CTBC Financial Holding Co Ltd
TWSE:2891
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CTBC Financial Holding Co Ltd
Earnings Call Analysis
Q3-2024 Analysis
CTBC Financial Holding Co Ltd
CTBC Holding has reported a robust performance in the third quarter of 2024, achieving a record net profit of TWD 21.4 billion, up 32% quarter-over-quarter (Q-o-Q). Year-to-date, the company's net profit reached TWD 58.6 billion, a 21% increase compared to the same period last year. The earnings per share (EPS) stood at TWD 2.95, contributing to a return on equity (ROE) of 17.8%. CTBC Bank, a key subsidiary, maintained its market leadership, recording a net profit of TWD 13.1 billion in Q3, marking a 19% increase Q-o-Q, and a year-to-date net profit of TWD 36.3 billion, up 14% year-over-year (Y-o-Y).
The impressive profit growth was driven largely by increased net interest income and wealth management fees. CTBC Bank's total revenue rose by 8.8% Q-o-Q and 13.2% Y-o-Y, with fee income growing 26.1% Y-o-Y and 11.2% Q-o-Q. Notably, fee income from wealth management surged by 40.5% Y-o-Y, reflecting favorable capital market conditions that enhanced investment returns. Additionally, Taiwan Life's net profit saw a remarkable increase of 46% Y-o-Y, reaching TWD 21.1 billion for the first nine months, driven by positive investment gains and robust demand for insurance products.
CTBC Holding demonstrated solid asset quality, with a non-performing loan (NPL) ratio decreasing to 0.47%. This stable performance was aided by improved asset quality in overseas subsidiaries and a decline in NPLs stemming from the consumer debt relief program. The bank continues to maintain a strong capital position with a group capital adequacy ratio (CAR) of 123% and a life risk-based capital (RBC) ratio of 336%, ensuring resilience under various economic conditions.
Looking ahead, management expressed optimism about sustaining stable profit growth through 2024. The expected annual net interest margin (NIM) is projected to be between 1.60% and 1.63%. This outlook is buoyed by improving market conditions, expected strength in emerging technology investments, and a favorable economic environment due to moderated inflation in Taiwan. Total corporate and mortgage loan growth was healthy, with corporate loans up 10.8% Q-o-Q.
CTBC Holding is committed to sustainable financing, having increased its sustainable financing portfolio by 19% Y-o-Y. The bank's sustainability initiatives have been recognized internationally, placing it among the top 5% globally in banking sustainability performance. As interest rates evolve, management plans to dynamically adjust their asset liability structure without rapid shifts. Expectations from the market suggest a cautious yet proactive approach regarding pricing strategies in mortgages and loans.
Given the strong financial performance, management indicated optimism regarding future dividend distributions. The favorable outlook signals potential for higher dividend payouts compared to previous years, though specific numbers are yet to be determined. The focus will remain on maintaining solid profitability while balancing shareholder expectations with regulatory requirements.
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Welcome to the CTBC Holding Analyst Meeting for the Third Quarter of 2024. Today's meeting will be hosted by CTBC Holding President, Ms. Rachael Kao; CFO, Ms. Megan Hsu; CSO of Taiwan Life, Mr. [ Yeh, Pai-Hung ]; and Head of IR, Ms. Justine Shen.
First of all, we will be doing presentations first. And after the presentation, we will have a Q&A session. We have provided interpreting service for today's meeting. And in order to ensure the quality of interpreting, please make sure that you're in a quiet environment to allow for clear voice.
Now, let us invite President, Kao, to deliver her opening remarks.
Good afternoon, members of the media, investors and analysts. Thank you for attending the CTBC Holding Analyst Meeting for the third quarter of 2024. So first, we would like to share with you our profit performance year-to-date. So for the first 3 quarters, we achieved a pretax profit of TWD 71.3 billion and a net profit of TWD 58.6 billion. These are marking new historical highs over 20.7% of Y-o-Y growth. And these performance in the first 9 months has already outreached or outperformed that of the entire year of 2023. Our EPS reached a record high of TWD 2.95 and ROE stood at 17.8%.
