China Development Financial Holding Corp

TWSE:2883

Earnings Call Analysis

Positive FYP Growth, Dividend Resumption

The company plans to resume dividend payments, shifting focus to cash-only payouts. Despite a decline in FYP and VNB last year, expectations are set for double-digit FYP growth, emphasizing product quality over absolute numbers. CSM has seen double-digit improvements and similar growth is targeted for 2024. The cost of liability (COL) is predicted to rise by 3 to 5 basis points, and a stable hedging strategy will be maintained despite potential rate cuts by the Fed. The company intends to expand loans by 10%, with efforts to grow personal loans and overseas lending, while keeping credit costs between 15 to 20 basis points.

Strategy and New Initiative

The ABCDE Strategy delineates KGIS's comprehensive approach to digitalization and customer service. With advancements like the launch of an APP e-Strategy, KGIS now allows for real-time API connections for U.S. stock trading, leveraging AI to boost trader efficiency. The firm has also launched 700 bond offerings to cater to customer preferences. In addressing employee experience, the smart eKYC system was introduced, enabling simplified customer transaction limits and easing employee workload. The firm's focus on education is evident as it progresses towards becoming the Employer of Choice in Taiwan, achieving the highest RFA certifications, indicative of their commitment to skill improvement and customer service excellence.

Financial Performance and Prospects

Jenny Huang, the CFO, provided a solid overview of the financial achievements, highlighting a net income of TWD 18.94 billion for 2023, underpinned by a robust rebound in OCI (Other Comprehensive Income). The reported ROAE (Return on Average Equity) stood at 8%, with the actual figure being higher when incorporating comprehensive income. The EPS (Earnings Per Share) was TWD 1.13, and TWD 14.17 for the first half of 2024, signaling strong ongoing value growth. KGIS's net income remained stable year-over-year at TWD 7.3 billion, with marked improvements notably within brokerage, wealth management, and investment sectors compared to the prior year. Subsidiaries like KGI Life and KGIB contributed with rebounds and steady performance respectively. The group's capital adequacy displayed impressive strength with ratios well above regulatory requirements. A mention of Taiwan's AA- rating affirmed the company's stable outlook.

Optimization in Product Mix and Channels

KGI Life optimized its product mix towards long-term USD and protection products, which now compose 54% of FYP (First Year Premium) and 90% of FYPE (First Year Premium Equivalent) if considering only regular-pay plans. The organization adjusted its sales channels to adapt to market needs, focusing on a diverse and balanced channel strategy, which included a 30% contribution from FYP attributed to self-owned channels. Despite a decline in VNB (Value of New Business) by 13% due to FYP slump, KGI Life's VNB margin impressively reached 35.5%. The company also proactively managed its asset and liability match, adjusting its investment strategies to maintain a healthy investment return of 3.31% against a cost of liability (COL) of 3.03%, ensuring long-term positives.

Bank's Progress and Market Adaptation

KGI Bank's 2023 saw a net revenue peak at TWD 13.5 billion, with 33% growth in wealth management fee income. The bank's net interest margin (NIM) held steady at 1.32%, and asset quality remained consistent, with non-performing loans (NPL) staying flat. Adopting a more consumer and SME-centric approach, KGI Bank recorded double-digit growth in consumer loans and increased the CASA (Current Account and Savings Account) ratio to 41%, indicating a balanced funding structure and a stable momentum in its deposit base.

Asset Management and Investment Outlook

The AUM (Assets Under Management) grew slightly from TWD 50.4 billion to TWD 52.1 billion, with balanced distribution across currencies. CDIB, focusing on principal investments, saw their total investments rise to TWD 34.2 billion, including diverse financial instruments. Although a slight dip in fee income to TWD 574 million was reported, this was attributed to the exiting period of some funds, with the company maintaining stable income thanks to new business initiatives.

Earnings Call Transcript 2023-Q4

[Unknown Executive]

[Interpreted] Good afternoon. I'm the speak-woman of CDF [indiscernible]. First of all, welcome all of you who joined the Q4 2023 Investor Conference of 2023. There are 5 parts. I will invite Steve, the President of CDF, to introduce the 2023 performance review and strategy update of ABCDE strategies.

