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 2021 Second Quarter Earnings Conference Call. [Operator Instructions]
Today's host will be Ms. Ya-Ling Chiu, the CFO and Spokesperson of CTBC Financial Holding Company; 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 Second Quarter 2021 Earnings Call.
Please turn to Page 3 on financial highlights. CTBC Holding continued to report a resilient operating performance with after-tax profit increasing 74% Y-o-Y. Despite the Level 3 COVID-19 alert in place from mid-May through July, ROE and ROA reached 17.3% and 1%, respectively. EPS was TWD 1.72.
Holding remained well capitalized with CAR at 137% and double leverage ratio at 110.5%. CTBC Bank reported solid loan growth led by strong domestic corporate loans, mortgage and consumer loans.
Total lending, excluding FX impact, increased 8% Y-o-Y. Sustained business momentum in wealth management, retail and lottery fees supported fee income growth of 11% Y-o-Y.
Asset quality remained benign with NPL ratio at 0.4% as of 2Q and credit costs remained low at 18 basis points in the first half. Capitalization remains sound with CAR at 14.5% and CE Tier 1 ratio at 11.9%.
Taiwan Life reported strong after-tax profit growth of 104% Y-o-Y as investment income remained decent and cost of liability continued to decline in the first half. RBC ratio was sound at 367%.
Page 4 on ESG highlights. On environmental, CTBC Holding has signed on to TCFD and integrated climate change risks into overall risk management framework and identify climate-related risks and opportunities. It's also the first financial institution in Taiwan to join the partnership for Carbon Accounting Financials and serving as PCAF's Asia Pacific region chair.
CTBC Bank has supported green financing loans for green energy technology, circular economy and green buildings, amounting to TWD 141 billion.
On social, the Holding has invested in over TWD 710 million in social welfare and channel its efforts into charity [indiscernible] sports, education, arts and culture.
In Taiwan, the CTBC poverty alleviation program empowers entrepreneurial low-income families to start small businesses. In overseas, CTBC Bank partners with global microfinance institutions to provide micro loans with USD 98 million disbursed in 2020.
On governance, the Holding is the only listed financial institution in Taiwan with independent directors, filling majority of Board and planning to nominate female director in next Board election to pursue gender diversity.
CTBC Holding's ESG rating is rated AA by MSCI and it's a constituent stock of the MSCI Taiwan ESG Leaders Index, DJSI World & Emerging Markets Index and FTSE4Good Index Series.
Page 5 and 6 on profitability. Holding's first half net income was TWD 33.4 billion, EPS was TWD 1.72.
Group ROE was 17.3% and ROA was 1%.
Page 7 on capital ratio. We remain well capitalized with group CAR at 137%, Life RBC ratio at 367%, bank CAR at 14.5% and Tier 1 ratio at 13%.
Page 8 on profit breakdown by entity. In 2Q, bank net profit reached TWD 6.8 billion, down 15% Q-o-Q. Life profit was TWD 6.3 billion, down 39% Q-o-Q. Holdings consolidated net profit was TWD 13.7 billion, down 30% Q-o-Q.
In the first half, Bank net profit reached TWD 14.9 billion, up 11% Y-o-Y. Life profit was TWD 16.6 billion, up 104% Y-o-Y. Holding reported consolidated net profit of TWD 33.4 billion, up 74% Y-o-Y.
From the table on the right, Life and Bank contributed 50% and 44% to Holding's first half profit, respectively. Securities and other subsidiaries reported decent profit growth and contributed to 6% of Holding's profit.
Page 9 on net profit movements. In 2Q, operating revenue was down 10% Q-o-Q due to lower fee income and trading gains. Provisions increased 54% Q-o-Q. Expense was down 7% Q-o-Q, mostly on lower ESOP valuation.
As for Life, 2Q pretax profit decreased, a slight but stronger investment income in 1Q in [indiscernible] Capital Markets.
On the bottom, for the first half, operating revenue was up 6% Y-o-Y. Supported by sustained growth in wealth management, retail and lottery fees and trading gains and the securities and investment trust subsidiaries. Provisions were down 58% Y-o-Y due to lower specific provisions.