Regarding our subsidiary performance, we have recorded after-tax profit of TWD 13.1 billion in the third quarter and TWD 36.3 billion for the first 3 quarters, we have seen a [ 14% ] of Y-o-Y growth, maintaining a double-digit expansion and achieving a record high for the same period. Overall, deposits and loans demonstrated steady growth and wealth management benefited from the rising capital markets, leading to a significant increase in insurance, mutual fund and structured bond sales. This has drove our fee income, and we're seeing a 40.5% of Y-o-Y growth.
Credit card operations are also seeing fee income rise; compared with last year, we are seeing a 26% of Y-o-Y growth. And for swap income, we are seeing a growth of 40% of growth Y-o-Y. And for our overseas operations, in the first 9 months, we are seeing a TWD 17 billion pretax profit. And compared to last year, we're seeing a 10% Y-o-Y growth and this accounts for 37% of the bank's total profit.
Our second growth engine subsidiary, Taiwan Life achieved a net profit of TWD 8 billion in the third quarter and TWD 21.1 billion for the first 3 quarters. We're seeing a 46% of Y-o-Y growth, and this was driven by strong insurance business momentum and favorable investment market performance, which yielded robust capital gains and profit recovery.
Other subsidiaries, including securities, asset management and venture capital benefited from an active Taiwan stock market. The brokerage business saw increased fee income, mutual fund scales continue to grow and venture capital investments delivered excellent returns. They're contributing to steady growth -- profit growth. Overall, our holding profit is having a great performance.
Our future outlook is that Taiwan's robust export performance in the first half of the year boosted economic growth. So looking into Q4, although export growth may moderate due to a high base, the demand for emerging technologies remains strong and stable import expectations will provide support for investment. These are expected to further contribute to our economic growth.
Inflation in Taiwan has shown signs of easing and with a stable economic foundation, we anticipated that the Central Bank will maintain current policy rate. Regarding U.S. interest rates, the Fed has entered a rate cutting cycle since September. The succession or after Trump took the office, there may be influences in the policy, but overall, the general direction will remain the same, and we still believe that the direction is towards a rate cut.
So the common perception that rate cuts favor insurance while disadvantage in banks does not apply to CTBC Bank. This is because CTBC Bank has long been proactive in its allocation of short- and long-term debt. So based on the current asset liability structure, interest rate cuts have a neutral or a moderately positive impact on our Bank's net interest income. So our overall asset allocation will continue to be dynamically adjusted in response to market conditions.
Additionally, other business segments such as wealth management, credit cards and capital markets remain strong. And overall, we believe in this year, we will see a stable profit growth for the bank. For Taiwan Life, the existing regulatory framework, including IFRS 17 and ICS standards and also rate cut from Fed will suggest positive impact for Taiwan Life. And they will also be -- have a moderate effect on the net asset value and cash flow management for policy surrenders. So overall, the CTBC Holding will be able to deliver strong profit performance throughout 2024.
For sustainability initiatives, in recent years, we have remained committed to sustainable development. We have been included in the S&P Global Sustainability Yearbook for 5 consecutive years. We rank among the top 5% globally in banking sustainability performance. As COP 29 is taking place in Azerbaijan, its theme enhancing ambition and enabling action aligns with our ongoing efforts. We are always expanding our ambitions to implement SDGs in our daily practices. Looking to the future, we will remain committed to these initiatives.
And this concludes my opening remarks. And next, we will have a presentation from the IR on our performance in Q3.
Okay. Please turn to performance highlights on Page 4. Holdings net profit reached TWD 58.6 billion in the first 9 months, up 21% Y-o-Y, achieving a record high and EPS was TWD 2.95. Holdings ROE was 17.8%. CTBC Bank's net profit was TWD 36.3 billion in the first 9 months, marking a record high and ranked top 1 in the industry. Bank's capitalization was solid and asset quality remained stable.
Taiwan Life reported net profit of TWD 21.1 billion in the first 9 months, up 46% Y-o-Y, benefiting from decent investment gains. Other subsidiaries, including investments, securities and venture capital performed well, benefiting from favorable capital market conditions and sustained business momentum.
Page 5, profitability. Total EPS was TWD 2.95 in the first 9 months. Group ROE was 17.8% and ROA was 0.9%.