In the ABCDE Strategy, update of the subsidiaries and performance review will be covered by the presidents of the subsidiaries. And the third parties financial overview, we will invite Jenny Huang, the CFO of CDF, to introduce the financials of the CDF. And the fourth part is the performance review of the subsidiaries and the presidents from the subsidiaries will talk about the achievements and performance highlights. And lastly, it's the Q&A. Before I invite Steve, I would like to remind you if you need translation, you can use the WebEx function.

So now I hand over to our CEO, Steve, stage is yours.

[Steve Bertamini, executive]

Thank you, April. Good afternoon, everyone. Thank you very much for joining. So I'm going to start by giving an update on our 2023 performance. Net income for last year was TWD 18.94 billion, reflecting 16% year-on-year growth. Additionally, our comprehensive income was TWD 53.8 billion. We're selected for the fourth year in a row to be included in the Dow Jones Sustainability Index, and we also aligned the brand positioning of all our consumer-friendly facing brands with the rebrand of KGI Life.

In terms of our Life company, net income was TWD 10.18 billion, and the net worth increased 39% year-on-year. Life remains focused on higher-value products with further VNB margin expansion to 35.5% from 30.5% the prior year. Also, our pre-hedging recurring yield was up 11 basis points to point 3.86%, and we continue to have the lowest cost of liabilities.

In terms of our bank, net income was TWD 5.4 billion for an ROE of 8.26%. And our Wealth Management income grew by 33%. SME and personal loans continued with very strong growth of 13% and 21%, respectively. And our consumer finance profits from our joint venture in China were up 143%. We also increased our stake at the end of the year to 37.6%. KGI Bank now gets 12% of its income from overseas, up from 1% in 2021.

CDIB Capital had net income of TWD 2.2 billion, very strong growth from the prior year where we had a small loss. Also, they formed new partnerships for 5 industrial funds or public utility projects, and we're expecting fee-paying AUM to increase by almost TWD 20 billion this year. We also selected 10 potential teams to pledge match funding NDC's regional realization initiative to support micro and small business to energize local economies.

KGI Securities had net income of TWD 7.3 billion, up 102% year-on-year, and overseas contribution increased to 14.6% from 11.3%, particularly led by very strong growth in Singapore, where we had a record year. We maintained our #1 position in ECM and DCM, and brokerage market share increased from 10.4% to 11.1%. Also, the focus on wealth management AUM has been very successful with 31% year-on-year growth up to TWD 443 billion. Last year, also, KGI SITE became a Tier 1 subsidiary to help us accelerate our growth in asset management by focusing on institutional business and retail ETFs.

I'd now like to spend a few moments to give you an update on our ABC Strategy. For those of you that may recall, we put this in place at the beginning of 2021, and I thought I'd share a few key highlights in each area. In terms of Digital, the percent of online transactions that we now have at the bank is 87%; KGIS, 79%; and we've seen a doubling in our Life business from 9% to 21% since 2021. Also, our share of digitally acquired customers since 2021 is up 43%. And last year alone, we added over 150 features and enhancements to our applications. A new area of focus for us is AI, and I'll talk more about that in a moment.

In terms of Becoming Employer of Choice, we continue to see very good growth in our employee engagement score from 61 in 2021 to 73 in 2023. We also continue to enhance our training and work on our values with over 179 Values awards given last year. We further enhanced the employee experience by improving our benefits for maternity, maternity leave, employee assistance, volunteer leave and other programs.

In terms of Customer Focus, our Net Promoter Score as a holding company has moved from #5 to #1 since 2021. We also increased our number of active customers last year by 5%. And we've materially increased the number of customers that have given us consent to share their information so we can help other subsidiaries meet their needs.

In terms of Driving Growth and Execution Excellence, you hear more about that from the President, so I'll leave that to them. I just want to make 2 points. In terms of our end-to-end straight-through processing, which is a key metric that we look at, just since last year alone, the bank improved by 21% to 60% of all transactions being pure digital. Securities improved 35% to 58%. And our Life business also improved to 18%, which is an 8% improvement. And as you're aware, we continue to make very good progress on ESG, and you can see a lot more information on that in Page 35.

