CTBC Financial Holding Co Ltd
TWSE:2891
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CTBC Financial Holding Co Ltd
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Welcome everyone to CTBC Financial Holding Company's 2019 First Quarter Earnings Conference Call. [Operator Instructions] And today's host will be Ms. Ya-Ling Chiu, Executive Vice President and Spokesperson of CTBC Financial Holding Co.; and Mr. Pai-Hung Yeh, Executive Vice President of Taiwan Life Insurance Company.
And the presentation will begin now.
Thank you, everyone, for joining CTBC's First Quarter '19 Earnings Call. Please turn to Page 3 on CTBC's financial highlights. Overall, at holding level, revenue in first quarter '19 showed stable growth. ROE and ROA remained high at 14.18% and 0.75%, respectively. EPS was $0.57.
For CTBC Bank, PPop increased 4.7% Y-o-Y driven by stable loan growth, improved NIM, fee income growth and trading gains. Taiwan Life net profit before tax grew 26% Y-o-Y, benefited from increased recurring investment income and declined cost of liability. Board has approved to distribute cash dividend of $1 per common share on 2018 earnings with payout ratio of 54% and dividend yield of 4.9% based on the closing price of $20.45 per share on April 26, 2019.
Operating expense growth was moderate Y-o-Y, and cost-to-income ratio was 55.8% in third month '19. CTBC's asset quality remained benign with NPL ratio remaining stable at 0.41% and NPL coverage ratio of 314% as of first quarter '19. Credit costs were at 19 bps in the first 3 months in 2019. Capital structure also remains adequate. As of third month '19, CTBC Holding's CAR was 118.2%, and double leverage ratio was 116.3%. Bank's CAR stood high at 14.4% and Common Equity Tier 1 ratio was 11.9%. Taiwan Life RBC ratio was 263%. And CTBC Holding has injected $10 billion capital to Taiwan Life on April 11. If based on calculation of first quarter '19 results, its RBC ratio would become 293%.
For Page 4 on 2019 strategic focus. Moving on to key strategic focus. We aim to continue our overseas breakthrough, pursue value-driven Life operations and explore digital banking opportunities. In terms of overseas operations, CTBC aims to increase overseas profit contribution through improving product capability and cross-border service efficiency. CTBC also aims to further improve overseas management model to fulfill the responsibility on supervision and strength in compliance management.
In terms of Life operations. CTBC will continue to focus on regular-paid, unit-linked, protection-type and foreign currency policies as well as prudent investment strategy to build a solid base for stable profit. We will also utilize digital platforms to enhance the implementation of our strategy and establish IFRS 17 Committee to minimize potential impact.
In terms of digitalization. CTBC will continue to enhance digital transformation focused on digital sales and mobile first and implement robotic process automation to improve efficiency. We also aim to build a financial ecosystem and provide customers with innovative financial services. We will continue to acquire new talent, [ clients in ] ESG and compliance policies as well as continue to improve our capital efficiency and decrease CI ratio.
On Page 5 and 6 on profitability. First quarter net profit reached $11.1 billion. Group ROE was 14.18% and ROA was 0.75%. EPS was $0.57.
On Page 7 on capital ratio. We remain well capitalized with group CAR at 118.2%, Bank CAR at 14.4% and Tier 1 ratio at 13%. Life RBC ratio was 263%. CTBC Holding has injected $10 billion capital to Taiwan Life on April 11. If based on calculation of first quarter results, its RBC ratio would become 293%.
On Page 8, on profit breakdown by legal entity. In first quarter, Bank profit reached $8.3 billion, increased 21% Q-o-Q, driven by increased fee income and trading gain. Life profit reached $2.8 billion, increased 262% Q-o-Q due to lower cost of liability and increased investment income. Holding profit reached $11.1 billion, increased 131% Q-o-Q.
On the bottom, Bank PPop grew 4.7% due to net interest income growth and trading gain. However, due to low base and recognition of income tax benefit in 2018, Bank profit was down 9.4% Y-o-Y. Life net profit before tax grew 26% Y-o-Y due to increased recurring investment income and lower cost of liability. Its profit was up 0.8% Y-o-Y due to tax income recognized in the previous year. In terms of profit breakdown, Bank and Life contributed 75% and 25%, respectively.
