.8 trillion as of the end of 2018. Cash position was 1.1% of the invested assets. Overseas, the investment accounted for 67%.

The investment returns of each asset classes are as follows: cash and cash equivalents, 0.6%; domestic equity, 9.6%; international equity, 8.7% prehedged; domestic bonds, 3.6%; international bonds, 6.6% -- 4.6% prehedged; mortgage and security loans, 2%; policy loans, 5.8%; real estate, 2.3%. The overall investment return was 3.82% after hedge.

Please move to Page 25 for more details about our investment performance. After hedge, investment yield was 3.82% in 2018. Cathay Life has taken the rate hike opportunities to increase the fixed income investments with the higher yield and better credit rating. Pre-hedging recurring yield reached 3.5%, increased by 15 basis points year-over-year.

In terms of hedging, the full year hedging cost was 1.28% due to higher hedging cost of traditional hedging tools caused by a large interest rate differential between Taiwan and United States. Cathay Life continues its flexible dynamic hedging strategy to ensure the effective control of hedging cost. The foreign currency [ moving ] reserve as of the end of last month was over TWD 20 billion, which was the highest in the industry.

Please look at Page 26 for the dividend income and regional breakdown of overseas income. Cathay Life has reached -- recognized dividend income of TWD 24.2 billion in 2018. For overseas fixed income investment, Cathay Life allocated 44% in North America, 20% in Europe and the rest are in Asia Pacific and other countries.

Page 27 shows the book value and unrealized gain of financial assets. Both the consolidated book value and unrealized gain of financial assets was down in the end of last year due to a relatively large correction of equity markets in the fourth quarter. However, this year, the capital markets performed quite well. The book value and unrealized gain and loss balance have rebounded significantly. The unrealized gain and loss balance has turned positive by the end of February.

Next, please turn on Page 31 for the performance of Cathay Century. Cathay Century's premium income was TWD 23 billion, up 6% year-over-year. Market share was 13%. Cross-selling synergies continued to perform well. Over 60% of the premium was generated by the group channel.

Thank you. That's the end of 2018 results briefing. Now let's open to Q&A.

[Operator]

[Operator Instructions] The first question is coming from Anderson Cha, BNP Paribas.

[Anderson Cha, analyst]

This is Anderson Cha from BNP Paribas. May I ask you 3 questions? First of all, do you have any specific guidance for invested asset growth in the midterm, especially given your value-driven and regular-paid focus growth strategy in the next 2 to 3 years? We understand that your asset growth has grown slower versus peers. Do you expect that your peers would eventually follow your group? And what will be the catalyst for that in your view? And the second question is do you have any specific items for pre-hedging recurring yield for 2019? And please explain it in the context of your NIM and yield trend in recent quarters. And also please share with us the growth of any notable change in confirmed asset allocation strategy into 2019. And my last question is about some one-off increase in provision expense in your banking unit for fourth quarter. I understand that it's related to project financing loans in Indonesia, and you mentioned that you're convinced to recover most of the losses in nontransaction. Can you share more details about the nature of these projects? What were the trigger of the credit events? And how much did you provide against the exposure as of the end of last year?

[Chao-Ting Lin, executive]

Okay. I think the first one, for the peer group result, from 2012, we changed our product strategy. We're more focused on value-driven product structure. You can see we enhanced our regular product. And from last year, actually, we're more focused on a professional-type product. I think that some of our peers, major peers, that I think also followed our step for the product changes. So in terms of the asset growth comparison to our peers, we are more slowed up -- we are -- the growth rate, I think, is lower than our peers. This is mainly driven -- that's because that we didn't focus on the savings-type products. And for the value of new business, our loan transactions, I think we still -- we want to maintain positive growth for the future. Our general guidance for the VNB growth is 3% to 5% growth. This is our total guidance for the value of new business. And actually, also pre-hedging, our recurring yield I can give you. This year, we -- I think in 2018, our pre-hedging is 3.5%, increased by 15 basis points. I think it's because that we've maintained our duration also with more out of the portfolio of fixed income. Again, in the future, we will still -- you will see pre-hedging recurring yield. We -- our strategy will gradually up in the -- I think that this year, I think, our target will be higher than last year. But I can't give you a specific number for -- in this perspective. And also I think upon the hedging strategy, we were more dynamic, adjust our hedging structure. You will see that last fourth quarter, our traditional fee is we are dropped by 8% from 59% of CS, and we were down to 61%. This is because in the fourth quarter, the hedging cost normally is quite high. And so we reduced that increase by our partly hedged. I think that because right now, our hedging cost is not our expectation that spread out 3%. Actually, in comparison to last fourth quarter, I think the best -- the worst scenario didn't happen. Or it means that right now, the traditional hedging cost is a little bit down compared to by last fourth quarter. But we still will maintain more dynamic hedging strategy. It means that we still will adjust our hedging structure. But I can -- I just -- you will see actually our hedging structure from the traditional maybe between that 50% to 70%, generally I think it's in that range. We will depend on the market situation to determine that.