Expense was up 10% Y-o-Y, mostly on higher ESOP valuation. Life pretax profit was up 94% Y-o-Y, supported by increased investment income and declining cost of liability.
Overall, Holding's pretax process reached TWD 37.5 billion and net income reached TWD 33.4 billion, up 74% Y-o-Y.
Page 10 on revenue breakdown, excluding Life. Total revenue was down 10% Q-o-Q and up 6% Y-o-Y. Net interest income was up 2% Q-o-Q due to sustained growth in NT dollar loans and up 1% Y-o-Y, a strong growth in NT dollar loans offset narrow -- net interest margin due to rate cuts.
Fee income was down 22% Q-o-Q. In addition to seasonally high base of lottery fees in 1Q, wealth management, credit card and retail fees decreased due to the enforcement of Level 3 COVID-19 restrictions from mid-May through July. First half fee income was up 14% Y-o-Y, attributing to stable growth in wealth management, retail and lottery fees.
Moreover, Securities investment trust subsidiaries observed growth in fee income as business grew. Combined derivative FX and trading gains was down 43% Q-o-Q due to higher trading income from bond investments in 1Q. It was up 5% Y-o-Y, supported by trading gains at VC and security subsidiaries. Long-term investment and other income was up Q-o-Q and Y-o-Y as income from LHFG increased and lottery rebates to Ministry of Finance decreased.
Page 11 on bank's loan breakdown. Total lending with credit card revolving was up 2% Q-o-Q and 6% Y-o-Y. Excluding FX impact, total lending was up 8% Y-o-Y. NT dollar corporate loan was up 6% Q-o-Q, driven by working capital demand from government-related and commerce and service sectors. NT dollar corporate loan was up 21% Y-o-Y, driven by increased demand in working capital, mainly from government-related and commerce and service sectors as well as investment needs from other sectors.
Foreign currency loan was down 3% Q-o-Q and 9% Y-o-Y. Excluding FX, foreign currency loan was down 3% Y-o-Y. Mortgage continued to grow 2% Q-o-Q and 11% Y-o-Y amid stable property market.
Unsecured lending was up 9% Q-o-Q and 18% Y-o-Y, attributing to our strategy that expands customer base and participation in the latest labor-relief program led by the government. Credit card revolving and others were up 1% Q-o-Q and 8% Y-o-Y.
Page 12 on foreign currency loan breakdown. Foreign currency loan was TWD 930 billion, which accounted for 35% of total loans. Overseas subsidiaries loan was down 12% Y-o-Y. Excluding FX, overseas subsidiaries loan was down 5%, mostly due to repayment from corporate clients at TSB. Overseas branch loan was down 9% Y-o-Y.
Excluding FX, Overseas branch loan was down 4% as loan growth momentum moderated in Singapore branch. However, Vietnam, Tokyo and India branches observed double-digit growth. OBU plus DBU was up 6% Y-o-Y. Excluding FX, OBU plus DBU loan was up 12%, driven by growth in syndication and trade finance.
Page 13 on bank deposit mix. Total deposit reached TWD 3.8 trillion, up 1% Q-o-Q and 10% Y-o-Y. On the left, total NT dollar deposits were up 3% Q-o-Q and 14% Y-o-Y, NT [indiscernible] for 63%. On the right, total foreign currency deposits were down 2% Q-o-Q and up 4% Y-o-Y. Foreign currency savings accounted for 57%.
Page 14 on loan-to-deposit ratio. Overall LDR was 70.7%. NT dollar LDR was 77.4%. Foreign currency LDR was 61.2%.
Page 15 on NIM and spreads. In 2Q, foreign currency spread was 2.16%, up 1 basis point Q-o-Q as the bank lower FX deposit rates and the proportion of savings deposits increased. NT dollar spread was 1.51%, down 4 basis points Q-on-Q as government-related loans increased.