In terms of AI, as all of you know, this is a new area of focus, not only for us, but for everyone. Now there are 2 types of AI: One is traditional AI that most companies, including us, have been using for quite a few years, which is primarily around using neural networks and also decision-based trees. But generative AI is new, and everyone is in the same starting place. So we think this is an area for us to really focus on where we can create competitive advantage.

On this page, you see some examples of the core technologies that we've started adopting in many of our businesses so that we can become more proficient and create real value for our customers and our staff. In summary, we continue to execute and make strong progress in our ABCDE Strategy. We had a strong start to 2024 with year-on-year performance up 21%, and we look forward to continued strong performance for the rest of the year.

I'll now pass it on to Eric to give you an update on KGI Life.

[Eric Su, executive]

[Interpreted] I will then talk about ABCDE performance in 2023. We're a young and energetic brand and to have consistency across the group, starting from January 1, we have changed our name from China Life to KGI Life with new product design and new employee value proposition committed to your prosperity. Through branding and through resource integration, we can provide comprehensive financial service to our customer and truly become customer-centric.

At the same time, in line with AI trends, we have introduced latest generative AI for agents training. This is the first in the industry. We simulate different sell scenarios and different customer demand to improve agent learning efficiency and sales skills, building the best team in the industry. And for the transition to IFRS 17 and ICS in 2026, we continue to promote product transformation. And in 2023, we have also seen some initial results. Our traditional foreign currency and FYP reached TWD 26.4 billion, #2 in the market. Protection-type FYP reached TWD 20.7 billion, increased 40% Y-o-Y, #2 in the market versus [indiscernible] products, FYP reached TWD 21.1 billion, #3 in the market. This year, we will continue to improve our productivity and profitability and pursue stable long-term financial growth. This is regarding KGI Life, our results of our ABCDE strategy.

Next, I'll talk about KGI Bank's strategic progress. First of all, in Accelerate Digital, we continue to expand the Alliance Network. In 2023, we collaborated with 11 partners, including taxi fleets, e-commerce delivery and rental platforms. We also won many awards, and it also reflects in our retail business growth. This year, we'll continue to be creative and provide digital convenience, provide customer -- improve customer experience and expand the bank business. In terms of customer oriented, we'll continue to expand our RM and IC team. The wealth management fee income reached 33% Y-o-Y. And this year, we'll continue to expand the business, and we expect it to grow the percentage of the income in retail business.

And Wealth Management income improved to 60%. In terms of execution excellence, we continue to be committed to ESG-related products. The green loan balance reached TWD 17 billion and improved 6.3% Y-o-Y. We continue to expand the solar power and wind power projects. Now we actively participate on lead ESG-related loans. We will continue to support the current business and expand our corporate businesses.

Revenue, I will talk about CDIB capital strategic progress for 2023. In terms of partnership in 2023, we collaborated with health care, semiconductor, AI, and advanced manufacturing sustainability and built a strong infrastructure. In terms of product innovation, in 2023, we hosted an inheritance-related seminar, and we also provided a private credit and we collect -- we did collaborate with different funds in terms of customer orientation. And in terms of investor, we started to help knowledge sharing seminars total 23 in '23. In terms of investors, we help them to obtain key resources, including senior management and cultivation services in the ecosystem. We'll help them to identify potential opportunities of collaboration.

In terms of execution excellence, we'll continue to do upstream led by our employees to improve the efficiency. We also leveraged AI to create risk appetite dashboard, combining the financial data to help us understand the status of the portfolio.

Now I'll hand over to KGIS.

[Unknown Executive]

[Interpreted] I'll talk about ABCDE Strategy for us of KGIS. In digitalization, I find out overseas bond trading volume improved a lot. In order to help the customer, our APP e-Strategy, we launched the overseas bond trading service. Meanwhile, unlike other securities, we launched the 700 bonds and customers can choose the suitable products. And led by the AI trend, to fulfill the need of the high frequent traders, we provided real-time API connection trading service for U.S. stock market. In this way, it can improve the efficiency of investor in the stock market.

In terms of Become Employer of Choice, we introduced the smart eKYC to optimize the authorization or adjustment of customer transaction limit and simplify the application process to reduce the burden of our employees. In terms of consumer-oriented, since Taiwan's society becoming an aging society, we obtained the highest number of RFA certification among our peers to improve the skills of our RFAs. By the end of 2023, we are the highest among the peers. We have 22 RFAs obtaining the certification.