Page 7, capital ratio. We remain well capitalized with Group CAR at 123%, Life RBC ratio at 336%, Bank CAR at 13.9% and CET1 ratio at 11.2%.
Page 8, profit breakdown by entities. In 3Q, Bank net profit reached TWD 13.1 billion, up 19% Q-o-Q, mostly due to increased net interest income and wealth management fees. Life reported net profit of TWD 8 billion, up 50% Q-o-Q, driven by dividend income. Holdings net profit was TWD 21.4 billion, up 32% Q-o-Q. In the first 9 months, Bank's net profit reached TWD 36.3 billion, up 14% Y-o-Y, driven by robust fee income growth and increased trading income. Life profit was TWD 21 billion, up 46% Y-o-Y, driven by different capital gains amid positive capital market conditions. Holdings net profit was TWD 58.6 billion, up 21% Y-o-Y.
Let's go to our Banking business, starting with profitability. Bank performed well in the first 9 months. Net profit reached TWD 36.3 billion, up 14% Y-o-Y, ranked top 1 among peers. ROE was 13.1%, up 68 basis points Y-o-Y. CTBC Bank has prominent market positions in various business lines. We maintain leading positions in corporate and retail businesses such as wealth management, credit card, personal loans, mortgage and number of ATM machines.
We're also #1 in foreign currency demand deposits, trade finance and factoring. With extensive overseas network, CTBC Bank's overseas profit was ranked #1 among peers. Overseas pretax profit increased by 10% Y-o-Y to reach TWD 17 billion in the first 9 months, driven by its improved performance in Japan and North America.
Page 13, revenue breakdown. Total revenue was up 8.8% Q-o-Q and 13.2% Y-o-Y. Net interest income was up 7.1% Q-o-Q and down 1.7% Y-o-Y. Fee income was up 11.2% Q-o-Q and 26.1% Y-o-Y. Trading income and others increased 9.6% Q-o-Q and 47% Y-o-Y, driven by fixed income-related gains and swap income at the Bank.
Next on, loan growth. Total lending with credit card revolving was up 5.7% Q-o-Q and 9.1% Y-o-Y. NT dollar corporate loan was up 10.8% Q-o-Q, driven by growth in government-related bonds, construction and real estate and service sectors. NT dollar corporate loan was up 10.7% Y-o-Y, driven by growth in government sectors. Mortgage was up 2.4% Q-o-Q and 7.3% Y-o-Y as business momentum remained stable. Unsecured and other loans increased 3.9% Q-o-Q and 9.4% Y-o-Y. Foreign currency loan was up 5.1% Q-o-Q and 9.4% Y-o-Y.
Next on, foreign currency loan breakdown. Overseas subsidiaries accounted for [ 59.8% ] of foreign currency loans with TSB and LH being 2 larger subsidiaries. Overseas branches accounted for 31.5%. Overseas branch subsidiaries loan was up 11.4% as business momentum remains solid at most overseas subsidiaries. Overseas branch loan was up 12.6%. Growth was especially strong in Singapore, Greater China, Tokyo and India branches, all reporting double-digit growth. OBU plus DBU loan was down 8.8%.
Page 16, Bank deposit mix. Total deposits reached TWD 5.2 trillion, up 2.5% Q-o-Q and 8.2% Y-o-Y. On the right, CASA accounted for 60.6% of NT dollar deposits. Time deposits accounted for 63.3% of foreign currency deposits.
Page 17, loan-to-deposit ratio. Overall LDR was 72.5%. NT dollar LDR was 84.2%. Foreign currency LDR was 57.6%.
Page 18, NIM and spreads. In 3Q, NT dollar spread increased by 5 basis points Q-o-Q, driven by favorable change in loan mix. In addition, the yield of market securities went up, also supporting NIM to increase to 1.41% in 3Q. Including swap income, NIM was 1.61% in the first 9 months.