Page 9 on net profit movement. In first quarter, operating revenue was up 16.3% Q-o-Q, provisions were down 27.6% Q-o-Q due to TSB parameter adjustments and provisions in [ costs ]. Expense was up 14.7% Q-o-Q. CI ratio improved from 56.6% in first quarter '18 to 55.8% in first quarter '19. Insurance pretax profit was up 218%. Overall, net income reached $11.1 billion, up 131.3% Q-o-Q.
On the bottom, for the first 3 months, operating revenue was up 5% from increased net interest income, led by loan growth and NIM improvement and growth in trading gains. Credit cost increased 7 bps Y-o-Y mostly due to lower base interest for '18. Expense was up 5.7% Y-o-Y. CI ratio was flat Y-o-Y at 55.8%.
Insurance pretax profit was up 26.2%, benefited from increased recurring investment income and declined cost of liability ratio. Overall, CTBC's net income before tax reached $13.6 billion, up 3.2% Y-o-Y. However, due to recognition of tax benefit in 2018, overall Holding profit decreased 9.4% Y-o-Y.
Page 10 on revenue breakdown excluding Life. Total revenue increased 16.3% Q-o-Q and 5% Y-o-Y. Net interest income was down 1% Q-o-Q due to less working days this quarter and increased interest expense due to changes in lease accounting standards. Net interest income was up 8.9% Y-o-Y driven by loan growth and NIM improvement. Fee income was up 24.5% Q-o-Q and 1% Y-o-Y driven by better credit card, corporate and lottery fees. The combined derivatives, ForEx and trading gains was up 300.8% Q-o-Q due to increased gain in capital markets. It grew 5.5% Y-o-Y due to increased equity and fixed income gains aiming to improve capital markets. Long-term investment and others decreased 199% Q-o-Q, 42.3% Y-o-Y due to increased reimbursement to malls led by lottery sales. We see profit mix on the right and accounted for 51%. Fee accounted for 35%. Trading, derivatives and ForEx accounted for [ 16% ].
On Page 11 on Bank's loan breakdown. NT dollar corporate loan was down 0.5% due to higher base in fourth quarter '18 from increased working capital demand and up 2.8% Y-o-Y from recovery of property market. Foreign currency loan was flat Q-o-Q and up 3.9% Y-o-Y. Mortgage continued to grow 1.2% Q-o-Q and 11.2% Y-o-Y due to recovery of property market. Unsecured lending was up 0.8% Q-o-Q and up 6.9% Y-o-Y. Credit card revolving was down 1.5% Q-o-Q and up 5.1% Y-o-Y on increased consumption. Total lendings with credit card revolving at the end of March was $2.4 trillion, representing a growth of 0.2% Q-o-Q and 5.8% Y-o-Y. Please refer to the graph on the right for our lending portfolio mix, where foreign currency loan accounted for 44%; NT dollar corporate loan accounted for 23%; mortgage, 27%; unsecured lending, 5%.; and credit card revolving and others accounting for 1%.
Page 12 on foreign currency loan breakdown. Total foreign currency loan accounted for 44% of total loans. Overseas subsidiary accounted for 58% of total foreign currency loans, with TSB being the majority. Overseas branches accounted for 31%. OBU plus DBU was 11.3%. On the right, overseas subsidiary loan growth, 1.4% Y-o-Y supported by the growth at U.S., Canada, Philippines and Indonesia subsidiaries. Overseas branch loan was up 14.2% Y-o-Y, driven by expansion of client base and strengthened demand for working capital in Singapore, New York, Tokyo, China and Vietnam branches. OBU plus DBU loan was down 3.8% Y-o-Y due to a decreased demand for working capital and repayment.
Page 13 on bank deposit mix. Total deposit as of March reached $3.3 trillion, of which foreign currency deposit accounted for 46%. On the left, client deposit increased to 44% of total NT dollar deposit. On the right, time deposit decreased to 50% of the total foreign currency deposits.