Overall spread was down 3 basis points Q-o-Q to 1.75%. 2Q NIM was flat Q-o-Q at 1.39% as LDR slightly increased.
Page 16 on fee breakdown. Total fees were down 25% Q-o-Q and up 11% Y-o-Y. Wealth management fee was down 17% Q-o-Q, partly due to high wealth management fees supported by [indiscernible] capital markets in 1Q.
In addition, the enforcement of Level 3 COVID-19 restrictions from mid-May through July affected product sales in 2Q. First half wealth management fee was up 25% Y-o-Y with the level of volatility in the capital markets moderated compared to the same period last year despite of an uptick in local COVID-19 cases in 2Q.
Mutual fund fees were up 16% Y-o-Y, while bancassurance fees were up 30% Y-o-Y. Credit card fee was down 11% Q-o-Q as domestic consumptions were affected by the pandemic.
First half credit card fee was slightly down by 1% Y-o-Y. Retail business was down 11% Q-o-Q as ATM fees declined, and up 2% Y-o-Y as retail loan growth trigger increases in fees.
Corporate business was up 6% Q-o-Q, driven by syndicated loan and trust fees and down 3% Y-o-Y, mainly due to shrinkage of syndicated loan fees.
Overseas subsidiary fee was down 10% Q-o-Q due to higher fees related to corporate business at TSB in 1Q and down 5% Y-o-Y due to decline in loan-related fees from TSB.
Lottery fee was down 72% Q-o-Q due to seasonal Chinese New Year effect in 1Q and up 3% Y-o-Y due to record high sales in Chinese New Year and effective product strategy.
Page 17 on wealth management fee. For wealth management fee breakdown, bancassurance contributed 60%, mutual fund 28%, Custodian and trust 3% and others 9% of total wealth management fees.
Page 18 on cost/income ratio. Bank operating revenue was down 10% Q-o-Q and operating expense was down 12% Q-o-Q, leading to a lower cost/income ratio of 59.8% in 2Q. In the first half, cost income ratio was 60.3%, higher compared to the same period last year, mostly due to higher ESOP valuations.
Page 19 on asset quality. NPL ratio was 0.4% and NPL coverage ratio increased to 315.5%.
Page 20 on credit costs. 2Q credit cost was 21 basis points, up 7 basis points Q-o-Q due to higher provisions for retail loans. First half credit cost was 18 basis points, down 25 basis points Y-o-Y from the same period last year, mostly due to lower specific provisions.
Moving on to Life business. Page 21 on total premium. Total premiums were TWD 44.9 billion in 2Q, down 18% Q-o-Q. First half total premiums were TWD 99.5 billion, down 2% Y-o-Y. Market share was 6.6%, ranked #6 in the industry.
Page 22 on first year premium. FYP's reached TWD 22.4 billion in 2Q, down 28% Q-o-Q as sales of investment-linked product declined. First half FYPs were TWD 53.5 billion, up 38% Y-o-Y, mostly on growth in investment-linked products, supported by a relatively positive capital markets compared to the same period last year. Market share was 10.4%, ranked #3 in the industry.
Page 23 on FYP breakdown by types of payment and products. On the left, mix of single paid products accounted for 17% and regular paid products accounted for 14% of FYPs. On the right is the product breakdown. Investment-linked products accounted for 69%; interest sensitive policies, 27%; traditional, 1%; and health and personal accident, 4% of FYPs.
Page 24 on FYP breakdown by channels and currencies. In terms of channels, 71% of FYPs came from CTBC Bank, 16% from external banks, 8% from tied agents and 5% from insurance brokers and others.
On the right, investment-linked products accounted for 69%; foreign currency policy, 25%; and NT dollar policy, 6% of FYP.
Page 25 on FYPE. First half FYPE was TWD 11.5 billion. Market share was 9.4%, ranked #4 in the industry. On the right is the FYPE mix for your reference.
Page 26 on investment asset mix. Total investment asset reached almost TWD 2 trillion, Taiwan Life increased cash position in 2Q.