Page 19, fee breakdown. Total fees were up 11.2% Q-o-Q, driven by improved momentum in wealth management and credit card business. Total fees were up 26% Y-o-Y. Wealth management fee was up 20.1% Q-o-Q and 40.5% Y-o-Y, as sales of wealth management products increased, supported by higher sales momentum and favorable capital markets conditions. Credit card fees were up 5.5% Q-o-Q and 26.1% Y-o-Y, as credit card consumptions continue to grow. Corporate business fee was down 2.7% Q-o-Q due to declines in syndication fees, but up 18.3% Y-o-Y, driven by loan-related private banking, cash management and syndication fees.
Page 20, wealth management fee. For wealth management fee breakdown in the first 9 months, the proportion of mutual funds increased, underpinned by strong capital markets performance.
Page 21, cost-to-income ratio. Cost-to-income ratio was 51.4% in 3Q, improved Q-o-Q. In the first 9 months, cost-to-income ratio was 52% improved Y-o-Y, driven by better growth in operating income and contained OpEx growth.
Next on, asset quality. Asset quality remained stable with NPL ratio at 0.47%, down 6 basis points Q-o-Q as asset quality in overseas subsidiaries improved and NPLs from consumer debt relief program declined. NPL coverage ratio was 350%. 3Q credit cost was 34 basis points, down 5 basis points Q-o-Q, mostly due to lower provisions for the debt relief program and corporate loans. Credit costs in the first 9 months was 33 basis points, up 10 basis points Y-o-Y, mostly due to higher provisions for growing corporate loans and debt relief program.
Moving to Life business. Taiwan Life reported net profit of TWD 21.1 billion in the first 9 months, up 45.6% Y-o-Y, supported by decent investment gains amid positive capital market conditions. ROE was 17.9%.
FYPs in the first 9 months increased 10% Y-o-Y, driven by stronger sales of interest-sensitive and investment-linked products. FYPE was up 4% Y-o-Y.
Page 26, FYP breakdown by products and channels. On the left is the product breakdown. We can see the proportions of investment-linked policies increased. On the right, in terms of channels, the proportions of external banks increased, reflecting increased sales of interest-sensitive policies. Sales momentum in tied agent channel also improved.
Page 27, the FYP breakdown by type of payment and currencies. On the left, regular paid products accounted for 53% and single-paid products 33% of FYPs. On the right, foreign currency policies accounted for 45% and NT dollar policies 41% of FYPs.
Page 28, investment asset mix. Total investment assets reached nearly TWD 2 trillion. The investment asset mix remained relatively steady.
Page 29, investment yield, cost of liability and breakeven point. In the first 9 months, total investment yield after hedge was 4.52%, up 67 basis points Y-o-Y, reflecting higher capital gains. Recurring yield before hedge was [ 3.79% ] improved Y-o-Y. Taiwan Life continues to maintain positive investment spreads against rising cost of liability and breakeven point.
Page 30, hedging mix. On the left, 41% of overseas investment assets were foreign currency policies, 37% were fully hedged and 12% were unhedged. The rest was OCI position. On the right, FX reserve amounted to TWD 11.2 billion as of 3Q. Hedging cost was 74 basis points in the first 9 months increased Y-o-Y as the magnitude of NTD depreciation was smaller compared to the same period last year.
Turning now to ESG highlights. CTBC Holding remains committed to sustainable financing. As of 2023, CTBC Bank extended sustainable financing of TWD 277 billion, representing a 19% increase Y-o-Y. CTBC Holding also aims to leverage financing influences to promote low carbon transition, who have participated in CDP science-based targets campaign for 2 consecutive years. In 2023, our engagements successfully resulted in 77 companies signing up for SBTi.
The content on Pages 32 to 34 highlights the sustainable development and recognitions of CTBC Holding. For more information and complete reports, you may also refer to CTBC's IR website.
That concludes the presentation. We're now open for Q&A.
So currently, we're waiting for the conclusion of Chinese presentation, and then we will address questions in Chinese first. So please type your questions in the chat box from our English audience. We will answer English questions after the Chinese Q&A session concludes.
Thank you. So now we'll open the floor to our investors and analysts online and open the floor for Q&A. We're now proceeding to the Q&A session. If you want to raise a question, please enter your question in the chat box, and we will address the questions in Chinese first and then address the English questions. A housekeeping reminder here is that to maintain our interpreting quality, please make sure that you're in a quiet room as you raise your questions. Thank you.