Page 14 on loan-to-deposit ratio. Overall LDR was 75%. NT dollar LDR was 80%. Foreign currency LDR was 70%.
Page 15 on NIM and spreads. In first quarter, foreign currency spreads were up 6 bps Q-o-Q to 2.38% due to U.S. rate hike. NT dollar spreads was down 2 bps to 1.58% due to decreased [ deposit rate ] lending and increased deposit interest rate as a percentage of savings deposits increased. Overall spreads were 1.92%. NIM was 1.53% due to IFRS 16. If eliminating IFRS 16 effects, NIM remains at 1.54%.
Page 16 on fee breakdown. Total fees were up 24.5% Q-o-Q and 1% Y-o-Y. Wealth management fee was down 1.4% Q-o-Q as mutual fund fee growth was offset by declines in Bancassurance fees. Mutual fund fee was up 6.4% Q-o-Q, aimed at recovered investment market. Bancassurance fee was down 8% Q-o-Q due to less working days in first quarter. Bancassurance fee was up 29% Y-o-Y due to the consumer relationship, while mutual funds declined 46% Y-o-Y due to higher base aimed at market rally in first quarter of 2018. Wealth management was down 4.4% Y-o-Y.
Credit card fees was up 86.9% Y-o-Y (sic) [ Q-o-Q ] and 15.7% Y-o-Y due to lower redemption of LINE Pay card rewards.
Retail business was up 2.9% Q-o-Q due to lottery commission fee. It was down 1.8% Y-o-Y. Corporate business was up 22.6% due to syndication and increased volume of loan products. It was up 5.4% Y-o-Y due to increased syndication fees.
Overseas subsidiary fees was down 13.7% Q-o-Q and 18.6% Y-o-Y, mainly due to decreased corporate loan fee and wealth management fee of TSB. Lottery fee was up 124.6% Q-o-Q and up 8.1% Y-o-Y due to seasonal factors.
Page 17 on Wealth Management fees. On the right, Bancassurance accounted for 66% and mutual fund accounted for 27% of total wealth management fees.
Page 18 on cost/income ratio. Cost/income ratio in first quarter '19 is flat Y-o-Y at 55.8%.
Page 19 on asset quality. Asset quality was benign with NPL ratio at 0.41%. NPL coverage ratio increased to 314%.
Page 20, on credit cost. First quarter credit cost decreased to 19 bps from 25 bps in fourth quarter '18 due to the adjustment of related parameters and recoveries as well as up 12 bps Y-o-Y.
Moving on to Life business. Page 21 on total premium. Total premiums reached $68.7 billion in first quarter, down 18.7% Q-o-Q, up 0.9% Y-o-Y. Market share was 7.5%, ranked #6 in the industry.
Page 22 on first year premium. FYPs reached $31.9 billion in first quarter, up 15.5% Q-o-Q driven by unit-linked products, interest-sensitive products, traditional products and protection-type products. It was down 11.6% Y-o-Y due to higher growth of unit-linked products in 2018 at market value. Also CTBC stopped selling NT dollar single paid products last September, leading to a decrease in single paid premiums. Market share was 8.2%, ranked #5 in the industry.
Page 23 on FYP breakdown by channels and products. In terms of channels, contribution from Tai agents has increased to 16% of FYP, 32% from external banks, 45% from CTBC Bank and 6% from insurance brokers. On the right is the product breakdown. Interest-sensitive policy has lowered to 76% and investment linked accounted for 19% of FYP.
Page 24 on FYP breakdown by types of payment and currencies. On the left, mix of single paid products has dropped to 30% of FYP and regular paid products accounted for 51% of FYP. On the right, foreign currency policy accounted for 35% of FYP.
Page 27 on FYPE. First quarter FYPE reached $6.8 billion with 3.6% growth Y-o-Y due to increased percentage of regular paid products. Market share was 6.5%, ranked #6 in the industry. On the right is the FYPE mix for your reference.
Page 26 on investment asset mix. Total investment asset reached $1.7 trillion, up 3% Q-o-Q and 13% Y-o-Y. In terms of portfolio breakdown, cash accounted for 3.7%; domestic fixed income, 9.6%; overseas fixed income, 64.4%; equities, 8%; real estate, 4.9%; mutual funds, 6.4%; mortgage and policy loans, 3%.