In terms of product growth, to deepen the collaboration within the group, we can provide one-stop service to the group customers. We trained more than 1,000 KGI Life salesperson to obtain the certification of Securities Specialist Exam. We also obtained the approval from the FSC, and now we're going to submit the application to the security and trading agencies. And we -- if we obtain the approval, we can expand the sales teams and provide one-stop service to group customers.

I'll hand over to our CFO.

[Jenny Huang, executive]

[Interpreted] I'll talk about our financial overview for 2023, please refer to Page 14 of our slide. Our 2023 net income is TWD 18.94 billion. Because of our rebound in OCI, our net worth also grew, so the total ROAE here reflects is only 8%; however, if we include what Steve mentioned, the OCI comprehensive income and then calculate the ROAE, our ROAE is actually higher than the 8% shown here. Our 2023 EPS is at TWD 1.13. Our total asset has amounted to TWD 3.6 trillion, up 3% comparing to last year-end, and our total equity also grew from TWD 209 billion to TWD 263 billion.

And the EPS is TWD 14.17 for first half, and our value is still going up because of the strong momentum of the first 2 months of 2024. In terms of profitability of our subsidiaries, KGI Life's net income was TWD 10.2 billion, although this income is compromised by the increase of hedging income. But KGI Life's OCI also rebound by TWD 31 billion. KGIB's income is TWD 5.4 billion, down 1% compared to last quarter. This is coming from the bond negative carry. And if the rate begin to cut and we will be able to see a rebound in this.

And the upper record is CDIB. Because of valuation recovery, the performance is better this year. Our net income is TWD 2.2 billion. KGIS net income is TWD 7.3 billion, this is almost stable from the previous year. In terms of brokerage, wealth management and investment, our performance has grown significantly comparing to the previous year.

And next is our capitalization of the group. CDF's double leverage ratio has improved from 128% to 122% in 2023. The 2023 income and the OCI valuation recovery have both boosted our capital. And the 3 subsidiaries, capital adequacy ratios are well above the regulatory limits and are very strong. And currently, Taiwan's rating also confirmed our rating is in AA- and the long-term outlook is stable.

And that will be all from me. Now I will hand over to Eric of KGI Life to recover about the financials.

[Eric Su, executive]

[Interpreted] Talk about KGI Life's performance in 2023. Page 18 regarding premium income. In 2023, FYP was affected by rate hike affecting the sales momentum in life insurance industry. However, in recent years, for our product mix, we continue to focus on long-term USD and protection products. Therefore, the product mix has been optimized. And as you can see in the slide, FYP, traditional regular pay FYPS account for 54%. And for FYPE regular pay accounts for 90%. And continue to match asset and liability, we also focused on foreign currency policy.

In 2023, a percentage has reached 15%. Our CFM compared to last year has increased by 20%. And in terms of sales channels, KGI Life maintains a diverse and balanced development and continue to strengthen our self-owned channels. In 2023, we see that the percentage of FYP has reached 30% because agency channel focused on fixed pay plus and [ NAH ] products, although FYP accounts for just 31%. But if you look at [ CSM ] contribution, it has exceeded 50%.

Next, Page 19, regarding operational performance. Because of the decline of FYP, VNB also dropped around 13%. We continue to focus on high margin products. The overall VNB margin reached 35.5%. If excluding ILP, the figure is 39.2%. And for asset and liability, due to the increased hedging costs, the investment return is 3.31% and COL at 3.03% maintaining a long-term positive.

Next, Page 20, regarding investment portfolio. The value ALM and focus on long-term stable income. Fixed income is our main allocation. In 2023, our portfolio did not change much. The rate changes in the table includes the changes in calculation. The investment return on each item has been listed on the slide. And for foreign investment, these are pre-hedged figures.

Page 21 regarding investment performance. Due to the return from new money, our recurring yield has reached 3.86%, up 11 bps compared to last year. And for hedging structure and cost for FX exposure, 66% were hedged by swap and NDF. Due to the depreciation of USD, the hedging cost ratio is 1.53% and the balance of FX reserve is TWD 9.77 billion. Next, I will hand over to [ Wang. ]

[Unknown Executive]

[Interpreted] KGI Bank 2023 performance review. In terms of profitability, the net revenue in '23 reached TWD 13.5 billion. In net fee income, we jumped to 12%, especially in the wealth management fee income grew nearly by 33%. And in terms of spread, it's stably expanding, reached 2.1% in '23. And NIM maintained at around 1.32%. As for the asset quality, it's stable. In terms of NPL, we maintained around flat.