[Grace Chen, executive]

And then just to add some point today, if you look at the hedging yield and the dynamic, basically, we have to decide what proportion we want to hedge through traditional hedging, that means currency swap and NDFs, and what proportion that would go through the basket hedge, so what proportion could be open. And this will depend on: one, the hedging cost itself, currency swap and NDF. For example, in fourth quarter last year at the peak, the currency swap and NDF was above 3%. But in February, the recent month, it has fall below 3%, and it's putting the currency swap ratio over 2.5% only. So this is better than expected. And it also depends on our view on the currencies in traditional basket hedge. So it would depend on the opportunity. So that's why it's quite dynamic. It has to depend on the relative performance outlook for currencies and also the view on the currency swap and NDF.

[Chao-Ting Lin, executive]

Okay. As of the bad -- the one-off bad debt provision about our Singapore branch, due to some nondisclosure agreement within the government and the insurance company, and I cannot tell you the amount. But that event is because a couple of years ago, we issued a project finance loan of electricity power plant in Indonesia, which is -- which was hit by a tsunami during September last year, that's because of the earthquake. But we are very confident to collect the full amount loan back over the next few years because we have 100%, to be precise, 140% protected by the insurance and the reinsurance contract. That's pretty much our having the provision. And we have 100 -- we have raised 110 provision during the last quarter. But as of the -- as for the schedule to collect it back -- to collect back, I have no idea because the insurance company and the reinsurance company has -- have to go through their internal procedure and some of the approval process between the state government and the owner of the power plant.

[Grace Chen, executive]

Because the collection schedule is less certain, and that's why we have to be prudent. End of last year, we have made 100% provision against that.

[Anderson Cha, analyst]

Can I ask you a follow-up question? Can you basically mention about new money yield for interest-earning assets in recent quarters and also your outlook, please?

[Grace Chen, executive]

This is for Cathay Life, yes?

[Anderson Cha, analyst]

Yes.

[Grace Chen, executive]

Typically, it would be -- new money of Cathay Life tend to range somewhere between 2.9% to 3.3%. And as Abel mentioned earlier, in 2018, our new money yield and the overall recurring yield has improved. So far, the -- it varies quarter-over-quarter. In fourth quarter, roughly it's 3.17% in fourth quarter.

[Operator]

And the next question is from Jerry Yang from Nan Shan Life.

[Jerry Yang, analyst]

I have 3 questions. First is regarding your book value recovery. It recovered significantly from year-to-date. Can you tell a little bit about the numbers? Is it TWD 100 billion from the OCI and another TWD 100 billion from the AC just to confirm? The second is regarding some dividend guidance because the market -- I'm not sure how should I read the dividend per share right now. Should I say it one point something? Is it proper to say that? And third is regarding the recurring yield. How do you plan to improve that through your asset mix? Should I say increasing overseas fixed income from here? And what else? Because your cash position is about 1%, so just seeking your insights.

[Chao-Ting Lin, executive]

Jerry, I think the first one, you may find additional information for our -- this is our internal information. But we didn't -- it's not audited by our auditors.

[Grace Chen, executive]

[putting in the right number].