Page 27 on investment yield, cost of liability and hedging mix. Portfolio investment yield was 3.71%. Cost of liability continued to improve, dropped 5 bps to 3.6%. In terms of hedging, 62% of overseas investment assets were NT dollar policies, of which 67% were hedged and 11% were OCI positioned.
Next, we move on to Taiwan Life embedded value report. Page 29 on EV. EV reached $170.7 billion, of which adjusted net worth was $66.5 billion. Value of in-force business before cost of capital was $140.7 billion. And the cost of capital was $36.5 billion. EV is $40.8 per Taiwan Life share and $8.8 per CTBC Holding share.
Page 30 on EV assumptions. Investment yield for NT dollar policies started from 3.62% in 2019 and will rise gradually to 4.3% in 2037. Investment yield for U.S. dollar policies started from 4.8% in 2019 and will rise gradually to 5.5% in 2037. Discount rate applied was 10%. RBC capital requirement remains at 200%. PwC has provided an independent review on our EV assumptions.
Please refer to the sensitivity analysis on Page 31.
For Page 32 on EV comparison, the equivalent investment yield assumption for 2018 was 4.3% versus 4.38% for 2017. 2018 EV decreased 2% Y-o-Y to $170.7 billion. EV on 2018 was $3.5 billion, less than the EV in 2017 as net worth decreased by $16.7 billion due to capital market volatility in 2019. The value of in-force business after cost of capital has continued to increase in 2018. If considered the reversal of unrealized loss of $19.7 billion in first quarter '19, EV in 2018 will be higher than EV in 2017.
Page 33 on adjusted net worth movement. Adjusted net worth decreased to $66.5 billion, mainly due to changes in unrealized gains and financial assets decreased $15.4 billion, owning to the downturn in capital market in fourth quarter of 2018. 2018 profits increased $8.3 billion. Changes in unrealized gains from property increased $0.3 billion. Other adjustment increased $1.5 billion due to ForEx reserves.
Page 34 on VIF movement. The increase in VIF was due to VNB of $16.6 billion. The release of 2018 expected profit and interest rolling forward of $3.8 billion, offset by investment yield assumption change of $11.2 billion and other model and assumption changes of $0.1 billion.
Page 35 on VNB movement. The increase in VNB was driven by investment yield and other assumption changes of $0.8 billion, offset by a sales volume change of $0.7 billion and product mix change of $1.2 billion.
The presentation will end here. We are now open for Q&A.
[Operator Instructions] Our first question is coming from Chung Hsu, Crédit Suisse.
I have 3 questions. My first question is on Appendix Page 4. If I look at your time deposit in the first quarter of this year, it's a very substantial increase, 34% year-over-year. Just wanted to know if that is going to stay and whether that is in any way tied to your change adjustment in your FY and Life business stop selling single-premium [indiscernible] policy. My second question is on Life. Balance sheet leverage. In the past, Taiwan Life had maintained an asset to equity leverage ratio below 20x. I think if I -- I just want to confirm. That $87 billion total shareholders' equity as of first quarter, that is before that $10 billion capital injection? With that, that would be down to 18x. So just on a going forward basis, whether there is a target balance sheet leverage for your Taiwan Life business. My last question is on dividend payout. Just want to get an updated management. On an ongoing basis, what will be your target payout ratio?
I'm sorry. Could you ask the first question again, please?
Your time deposits in the first quarter increased 34% year-over-year and 20 -- but is 22% or 24% Q-o-Q. Is that a onetime thing? Is that going to go away? Or is it just -- is that going to stay?
This is Ya-Ling. Regarding the question about deposit growth, that -- our view, that will not be a recurring momentum. The majority is from the -- sorry, let us clarify the numbers. I will reply to the question later. Going to the dividend payout ratio, our target is -- remains at 50% payout ratio going forward. But on the -- but it's under the assumption that our capital adequacy ratio is compliant with the regulation. So the first thing is to meet the regulation requirement on the capital, then, we will target a payout ratio at 60%.