So our first question will be from Morgan Stanley, [ Jamie Han ].
My question is that may I confirm the swap revenue for Q3, it's around TWD 3.1 billion. And my question is that for NTD spread expansion, how many of it comes from the rate increase from the Central Bank and also from the RRR hike from the Central Bank? So we're seeing an improve in the purchasing power. We're not sure how the management team value this question and also the spread performance. And also, will we be able to see improved spread for NTD in the coming few quarters? And also in Q3, we saw that compared to the previous quarters, this quarter, we are seeing a more positive changes and impact. So I remember that the presentation mentioned that we are improving or the quality asset -- the asset quality has been improved. Can you talk more about this?
And also for credit cost, is your target still 25 basis points to 30 basis points? And also for wealth management, we're now seeing that momentum for banks are now improving and showing great signs. So for CTBC yourself, we're wondering the customer from your -- the behavior and demand from your customers, can they sustain and support this momentum? And what's your strategy for this?
And also for Taiwan Life, for other life insurance companies, my understanding is that they are covering ICS ratios. And compared to RBC ratio and compared with regulatory minimum, it's -- they are similar. And I'm not sure about Taiwan Life. So for pro forma ICS ratio, what is the level and performance right now? And also as we move into IFRS 17 standards, what are some of the changes or transformation that we were made and or are we going to remain the current investment portfolio?
So regarding ICS, based on the 3 stages as announced, Taiwan Life, so we'll move into IFRS 17 in 2026, and we have a few years of transition period, and we will meet the legal requirements of stage targets. And also regarding our investment portfolio after the transition, if I understand it correctly, your question is that are we going to readjust our portfolio? So this question really depends on the dynamic of the market. And we have [ dued ] several times of simulation. And based on our simulation results, I think a major portion of our portfolio will move from AC to other parts. But right now, we haven't finalized or confirmed the portion of movement yet because we are still calculating and changing our calculation models based on market conditions.
So next, I'll answer the part about banking. So the first one is about our swap revenue in Q3. It's around TWD 2.9 billion in Q3. And compared with previous quarters, we're seeing a decrease here. The main reason is that the Fed is cutting interest rates. And right now, the response in the market will be way ahead the Fed's final decision. So we are now already seeing a decrease from the market.
And next, the question, I think it's about spread. And in Q3, in -- especially in NTD spread, we are seeing a more positive growth. The Central Bank in Taiwan increased the interest rate by 12.5 basis points earlier this year. So this influenced our unsecured policy loans and also mortgages. And at the end of every month or around 21st, we will see the reflection of the changes in the interest rate. And this will be reflected in our Q3 loan rate. And for unsecured loans, we are repricing once every 3 months. So if we couldn't make it in May, we will be able to do it in the later quarter. And for corporate loans, as businesses are renewing their loans, we will reprice our loan rate. So this is the conditions of our NTD spread.
And also, I think another part of the question is that is it possible for us to adjust our pricing strategies. So right now, we know that the market is quite competitive. So I would say a large scale or degree of repricing is maybe not foreseeable in the near future, but we will be considerate about how to employ our capital more efficiently.
And the other question, I think, is about decrease in NPL. This is caused by mainly from 3 countries. So for CCC and LH, they are individual cases that the NPL has been paid. So our NPL decreases. And in Taiwan, we're seeing unsecured loans from customer finance. So this will also reduce our NPL as well. So this is about the asset quality.
And another question is about credit cost, whether it's going to remain at around 25 bps to 30 bps. I would say right now, our forecast is still, yes, between this range. And then finally, the question is about wealth management momentum in Taiwan are overly positive. And I think in the near future, the momentum will continue to maintain positive and even grow. So our clients, their behaviors will change according to the market conditions and market dynamics. So for example, in Q2 and Q3, we're selling -- we had a good sales performance on our funds. But in Q3, bonds, customers are buying more bonds due to the condition changes in market. So we will be assessing and monitoring the market conditions and dynamics to make suggestions for our clients. We will recommend the best suitable products and investment tools for them.