[Chao-Ting Lin, executive]

It is just for your reference. So I think the first one, our -- as the OCI product overlay, I think the unrealized also you have already seen in our presentation. I'd give you some most updated here today. I think our unowned, together unrealized, right now, we have unrealized gain of approximately around TWD 30 billion. So from next year, around TWD 75 billion to positive TWD 30 billion is quite a large swing. And from AC, I think our last year end is from next year TWD 96 billion. And right now, until now, today, it's turned to positive. I think also it's very a big swing. So total gains together, I think we have TWD 200 billion pickup from that point. This is just for your reference. And also I think each day, this is still very volatile. Sometimes, it could be worse, sometimes, it could be better.

[Grace Chen, executive]

The movement from AC does not influence our book value.

[Chao-Ting Lin, executive]

And secondly, the economy, I think that we -- just for the -- our internal, we have a trend to increase our recurring yield. We will reduce our domestic fixed income, including corporate government bonds, corporate bonds and also our mortgage loans. We will reduce that position to increase to overseas fixed income. And also we will lessen our provision. And also I think that I've quoted that one of that is to promote our fund.

[Chang-Ken Lee, executive]

So we still have a lot of room to grow our promoter fund position. So basically, this is also one of the trends, which we can increase our recurring yields.

[Grace Chen, executive]

And I would like to reiterate that you please see Page 7. Page 7 from the perspective of holding company, our book value rose up to TWD 622 billion as of February end this year. And of course, book value per share is rebound to TWD 41.4 per share.

[Jerry Yang, analyst]

In February, right?

[Grace Chen, executive]

In February, yes. And therefore, the dividend policy guidance, you could say that probably some TWD 1 per share. But if -- we will wait for that resolution in early May, after the discussion of our board meeting. And as you know, the market volatility is comparatively large compared with this year, and trade war dispute is still there. So we might just consider more for our future growth. And yes, compared with last year, it's TWD 2.50 per share. You might have a relatively conservative thing.

[Jerry Yang, analyst]

Estimate.

[Grace Chen, executive]

Yes. Estimate, yes.

[Jerry Yang, analyst]

So my estimate is too conservative?

[Grace Chen, executive]

We can't tell you now, but we will wait for the final resolution of the board meeting.

[Operator]

And the next question is coming from Anna of Goldman.

[Yingqiang Guo, analyst]

I've got 2 questions. One is on Cathay Life, the book value. So can I know exact for the unrealized gain of financial assets? Is there any other things we should be aware of that has contributed to the decline in your book value? And secondly is on bank side. Could you please tell us the breakdown for the net interest margin for your foreign currency and also NT dollar?

[Grace Chen, executive]

Anna, for the first question, if you could kindly look at Page 27. This is the unrealized gain losses of financial assets. End of last year, it was a negative number, minus TWD 73 billion. And as Abel mentioned, as of last Friday, it already recovered back to positive TWD 30 billion. This is mainly because the market movement, given the size of the investment, the volatile financial market does create mark to market volatility in FVOCI. And we have more accessible asset class in FVOCI, that's why you have seen this volatility. There is not much other items that cause these changes. And your second question on the breakdown, the net interest margin amount -- foreign currency loans and Taiwan dollar loans, we don't provide the detail on the spread number, but I can give you a guidance that if you look on Page 19, this is the loan for SME and for the loan -- I'm sorry, on Page 15. This is the loan for SME and loan for foreign currency loans. Typically, a foreign currency loan per spread is more than 1% higher than Taiwan dollar loans. And on this page, on the left-hand side, SME loan was growing, and the foreign currency loan was also growing. These 2 tend to have higher margin than other mortgage or loans to that of corporate and government.

[Operator]

And the next one is coming from Jemmy Huang of JPMorgan.

[Jemmy Huang, analyst]

I have 2 questions here. The first one is also on your hedging. If we look at Page 25 of the pie chart, is it fair to say most of the decline on the traditional hedge come from the lower NDF proportion? And then the increase in proxy and open, is that mainly goes to the proxy or goes to the open linked position on a quarter-on-quarter basis? This is the first question. The second one is if we look at your unrealized losses end of last year, TWD 73 billion, could we get a rough lead between fixed income and then equities? And then when you see, like, around TWD 100 billion recovery year-to-date, is that mainly coming from equity or mainly coming from fixed income?