Can I just follow up on the dividend payout part? If I remember correctly, CTBC has no planned to upstream earnings from Taiwan Life for a number of years ahead. So if we assume -- I mean, a volatile number on the Life business. But if -- say if Life business contribute 35% of group profits, in that scenario, are you still going to pay out 50% of group's total earnings or...
According to our 5-year plan, because a bank -- deposits from bank is still growing. So when banks probably upstream to the holding company, then we still can pay out 50% of our earnings per share.
For the second question, about the leverage ratio of Life insurance, we calculate the leverage ratio when it's closer to a separate account number. But the separate accounting is about TWD 80 billion. If we calculate at the end of that year, the ratio is 25.6. And for the end of the first quarter, due to the unrealized gain -- unrealized loss reduced -- come back, I mean -- reversal -- the number is 20.4. If we consider the capital injection, $10 billion, the ratio will become 18.2.
Okay. Back to the first question regarding the deposit growth. That's because first quarter -- the deposit from life company, because they have a lot of capital gains, so they put their money into time deposit to earn a higher yield.
Okay. Okay. Just a follow-up and my second question. So I know 18x is the first quarter if we add -- if we include the capital injection. But on a going forward basis, would you try to keep it below 20x?
According to the regulator, the regulator will act to maintain the net worth, that means a equity [indiscernible] general account, as said, to 3% and above. So the regulator has to maintain above 3% as in this -- that is our target, too.
Actually, it will be a range from 3% to 5%. So we -- the leverage we will maintain at about 22 -- around 20 -- 22, 25.
[indiscernible]
20-something.
20s, right.
[Operator Instructions] And the next question is coming from Gurpreet Sahi from Goldman Sachs Hong Kong.
So my question is regarding loan growth. Q-on-Q we aren't seeing that loan growth, although Y-o-Y there is a respectable growth. But there is not much momentum. So can you talk about the loan growth outlook from here on? And we see again the huge focus on growth because if you see the last 1 year, market is -- has contributed a lot of growth and I don't think that will be a growth engine going forward.
The Q-o-Q loan momentum is quite low, mainly due to the impact from the China/U.S. trade dispute. So our client had the thinking to invest. Therefore, their loan demand is very dismal during the first quarter. So although the trade dispute is -- the tension is easier now, but our house view is still think that there's still some uncertainty there. So that's why our outlook for loan growth for this year is at about a mid-single digit.
Okay. Which -- so around 5%, let's assume. Do you think the corporate NTD loans can grow by that much, by around 5%? I can see foreign currency maybe coming back, maybe mortgages growing at that much, but do you think even NTD loan growth can be 5% on the corporate side?
Yes, there's opportunity that our Taiwanese corporate in China, they are moving their operations back to Taiwan. So -- because there's some policy from Taiwan government to encourage them to move their funding or their operation back to Taiwan. And there's a few cases going on right now. So we do see some opportunities for NTD loan. In addition, there's infrastructure policy from our government, like Green power projects, and we also plan to participate in syndication loan. So we do see some opportunities for NTD loan growth.
And the next question is coming from Frank of Daiwa Capital Market.
I have one question. Could you please provide the guidance on credit costs for 2019?
We anticipate our credit cost will be around 20 basis points, which is a normalized level according to our historical data.
Okay. Can I follow-up on that? If I was hearing it right, in the Chinese session, you say that first quarter sees some single cases in China in Singapore and it accounted for around 550 million. So if I'm doing my math right, we take those out and the more normalized credit cost can be seen as around 10 bps. So my question is, if you see credit cost as stable, how come you gave us the 20 bps guidance?
The 20 bps guidance including low single cases. Actually, low single cases is...
Frank, it's a bit -- actually, we look at the positioning trend. It's actually -- excluding the single cases, it's actually normal. But in the first quarter, you might notice that usually, that we will experience the reversal of provision. This is the improvement in our possibility of default and the loss ratios, et cetera, all of the parameters. So as a result, the first quarter tends to be lower. But on an ongoing basis, because in Taiwan we still have to provide 1% as a GP or 1.5% for mortgages or general related lending. So on an ongoing basis, for the full year basis, we think it will be still around 20 bps.