So there's one more question for Taiwan Life. On the investments for Taiwan Life, for your [ ASIC ] card, as you're transitioning to IFRS 17, I want to ask if there is any adjustment on your asset allocation. It's maybe not just about what you just mentioned, maybe for other adjustments available as well.
So after transitioning to IFRS 17, based on our simulation, there won't be really significant changes in the ratio of our portfolio. So the ratio of bonds and equities will remain similar to current status. And in the future, we will monitor the interest rate risk and also the net value fluctuations. And then seek the -- a more stable allocation.
Our next participant is from Morgan Stanley, Peggy Shih.
This is Peggy. So I have a few questions here. First of all, about Bank, I want to ask about the NIM. The NIM in Q3 is -- we're seeing an increase of 4 basis points. And I see that the one from [ NTD ] have offset -- have been offset. So I think the revenues from -- is it from bond investment? And also, how do you analyze the performance of NIM and spread? Right now, the spread seem to be having a moderate development. So this is my first question.
Second question is that for Taiwan Life, in the third quarter, for the unrealized profit and loss, it's around TWD 800 million. So I want to know more about the ratio of bond to equity and also the capital gains. What's the ratio of bonds and equities?
And third question would be about life insurance as well. So can you elaborate more about the annual CSM that you can increase or have accumulated? And also -- can you also update us with the M&As conditions and progress as well as your strategies as well?
And last but not least, for the dividend policies because in the past, the management team mentioned that there is a good profit performance this year. So we hope that in the next year, we will see the same dividend distribution as from last year. So for Taiwan Life, since we are having a good profit performance, we'll probably also allocate some part to the Fed ForEx reserve. And so we want to know if the dividend distributed will be better compared to last year.
Okay. So I'll first address the question with NIM. In Q3, our NIM increased by 4 bps. So even though that the loan-to-deposit ratio reduced by 5%, they actually happened in different positions. So if you consider both NTD and also foreign loan to deposits, the overall growth is 2%. So for NTD loans, since we are repricing at this time, we are seeing an increase of 4 bps on the NTD loan. And at the same time, we are buying in the valued securities with our available capital. So these are the 2 main reasons for the growth.
And then for Q4, you're asking if we can remain or even improve our performance in NIM. According to the current trends, I would say, yes, there is a room for further improvement or growth. But at the same time, we also need to consider swap income. If we also consider swap income to the -- and its impact on to NIM, I think the impact is shrinking. So if you look at NIM in Q3 and Q4, we believe there is going to be a slight growth compared to Q3, but there won't be a significant growth or increase in Q4. But overall, the entire year or annual NIM will be around 1.60% to 1.63%
Okay. So the question for Taiwan Life. So for unrealized capital gain, right now, it's around TWD 16.1 billion. And for equities plus mutual funds, it's around TWD 13 billion. And for the first 9 months, for the realized capital gains, based on the performance, it's around TWD 18 billion and bonds accounted for 15%. And the other remaining portion would be equity and funds.
And for CSM, right now, our target for CSM is around TWD 15 billion per year. And the CSM was TWD 16 billion in 2023. And this year, it seems that we may not be able to achieve the same target or record compared to 2023. The main reason is that in the first half of 2024, since we are seeing a stop or seize in the sale of certain policies, and this also impacted our momentum for the growth here. So for CSM, I would say this year, the expected target would be around TWD 10 billion.
And also, there's another question about M&As. And for M&A strategies, I think we always remain the same policy trends. As long as we seek -- we found opportunities in M&As, whether it's in bank, insurance, in securities and investments, we will try to explore the opportunities and availability. We will assess the profitability and also whether there are overlap in our businesses or complementary parts in our business. And right now, we don't have a specific target yet.
The last question, I think it's about the dividend policy. So in the first 3 quarters, we mentioned that the EPS is right now TWD 2.95. And for the announced EPS is TWD 3.2. So since we have a positive and favorable outlook this year, so we believe that we can be optimistic about the dividend distribution next year, but we are still calculating our financial performances. So we can't give a guaranteed number at this stage yet, but it seems that the future is quite optimistic. We have a lot of factors to consider, but we deeply understand the expectations from our stockholders. So we have several requirements from government that needs to be fulfilled. So right now, we do believe that there's a capacity for this, and we were also evaluating influences from the market.