[Chao-Ting Lin, executive]

The first one about our hedging, I think part of our swaps and part of our NDFs. But the increase, most of that is traffic. We didn't open, I think, [it's euro]. And this is for the hedging. And for unrealized gain, I think that both equity and -- because you know the equity market boost are booming. And also I think the interest special risk rate and corporate yield dropped down. So both of -- we gained from that.

[Chang-Ken Lee, executive]

I think it's quite even in between fixed income and the equity, the recurring TWD 100 billion recovery.

[Jemmy Huang, analyst]

Yes. And -- but out of the TWD 73 billion unrealized losses, is there any rough split between fixed income and equities?

[Chao-Ting Lin, executive]

I think they're mostly in equity side, mostly in assets. Around, I would say around 70% in equity.

[Operator]

And the next question is coming from Chung Hsu from Crédit Suisse.

[Chung Hsu, analyst]

I have 3 questions. My first question is a follow-up on your asset growth. I noted that you have slowed down quite a bit from about 9% to 10% in 2017 to slightly below 5% in 2018. I just want to know if this growth rate continue to maintain a 4% to 5% rate, do we have to take into consideration of the current management for Cathay Life, knowing that it probably leverages Cathay than some of your competitors. But if we take that -- we include the consideration into account, how would that affect your business or your asset allocation going forward? Do we have put -- assign more cash or shorten the pay ratio, shorten the duration? My second question is a more broad macro, this inverted yield curve in the U.S. or if the yield curve maintain very, very flat, how would that -- can you just kind of help us understand how would that affect your business or even your products? Because you have kind of stressed that U.S. dollar-denominated policy will drive above a lot of your new business growth this year. I just wonder if that's sustained, the slight yield curve is sustained, how could you be affected? My third question is a modeling question. Just can you tell us what -- how much would you upstream capital from your line and bank facilities this year?

[Grace Chen, executive]

Chung, let me try to answer your first question. First, regarding asset growth. If you look at -- there's a note in page -- of the financial statement, and you can see the growth. The company, we have made the decision, we want to target value-driven policy. And therefore, if they are more short-term customer, we will agree to sell them investment bank policies. And the investment-linked asset gets booked. It doesn't go through my overall asset we manage. And therefore, in 2018, we focus more on these traditional policies. So this pure protection policies, if you look at Page 21, Page 21 to the left-hand side, if you see the first year premium on 2018, combine the traditional life regular-paid and the pure protection and the health and accident, they are smaller money if you compare with the various kind of floating sensitive single-paid policy. They may be smaller amount, but they do contribute to value of new business. Okay. So for that reason, you probably would see that the volatility in total asset growth. Last year, the traditional life, the margin is much better.

[Chung Hsu, analyst]

I guess, my -- what I'm asking about is would there be any -- because a lot proceed with more short-term policies for what would mature first. So if you slow down your asset growth, do we have to take into account the mix of your past book? If there's a policy outstanding, and therefore, you cannot allocate your investment into loan, book more long-term, bigger-return products? Because I mean, I understand Cathay has been maybe a bit more volatile than, I mean, some of the business growth. But if you understand enough, everybody's trying to shift to a slower growth. Do we have to consider that liquidity into account or that's not an issue for you?

[Chao-Ting Lin, executive]

I think so. I think the quick briefing is that I think the asset goals. I don't think in the long run, we can keep that high-growth, especially in Taiwan. And also I think the regulator right now, they are more focused on this issue. We don't think the savings type product are sustainable. Especially right now, they think that we take much more risk in ourselves. So you will see right now, they want to maybe more analysts to -- more discipline to our funding, improve our guarantee rate and also our interest credit rate. So we expect the asset growth, because in the past years we have very high asset growth in the industry mainly from the saving product, but I think in the future, especially when we're considering we are adopt IFRS 17 and also international capital standard will also be adopted by Taiwan, I think this kind of product they carry too much risk and cost too much capital. So we don't think that this kind of product will be sustainable, you can see there's a future that you're going to see. So we think everyone should follow our step to product type. It will be very simple. By the way, we also focus for the liquidity. And I think that we believe we don't have -- we don't concern about the liquidation problem because right now, the margin of this regular product, and we -- its yield, we will forecast the liquidation of the current dollar and also U.S. dollar. We didn't think -- we're much sure that we have no liquidation.