[Operator Instructions] And the next one is coming from Kei Lam of Deutsche Bank.
My question is on the investment. How much has been written back on OCI and [ AC ] investments due to the expense?
For Life?
Yes. Yes, yes, for Life.
You're asking OCI for Life, right?
Yes, the investment...
Yes. OCI for bank position is 20 -- $2 billion positive. And therefore stopped, and the mutual fund is negative $3.5 billion. The total is negative 5.5 -- $1.5 billion.
All right. How about the recoveries year-to-date?
The recovered year-to-date for total OCI is $19.7 billion, 1-9.7 billion.
Okay. How about [ AC ]?
[ AC ], $46.6 billion recovered.
[Operator Instructions] The next one is coming from [ Michael Lim of Cathay Securities ].
I would like to know the -- what is the current associated plan to the LINE Pay transactions? And how do CTBC plan to pay this cap rate going forward and how do you see the fee income from credit cards this year?
The rebates from LINE Pay corporate card will maintain a general 1% and then 2.8% for overseas spending. And for the fee income for credit card will grow because of the lower rebate. Last year, we provide 2% cash rebate. And this year, we provide 1%. So there were benefits on our credit card fee. So you can see our credit card fee income grow substantially on first quarter.
Okay. Just a follow-up question. How do you see the fee income growth from other categories such as Wealth Management and other general fee incomes?
For 2019, we anticipate our fee income will grow at about mid-single digit. Because we still see some uncertainty of the investment market and our wealth management customers now so far still feel uncertain and kind of hesitate to invest more on mutual fund products. So that's why we are a bit conservative on this year's outlook.
Okay. I have another question regarding the life insurance business. I noticed that your cost of liability was decreased by about 6 basis points in year 2018 but your FYP and FYPE growth is significantly slower than the peers. And can you elaborate why this is happening? And what's your target for the cost of liability going forward?
The major reason is that we stopped selling single paid NTD policy from September 21 and from the -- and we also stopped selling short paying period NTD policy. [indiscernible] NTD policy from January 1 for agency channel. And also we stopped selling at -- from October 15 for bank channel. The reason is that we understand that after IFRS 17 adoption of the currency mismatch and the diversion mismatch will make the P&L volatile. That's why we stopped selling this policy from now. And according to our projection, we -- at the end of year, the cost of liability went down to 3.53%. The major reason is that we decreased the crediting rate from April 1.
Okay. Sorry, just another follow-up questions regarding your cost of liability. Can I know your current asset duration and the liability durations? And also just according to Slide 24, net currency, you're setting 35% of foreign currency insurance policy, then 45% of NT dollar insurance policies and may I know that the guarantee rates on -- average guarantee rates on your current setting, NT dollar type insurance policy and the foreign currency insurance policies?
For the duration, the FX duration is 10.5 and the average duration is [ 1.7 ]. I -- guarantee rate. For the new policy, the guaranteed rate is -- the guarantee rate for -- [Foreign Language].
[Foreign Language]
For the NTD policy, the guarantee rate is around 2.25%. And for the foreign currency, it's around 2.8% to 3%.
[Operator Instructions] And the next one is Gurpreet Sahi of Goldman Sachs Hong Kong.
Sorry, I couldn't hear properly. What is the maturity of the assets and likewise of the liability in the insurance book? Can you let us know in number of years?
Are you talking about the duration of…
Yes. On Taiwan Life.
For Taiwan Life. Liability duration is 13.7 years and [ FX ] is 10.5 years.
Okay. And then the new, so on the U.S. side, the 10 year right now, government bonds yielding 10 points -- 2.5, sorry, and then maybe you're buying corporate bonds or maybe something else on the U.S. dollar side to get around more than 3%, correct? Because you're promising to the new policyholders on new money, as you mentioned, around 3% on foreign currency.
For the first quarter, the investment yield for overseas -- I mean, the bank yield for the overseas, 4.7% and the crediting rate for U.S. dollars policy is around 3.7%.
[Operator Instructions] And next, we'll have [ Michael Lim of Cathay Securities ] for questions.