Next, the loan and deposit trends, we continue to try to grow the scale of loan. The loan asset especially corporate loan, we made some adjustments. We focused more on consumer loans and SME. In consumer loans, we achieved a double-digit growth. In terms of structure of deposits, the CASA ratio gradually up to 41% in '23. In the loan scale, even though we do not find significantly or considering the impact of post COVID, we try to expand the scale of both loan and deposit. And in terms of deposit in '23, the main deposit of NTD would just -- and we will maintain the stable momentum, and that's all from me. Let's hear from Melanie Nan from CDIB.

[Yi-Chun Nan, executive]

[Interpreted] Now I'll talk about the 2023 performance review. Please turn to Page 26. First of all, in terms of AUM. In the first part, the AUM commitment from TWD 50.4 billion in '22 to TWD 52.1 billion in '23 excluding funds of '23. Among the TWD 52 billion, U.S. dollar accounted for 51 billion (sic) 51% and NTD accounting for TWD 27 billion (sic) 27%. For principal investment composition, the total number grew from TWD 30.2 billion from '22 to TWD 34.2 billion, including the private credit and corporate inheritance and other instruments. In terms of the geography, Taiwan accounted for 39%.

Next page. In terms of the operational performance, we have stable income from fee income and new businesses. The fee income slightly dropped to TWD 574 million from TWD 622 million in '22 because some of the funds already in the exiting period, and we're still raising the new funds. Therefore, we can see this transitional effect. Like Steve mentioned, in 2023, we initiated a lot of fund investment. We collaborated with Hon Hai, Innolux, and 10 national funds. We launched a lot of the investment projects. And this year, we believe the fee income will see further growth. As for return on investment on the ROAE side, our ROI improved from 1.7% from '22, jumped to 11.8% in '23. Compared with the MSCI World Index, it is more stable. That is due to our asset allocation includes direct investment and fund investment. And in private credit and private bond, we have multiple investment instruments. Therefore, our ROI is more stable.

On the bottom part, that's the new business momentum. Like I mentioned earlier, we launched new investment for non-equity alternative asset management. That's mainly on private bond. It grew from TWD 251 million in '22 to TWD 333 million in '23. And the cash income from TWD 2.5 billion to TWD 3.2 billion in '23, and the investment return is around 11.6% to 11.8%. And thus, the stable growth momentum of CDIB. And we'll also provide other products. Next [indiscernible]. Next, we'll move to KGIS.

[Unknown Executive]

[Interpreted] Thank you. I'll talk about the 2023 performance of KGI Securities. In Page 29, on the left side, we can see the net revenue benefiting from the good market. Both of the revenues overall totaled TWD 15 billion, and the annual growth is 35%. And on top right, we can see customer's AUM reached TWD 443 billion. Compared with the previous year, we see a 31% year-on-year growth. Wealth management and asset management, they both grow. On the bottom right, it is the wealth management-related revenue. We build a customer-focused wealth management business. In 2023, the growth rate was over 50% and reached TWD 1.86 billion.

Next page, on the top right -- top left, the net income composition, our net income is TWD 7.3 billion. Overseas contributed 14.6%, contributed more than TWD 1 billion. The Singapore branch obtained record high net income, and they also work on professional institutional investors. In Singapore, the brokerage market share ranked #1. On the bottom left is the ROAE comparison with the industry average. The dark green is KGIS and the lighter green is industry average. In 2023, our ROAE is 13% and slightly better than the industry average.

Now lastly, on the right side, that's our market positions and all the business growing, we still maintain our leading positions.

Next, I'll go back to April.

[Unknown Executive]

[Interpreted] And over with the Presidents and their summary. Now we're moving to the Q&A session.

[Unknown Executive]

[Interpreted] We'll first invite institutional investor and analysts to raise the questions first. [Operator Instructions]

The first question is from Jemmy from JPMorgan.