[Grace Chen, executive]

Yes, the operating cash flow, as you may heard, quite [indiscernible] positive number.

[Chung Hsu, analyst]

Okay. For my second and third question, please.

[Grace Chen, executive]

And so simply, as a point, if you look at the total premium, because 2018 was the last year of the 6-year installment that we showed in 2012. And therefore, last year was maturity of the policy. You will see more lower renewal premium. But I think from this year onward, it should be more stable.

[Chao-Ting Lin, executive]

Chung Hsu, are you asking the implication of the inverted yield curve to our asset allocation? Is that your question?

[Chung Hsu, analyst]

Yes, yes. I mean, potentially, on the product because we have a couple of state governments here. Yes, please go ahead.

[Chao-Ting Lin, executive]

Yes. So it's definitely -- I think it's onetime drop, but I think that doesn't mean that there would be an imminent recession. So which means that from my personal perspective, the next recession still around, let's say, 12 to 18 months away. So yes, we do take into account into our asset allocation decisions, so which means that we might trim down a little bit of our rich asset and move to more quality asset and fixed income like IG credit. So yes. So this is a very tactical perspective. So in the long run, yes, we do care more about our asset quality and also try to improve our recurring yield.

[Chung Hsu, analyst]

I just want to follow up on this part. Are you able to -- can we have more kind of different implications on the product side, right?

[Chao-Ting Lin, executive]

I think the product side, I think that most of them, they -- I think what we said is that, for example, our credit -- interest credit rate should be affected by the -- right now, the long-term yield is going down. I think it will reflect to our product. So it means that for this type of product, there will not strong demand, for this, lower down interest credit rate.

[Grace Chen, executive]

The government is also helping to push the industry to a more reasonable risk-pricing strategy of the guarantee rate, for this interest-sensitive floating rate, the offering price is actually quite high. So hopefully, the industry, with better discipline, the guarantee could come down a little bit.

[Chung Hsu, analyst]

Okay. And then lastly, the amount of earnings upstream from life and bank subsidiary to holding company?

[Grace Chen, executive]

All right. This year, life subsidiary won't upstream any earnings. However, CUB will upstream TWD 10 billion. I think that's all quite preliminary. It needs the courts approval -- already approved.

[Chung Hsu, analyst]

Okay. And the reason I ask about this if you have double leverage, right, 105%, 2 years ago, 108% and 112% last year. I just want to know if there's -- I know there are number of financial holding company, double leverage is above 115%. But I mean, just for Cathay, is there a target of double leverage?

[Grace Chen, executive]

Our double leverage is quite satisfactory. And our debt ratio is below -- quite below the industry average as of February end. Our debt-to-equity ratio is just around 11.8%, relatively low compared with the average of more than 14%. So it's okay. You know the upstream amount is when we inject and reach more earnings, yes, in our life subsidiary. And yes, we will increase our debt ratio, but we still have more room, especially compared to some peers. I don't want to mention -- yes.

[Chung Hsu, analyst]

Yes, Grace, I understand. It will also -- the other half of it is, because if you pay more than TWD 10 billion cash, your double leverage is going to go up. I'm just trying to understand if Cathay is ready or prepared to let that double leverage ratio go further up.

[Grace Chen, executive]

We'll try our best to keep the double leverage ratio below 115%.

[Operator]

[Operator Instructions] There appears to be no further questions at this point. Ms. Cheng, can we close the conference call now?

[Sophia Cheng, executive]

Thank you all for your participation in Cathay Financial Holding's Conference Call. If you have any further questions, our IR team will stand by here for you, and please feel free to contact us. Thank you, and goodbye.

[Operator]

Thank you, Ms. Cheng. We thank you for your participation in Cathay Financial Holding Co.'s Conference Call. You may now disconnect. Goodbye.