Sorry, just a few follow-up questions regarding your life insurance business. Can you tell us your hedging cost in full year 2018 and full year 2017? And also, I would like to know that your current recurring yield on your fixed income assets.
The hedging cost for 2018 is 1.25%. And for the first quarter, it's 1.57%. It include the...
Valuation.
Valuation loss, roundabout $1.4 billion. And the recurring yield for the first quarter is 3.56%, increased 1 -- 19, 1-9, basis points compared to last year -- first quarter last year.
Sorry, the 3.56% does include everything, including U.S. dollars and NT dollars? Or also including those, I would say, cash dividends from the equity market?
No. It includes everything before hedge. And generally, the dividend income were received at the third quarter or fourth.
Okay. So basically this included the dividend from the equity market?
Yes. Yes.
Okay. So how do we think the dividend income in the third quarter? Do we have any number? Just like how many billion dollars of dividend gains are you going to receive in the third quarter?
I gave you the whole year. Is that okay. The whole year dividend is -- the number is $9.2 billion compared to last year is -- was $7.4 billion.
[Operator Instructions] And the next one is from Yafei Tian of Citi.
I think if I were to look at the results broadly, I think the Life side has done pretty well for this quarter. I just wanted to understand, to what extent is this performance a result of very strong equity market we have seen in this quarter and to what extent can we extrapolate this going forward? So that's the first question. And then second question again on the Life side, particularly around the capital. After the $10 billion of per share issuance and downstream to life, RBC ratio would improve significantly.
But given that Taiwan Life is in a growth stage, I just wonder how much more capacity do we have to issue further pressures from financial holding company to support this growth and how should we think about the capital level in the context of IFRS 17 implementation. So the final question is around the bank operating trends. Year-on-year, the earnings is down a little bit. Would it be possible to give us some guidance around the bank's operating targets for this year? For instance, what is the fee income growth we should be looking at? And also what kind of earnings growth do you think that the bank is able to achieve after a relatively slow first quarter?
I give you some guidance for Life side. So in the same year, we said the recurring year will increase basis point compared to last year. It means 3.84 for the total -- for the whole year. And secondly, the cost of liability will keep decreasing from the 3.61% to 3.53%. The hedging cost will increase to 1.4% for the whole year. It means that the increased spreads will increase single digits. Maybe 7 or -- $0.7 billion or $0.8 billion compared to last year. And for the expenses and the mortality gains will increase a little bit. So that's the guidance for Life side. And for your second question -- the second question, the IFRS 17 implementation.
As I mentioned, the first issue is that we need more capital. But the calculation detail is currently not finalized yet. According to the current calculation for Taiwan Life, there is no need to -- our reserve is adequacy. It means we don't need to -- capital injection for reserve to -- for reserve. And then the second issue is that the household decreased, the earnings unstable. There's another issue. So that's why we adopted some strategy like stopped selling some NTD policy. That's all.
Regarding spend earnings momentum. So first quarter, first is because the tax benefit of -- in last year and the second reason is we booked some provisions with single cases in South Asia and China. Going forward, we anticipate some mid-single-digit growth for loans and 3 to 5 basis point expansion for NIM and mid-single-digit growth for C and CI ratio we'll target at 59%. So if the net earnings -- if all these drivers go well or go as we expected, then the net earnings offset will be around single-digit growth for this year.
I have a small clarification on the IFRS 17. So I think it's a bit early to discuss because there's still a lot to be finalized by the regulator. I just wanted to understand from you, what are the initial discussions from a capital adequacy perspective? Because I've heard that life companies are advised to cover the legacy portfolio that has a negative spread. I just want to clarify if that is the case. And is it because Taiwan Life doesn't have much portfolio with negative spread, does it make Taiwan Life in a better position when it comes to the IFRS 17 implementation?
I think maybe you can compare the cost of liability for each company. The -- our cost of liability is 3.6% compared to the peer company, the cost of liability grows and it's quite low in the industry. That's why when we implement the IFRS 17, our impact could be lower than our peers.
Ladies and gentlemen, we thank you for all your questions and that will be the end of the conference. We thank you for your participation in CTBC Financial Holding Company's conference call. You may now disconnect. Goodbye.