[Jemmy Huang, analyst]

[Interpreted] I have the following questions. First is for KGIB. For KGIB, I know that your slide says your name increased the swap revenue. Can you describe Q4, the adjusted NIM and the NIM excluding swap, can you give us the figure, and the full year swap revenue for the previous year? And what will be your outlook for NIM for this year?

And questions for KGI Life. Can you share with us if the C3 risk increase, how would it affect your RBC? And other lifers announced that they have the plan to raise long-term debt. And for KGI Life, if you consider the ICS to be incorporated in 2026, will there be a need to issue sub debt for long term? And if you do need that, what would be the amount?

And next is the efforts we serve, what is your limits for FX reserve this year? In terms of recurring yield, I remember from the last call, you expect this year, you will see 5 to 10 basis points increase. I'm not sure if you have changed this guidance. And lastly, is your dividend policy. Since your OCI has rebounded by TWD 30 billion, I wonder could you use that to pay out dividend? If we look at the previous year's cash dividend payout, the ratio is about 50% to 60%. So please tell us the trend. And would you be paying dividend in cash this year or in stock as well?

[Unknown Executive]

[Interpreted] Okay. Thank you. You asked questions about KGIB and KGI Life as well as our dividend policy. I will now first hand over to [indiscernible] to answer.

[Unknown Executive]

[Interpreted] If we exclude the swap position, our NIM is at about 1.05%, and the '24 outlook for NIM, if we exclude swap, we want to maintain at about 1.3%, and our spread will be maintained at 2.1%. And for KGI Life, we'll hand over to the Chief [indiscernible] to answer the RBC issue.

[Rochelle Hsieh, executive]

[Interpreted] Regarding the stipulation and plan from IB for C3, the changes will be around 10% plus. Our RBC will still be above 300 considering the changes. Due to sufficient RBC or sub debt issuance, now we do not have such plan. IB has announced localization for ICS and transition measures. This will also out support Life in Taiwan. Our COL is lower compared to others and we also continue to value ALM. Based on what the information we have now, there is no problem in terms of the transition. Next, I will hand the floor to Lauren.

[Lauren Hsieh, executive]

[Interpreted] Regarding FX reserve, according to the formula, the upper limits is still TWD 19.8 billion. And for recurring deal, the guidance remains the same. It will continue to grow by 5 to 10 bps. Thank you.

[Unknown Executive]

[Interpreted] The dividend policy, we'll hand over to Steve.

[Steve Bertamini, executive]

In terms of the dividend, as you know, our policy is to maintain a consistent dividend policy. In terms of 2022, as you know, that was an exceptional year. But now that the OCI evaluation has rebounded, obviously, our plan is to resume a dividend. The ratio that you quoted was before the 100% acquisition of China Life, which hopefully has an impact on that. So I think 2022 was probably better guidance. And at this stage, obviously subject to the Board and the regulator, our plan is to pay in cash only.

[Unknown Executive]

[Interpreted] There are other questions from analysts or institutional investors? Peggy from Morgan Stanley.

[Peifan Shih, analyst]

[Interpreted] I want to ask about KGI Life. Last year, FYP and VNB were both in decline. And this year, the markets January, February sales of policies doing better. And so what will be your outlook and what will be your goal for FYP and VNB? And compared to other insurance company, they are all building up CSM focusing on high-margin products and what will be your CSM goal in terms of amounts for 2024. That's the first question.

And next question is on COL. Last year, it increased by 5 bps. What will be your estimate for increase of cost of liability for this year and next year? Third question has to do with hedging costs. The hedging strategy for KGI Life has been quite stable. It is at about 45% judging from the historical data. And what will be your outlook for this year if Fed is to cut rate, what will be the impacts for your hedging cost? That will be all.

[Jenny Huang, executive]

[Interpreted] Thank you, Peggy. On the FYP and CSM, we'll hand over to Eric to answer.

[Eric Su, executive]

[Interpreted] Peggy, last year, the industry was affected by macro economy. We think the worst scenario has already happened last year. This year, moving forward, we maintained a positive view for FYP growth. We will have double-digit growth. But just like what you said, in 2026, we need to transition to IFRS 17 and ICS. We continue to focus on protection-type product, foreign currency products. This is our goal. Moving forward, we will not pursue the absolute number, but rather focus on CSM and the quality of our product. And for CSM, I will pass the floor to Rochelle.