Okay. So I have one more question here. We talk about a good profit performance on Taiwan Life, and we're wondering if you will allocate some part of that to the reserve at the end of the year?
So if we make such a decision or movement after we consume our ForEx reserves, we will see changes in the policies there. And right now, we are still under discussion about this. We haven't made a decisive or finalized decisions yet.
[Operator Instructions] Our next participant is Alex Ye from UBS.
I have 3 questions. First of all, at the beginning of the presentation, you mentioned that the cut -- rate cut will have a positive impact on NII. And I'm wondering whether you're talking about NII in 2024 or 2025 and whether there will be a positive impact on NII in 2025? And what's your basis of concept and forecast here? So for example, you have the long-term debt here and then this will contribute to maybe a slower impact from the rate cut. And also, we're wondering what are some of the variables that contribute to maybe a higher or equivalent NII from your forecast results? What are some of the key variables here?
And my second question is that for NTD loans, we are seeing a 10% of growth Q-o-Q. So can you elaborate more on this part? We would like to know more about the elaborations of the performance here. Because we know that the banks are now shrinking their capacity in mortgages. And also the government is having a stricter control over this. I'm not sure what's your policies or strategies over this.
And third question is that for the reallocation of our assets, this is also related to the transition to IFRS 17. Based on current situation, we will move some part of the portfolio to from AC. So I'm wondering what's the major directions for your allocation? And also with this -- what's the influence of this on your net asset value? Because I know that as we are reallocating asset portfolio, we need to strike a balance between the impact of rate changes. And at the same time, for net asset, we want to minimize its fluctuations as well. Can we meet the both targets at the same time?
So thank you for your question. I will address with the question regarding rate -- interest rate cut. So as we talk about rate cut, usually, we look at so -- so for example, this is the end of September, and we'll check our P&L and check the BP delta and its influence. So we don't have any other like consumption or concept basis, but it's really about the interest cut and their influence on our NII. So that is our basic assumption here. So we won't make really a lot of assumptions on this. And then this is the status from September and the conditions will change based on our asset allocations. It will change our performance in NII and also our sensitivity as well.
So, right now, we cannot make a precise forecast on 2025 yet. We can only make an assumption based on our current portfolio to see the impact from rate cut and rate increase. So this is a dynamic adjustment. And right now, we are seeing these changes in U.S. delta. And we believe that it will contribute a slight increase. So right now, we only -- we have only 20% of our portfolio in U.S. dollars. And for the other parts will be in bonds and also money market swap and also transfer of deposits in Fed. So based on our loan and deposit tools and allocations and also interest rates, we made or calculated these potential impacts. So these are our assumptions and explanations for our NII forecast.
And then next, for our loan strategies, we have our CFO to answer this question.
So based on the Bank Act number or Article 72, we still have a [ TWD 50 million ] of capacity of quota this year. So we will wisely and effectively -- efficiently utilize our capital. So mentioned that in Q3, we have seen an increase in our corporate investment or corporate loans. So these are mainly from construction engineering. And the -- but the contribution was not really significant.
So now -- we're now opening -- well, now respond to the questions about reallocation of our asset portfolio. So we are still calculating the possible strategies. This will be based on current conditions and also the historical trends, special economic development trends. And in the future, we will still keep monitoring and adjusting it based on latest conditions. So according to our latest calculation and simulation results, right now, our liabilities based on the current interest rate, we will be seeing a reduction in our liability. So this will be a positive impact on our net asset.
And right now, we still are seeing some unrealized capital gains from AC. And then in the future, if the interest rate is fluctuating and a similar pattern from the past, we will be trying to explore strategies that can help us minimize the impact of interest rate changes. And we'll try to seek solutions or strategies that can achieve this target, and then we can implement it on our asset allocation.
So based on our simulation results, right now, most of the part of our asset will be reallocated to AC. And I think this will have an impact on our liability as well. But if you consider both assets and liabilities, this will have just a minimum impact on our net asset value. Our net asset value, according to our forecast, we'll see a slight influence from this condition, but it's -- the influence is limited, only 1% to 2%. So the influence will be limited.