In terms of portfolio breakdown, cash accounted for 7%; domestic fixed income, 9.9%; overseas fixed income, 59.4%; equities, 7.8%; real estate, 4.6%; mutual funds, 8.5%; mortgage, 1.5%; and policy loans, 1.3%.
Page 27 on investment yield and cost of liability. In first half, recurring yield before hedge was 3.17% and overall investment yield after hedge was 4.66%. Cost of liability was down 22 basis points Y-o-Y to 3.06%.
Page 28 on hedging. On the left, 40% of overseas investment assets for foreign currency policies. 40% were fully hedged, 8% were OCI position and 12% were unhedged.
On the right, FX reserve amounted to TWD 1.7 billion as of 2Q. Taiwan Life has adopted a dynamic hedging strategy and set aside additional FX reserve of TWD 1 billion in April to other potential NT dollar fluctuations. First half hedging cost was 1.55%, higher from the same period last year, mostly young NT dollar appreciation. That brings us to the end of the presentation.
[Operator Instructions] Our first question is coming from Jemmy Huang of JPMorgan.
Just 2 questions from me. First 1 is in terms of foreign currency loan growth. Could you elaborate a bit more in terms of the quarter-on-quarter momentum decline? I think in the first quarter, if we exclude the currency impact, it was up somewhere around 6% quarter-on-quarter.
But in the second quarter, we see quarter-on-quarter decline on the constant currency basis. If you look at across the market, where do you see the like weaker momentum sequentially? And then how do you expect individual markets in the second half of this year in terms of the loan growth momentum?
Second question is on credit cost. I think the first half is much lower, but also partially in addition to the asset quality, the [indiscernible] cases last year, could we interpret that the lower credit cost in the first half is also because very strong government-related lending that you don't need to provide any general provision. So if we say in the second half of the year, the general corporate loans pick up either domestically or overseas, we should see higher credit cost on the [indiscernible] basis?
Thank you for your question. For the first question about foreign currency loan book, quarter-on-quarter, the decline was from Tokyo Star Bank. Again, majority of the decline was from Tokyo Star Bank. That's because we are still under restructure of their loan book because of some asset quality happened last year. So if you look at the momentum on a quarterly basis, I -- based on the data, it's still Tokyo Star Bank. This is the first question.
And about the second question regarding the credit cost, the government loans could be 1 of the reasons that brings down our credit -- overall credit cost. But on the other hand, we didn't see any significant or potential risk happening in our loan book. So I think overall, in general, credit cost has been improving this year.
Could I ask 1 follow-up question. I think for Tokyo Star Bank, it declined every quarter. I think in the first quarter. It also declined in the second quarter, it's also decline in pretty similar magnitude.
But I think the overall foreign currency loan actually see quite a big diversion in terms of the growth momentum. So when you look at other markets, is that -- what do you mean is for other markets like the U.S., Europe or Southeast Asia. The loan growth momentum has been relatively benign in the second quarter versus first quarter?
In second quarter, the countries that has loan growth are Hong Kong. If we take out the FX impact, we see Hong Kong was growing in second quarter. And also India and Vietnam has been growing through the first half of the year. And also USA, USA loan growth momentum has been strong throughout the first half of the year, including mortgage and corporate loans.
So yes, U.S. -- the loan growth in U.S. was quite strong in second quarter. So this is the major market that we have seen some opportunities, including U.S. and Greater China, including Hong Kong and China and also some countries in Southeast Asia.
[Operator Instructions]
Okay. Ladies and gentlemen, there appears to be no further questions at this point. We thank you very much for all your questions, and that would be the end of the Q&A session.
Then I hand it over to Ms. Ya-Ling Chiu for closing comments. And Ms. Chiu, please proceed. Thank you.
If there is no any other questions, then I would like to thank you for joining CTBC's second quarter analyst meeting. I hope to see you very soon in next quarter. Thank you. Bye-bye.
Thank you, Ms. Chiu. And ladies and gentlemen, we thank you for your participation in CTBC Financial Holding Company's conference call. You may now disconnect. Goodbye.