[Rochelle Hsieh, executive]

[Interpreted] Just like what Eric said, we continue to focus on high CSM product. In 2023, our CSM compared to last year has improved by double digits. And in 2024, we also expect double-digit growth as well. This is our target. And for COL, to have better ALM focused on the sales of USD policies, but the COL of USD policy is higher. So this year, we expect an increase by 3 to 5 bps for our COL.

And our hedging strategy, I will respond. Indeed, if freight cut by the Fed and also increased rate in Taiwan, it will reduce hedging point costs, but FX fluctuation is still uncertain. So for hedging strategy, we will maintain a stable approach to have the flexibility and also to adjust our hedging ratio accordingly.

[Unknown Executive]

[Interpreted] Next question is coming from Tina from Capital Investment.

[Unknown Analyst]

[Interpreted] I have a few questions here. First is to Life, your investment strategy. Last year, you have increased more position in Taiwan stock and overseas bond, and what will be the adjustment to your investment position? And also last year, what is your dividend income? And will you be aggressively trying to gain more dividend income or you will focus on allocating your equity and gaining capital gain?

And next question is on KGIB. In terms of loan, loan performance was quite flat last year. And what will be the outlook for loan and the fee for your company this year? And your cost of credit because in the fourth quarter, we've seen an increase in your NPL, is it coming from the case of London that you mentioned in the previous call. And what is the provision status and what is the credit outlook for this year?

[Unknown Executive]

[Interpreted] Thank you, Tina. For the Life question, we'll hand over to Lauren.

[Lauren Hsieh, executive]

[Interpreted] Good afternoon. For investment strategy, we continue to focus on stable investment portfolio allocation. And we are positive for corporate income growth, so we will focus on high dividend equity. And well, we buy more stock because of the dividends. But because of the fluctuation of stock, we will remain the flexibility. And for dividend income, we will adjust based on market conditions. And for bonds, we continue to bring up our recurring deal. Our USD policy, this will continue to be our focus, and we will purchase overseas bonds to increase their yield. For the bank, I will pass the floor to the bank.

[Unknown Executive]

[Interpreted] This year, our loan size, our anticipation is quite aggressive. We aim to grow loan by 10%, especially we want to grow the personal loan presented. We are also going to adjust the structure of our corporate lending. Our focus is to increase the overseas lending. In terms of strategy, this year, we also focus on fee income and raising our CASA ratio. And you mentioned our asset quality. Because we expect to grow loan balance, so our credit cost will be maintained at about 15 to 20 bps. And for that single case of NPL case, we made the relevant provision, and we don't expect to see great losses coming from that.

[Unknown Executive]

[Interpreted] And Peggy is raising her hand. Please, the floor is yours.

[Peifan Shih, analyst]

[Interpreted] I'm sorry, that was a mistake.

[Unknown Executive]

[Interpreted] Now I hand the floor to the media.

[Unknown Attendee]

[Interpreted] [indiscernible] from Financial Times.

[Unknown Executive]

[Interpreted] Sorry, we didn't catch you. Now we do. Sorry, I think you're on mute.

[Unknown Attendee]

[Interpreted] What about now?

[Unknown Executive]

[Interpreted] Yes.

[Unknown Attendee]

[Interpreted] Okay. I want to ask the question about OCI recoveries, you said about TWD 30 billion. So can you put it into distributable earnings or if you can, what will be the amount? And how would it affect the dividend payout this year? And -- or you're still using this quarter's earnings to do the dividend payout.

[Unknown Executive]

[Interpreted] Okay. Thank you for your question. We'll hand over to Jenny.

[Jenny Huang, executive]

[Interpreted] The question you raised, the OCI recovery can be partly converted, but this has to do with some technical issue. But our main focus on the dividend payout is still coming -- will be still coming from our profit.

[Unknown Executive]

[Interpreted] From Media? Okay. Thank you for the questions. That's all for today's investor conference. Later, you can find the reporting from today in our website. You can also download the PowerPoint on the Investor Relations page. If you have other questions, we welcome you to contact us through our e-mail or phone.

Lastly, thank you for participating and wish you health and fortune. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]