And also, let me address the question further. So for -- for mortgage, for new applicants of mortgage loans, we will have a more conservative attitude towards the applications. We will be providing services to our existing customers first and our targets will be focusing on self-owned and also the first owned housing properties. So that will be our strategies for mortgage.
Okay. And can I ask one more question here? So for the Bank, the U.S. dollar bonds, what is the proportion of that? And how many will be mature in 1 year?
Now waiting for the connection from the Chinese conference room. We will recontinue the interpreting service once we are reconnected.
Okay. So right now, we have 24% of the bonds that will be maturing in 1 year.
Our next participant, Michael Zhang from Citi.
Okay. So I have 3 questions. First is to follow up the NIM discussion. So you mentioned that right now, the Fed interest cut decisions will have a positive impact on our NII. And for looking to 2025, what's your expectations for that? And does that mean that the NIM for next year will at least maintain at the same performance level of this year?
Second question is that for the bank capitals, the bank capital ratio, what is the conditions right now? And also for Q4, as the yield rate increases, what will be the impact of this on the dividend policies and also your loan policies?
And at the same time, we want to ask questions about Taiwan Life. The hedging ratio in Q3 increased a lot compared to the previous quarters. So my question is your -- what is your hedging policies or strategies? And what is your expectations for this?
So this year, as what we just mentioned, the hedging ratio for traditional policies has increased to 62%. And for the one basket hedging arrangement, the thing is that our hedged ratio is dependent on several factors. For example, the hedging cost, the exchange rate of New Taiwan dollars because right now, the exchange rate from Taiwan dollars -- New Taiwan dollars to U.S. dollars is around TWD 32. And based on the past or historical data, we're seeing that New Taiwan dollar is having a weaker momentum here. So this is why we want to increase the proportion of hedged policies or hedged assets. This is why we want to hedge more. So that will be our main strategy basis here. And for this year, the overall hedge cost for 2024 is around 1%. That would be our hedge cost and target for this year.
Okay. So regarding the question on NIM outlook, as what the President mentioned, the U.S. dollar rate, if it decreased or depreciated, it will have a positive impact on our NIM performance. The reason is that right now, the interest rate sensitive bonds or liabilities is greater than the NIM sensitive liabilities. So this means that our cost would reduce more rapidly than the depreciation of U.S. dollars.
And also for swap income, the swap point will be narrowing. So if you consider both factors, we are going to see a neutral impact from the condition. And also for BIS level and performance and also DSIP performance, I would say, for CTBC, we have this more tight control over this individual IPS because according to government regulations, you have to have 2% more. So total BIS would be around -- would be more under tight pressure. And in September, after the income from the Bank comes in, right now, the ratio has reached 11.69%. So this has already -- this has helped us already reach the requirements from the government by 2025. We have achieved over 15% right now.
And also, we talk about the influence on the yield rate of U.S. dollars. I think this depends on the rate of the U.S. dollar bonds, especially on OCI. We are going to see valuation loss, and this would have a negative impact on our asset value. So yes, we're going to see this trend. But at the same time, for our dividend distribution policy or capacity, I don't think there will be a significant influence because the range of change or adjustment will be -- is not really drastic compared to the past change in interest rate.
Thank you. We are still taking questions from the floor. [Operator Instructions]
So right now, we have a few questions from the English audience. So first of all, I think some of the questions have been addressed from the previous questions, but we will elaborate on our responses. So first of all, we have questions from the NIM outlook for 2025 and also the fee income and also loan income for 2025. And also, there are questions regarding our M&A strategies. This has been addressed by the President. And also, there are questions about mortgage as per our Central Bank policies, there are tightened policies, and this has also been addressed by our CFO as well.
So do we still have any other questions on the floor? Or would you like us to elaborate more, please let us know.
[Operator Instructions] So now we are still in the Q&A session. [Operator Instructions] So since we have no further questions, this -- I will now give the floor back to our President.
So these are the presentation from our performance in Q3. And if you have any questions, please feel free to contact our IR team. Thank you.
Thank you, Ms. President. Thank you for your participation. This concludes our conference and meeting today. You may now leave or exit the conference room. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]