CTBC Financial Holding Co Ltd
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CTBC Financial Holding Co Ltd
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Welcome, everyone, to CTBC Financial Holding Company's 2017 Fourth Quarter Earnings Conference Call. [Operator Instructions] .
Today's hosts are Ms. Yaling Chiu, Executive Vice President and Deputy Spokesperson of CTBC Financial Holding company; and Mr. Po-heng Yeh, Executive President -- I'm sorry, Executive Vice President of Taiwan Life Insurance Company.
And the presentation begins now. Please proceed.
Thank you, everyone, for joining CTBC's 2017 earnings call. Please turn to Page 3 on key financial highlights.
Overall, at a holding level, net income reached historical high, came in at $37.2 billion in 2017, up 33% Y-o-Y. Revenue growth was driven by sustained net interest income and fees coupled with better trading gains.
Life insurance net profit reached $10.2 billion, up 107% Y-o-Y on increased investment income, improved loading gains and contained hedging cost.
Group ROE was 12.8%, ROA was 0.73% and EPS was TWD 1.91 in 2017. Operating expense growth was contained Y-o-Y. If excluding ESOP impact, cost-income ratio was lower to 59% in 2017 from 60% in 2016.
Asset quality remains benign with NPL ratio at 0.41%. NPL coverage ratio was 307%.
Group capital position remained adequate. Holding's CAR was strengthened to 139%, and double leverage ratio was lowered to 117% after preferred share issuance of $20 billion.
Bank's CAR stayed high at 14.5%, and CE Tier 1 ratio was 11.8%. Taiwan Life's RBC ratio was 340%.
Page 4, our key business highlights for 2017.
In 2017, the company continued to strengthen our capital position. Holding's CAR increased to 139%, and double leverage ratio improved to 116% after preferred share issuance of $20 billion.
Bank's common equity Tier 1 ratio reached 11.8% as of 4Q '17, rising from 10.7% as of 4Q '16. Taiwan Life remained self-funded in capitalization with RBC at 340%. In addition, CTBC has set up separate Compliance Division and Legal Affairs Division to further enhance our legal compliance system
The company was a Top 5 MSCI Taiwan ESG Leader Index constituent stock and was first selected in Dow Jones Sustainability World index in 2017 after being selected in DJSI Emerging Markets in 2016.
For overseas expansion, CTBC further increased its overseas outlets as we completed 35.6% equity investments in Thailand's LH Financial.
As for digital banking and FinTech, CTBC formed digital committee to steer digital strategies in the group. It has also won international recognitions for its fair efforts in digital banking, including a gold prize for Data Driven Value Creation at the 2017 eAsia Awards and Asia/Pacific's Leader in Big Data Strategy and Best Bank in Asia from IDC.
Page 5 on 2018 strategic focus.
At a holding level, the company has 3 key focuses. First, to further expand overseas. The company will leverage like economic growth trend in the region to penetrate
[ Audio Gap ]
clients. We'll target to leverage our extensive overseas platform and form strategic alliance with local partners to extend product coverage. For example, signing MOUs with Japanese and Chinese banks.
Second, for our Life business, we continue to focus on value-type products to enhance long-term value of the company. We will streamline operating process in order to improve efficiency and customer satisfaction. In addition, we target to enhance earnings quality by adjusting investment asset mix to increase recurring income.
Last but not least, for digital banking and FinTech, we continue to strengthen our digital foundation to support innovation. By leveraging the foundation, we target to digitalize end-to-end process and existing products in order to enhance customer experience. In addition, we aim to expand new business by adopting nascent technology and forming cross-industry alliance.
Page 6 and 7 on profitability.
2017 net profit reached $37.2 billion and increased by 33%. EPS was $1.91. Group ROE was 12.8% and ROA was 0.73%.
Page 8 on capital ratio.
We remain well capitalized with a Group CAR at 138.8%, Bank CAR at 14.5% and Tier 1 ratio at 13.1%. Life RBC ratio was 340%.
Page 9 on net profit breakdown by entity.
In 2017, Bank profits reached $30 billion, up 30% Y-o-Y. If excluding property disposal gains, Bank profits increased 19% Y-o-Y. Life profits reached $10.2 billion, up 107% Y-o-Y.
Holdings net profits came in at 37.2 billion, up 33% Y-o-Y.
In terms of profit breakdown, Bank and Life contributed 74% and 27%, respectively. 46% of Bank profits came from overseas.
Page 10 on net profit movements.
In 2017, operating revenue was up 4%, mainly from steady net interest income and fee income growth and stronger trading gains.
Provisions declined due to additional provisions for TRF and TSB in 2017 -- sorry, 2016, and recovery at TSB in 2017.
Expense [ gross ] was contained. Insurance pretax profit increased 120% Y-o-Y on higher investment income and better loading gains.
Overall, net income was up 33% Y-o-Y.
Page 11 on revenue breakdown.
Total revenue was up 4% Y-o-Y. Net interest income was up 2% Y-o-Y from moderate loan growth. Fee income was down 1% Y-o-Y, supported by strong mutual fund fees despite of weaker bancassurance fee due to commission rate cut impact.
The combined derivatives and FX and trading gains was up 8% Y-o-Y due to strong capital market gains.
Page 12 on bank loan mix.
Total lending with credit card revolving was up 5% Y-o-Y. If excluding FX impact, total loan was up 7% Y-o-Y. NT dollar corporate loan was up 7% Y-o-Y, driven by growth in government and finance and insurance sectors.
Foreign currency loan was up 1% Y-o-Y. Excluding currency fluctuation, foreign currency loan was up 7% Y-o-Y.
Mortgage continued to grow 10% with our exclusive government contract for lending to civil servants.
Credit card revolving was up 11% Y-o-Y, benefiting from increased consumptions of travel, dining and leisure.
Unsecured lending growth was stable at 1% Y-o-Y.
Page 13 on foreign currency loan breakdown.
Total foreign currency loan was $975 billion, which is 45% of total loans. Overseas subsidiaries accounted for 59% of total foreign currency loans, with TSB being the majority. Overseas branches accounted for 29%. OBU and DBU together accounted for 12%.
On the right, if excluding FX impacts, overseas subsidiaries was up 4% Y-o-Y, driven by growth in the U.S., Indonesia and Philippine subsidiaries. If excluding FX impact, overseas branch was up 17% Y-o-Y, driven by growth in Hong Kong, Singapore and China. If excluding FX impact, OBU plus DBU was down 5% Y-o-Y due to sell-down of syndicated loans and early repayments from clients.
Page 14 on bank deposit mix.
Total deposit as of December was $3 trillion, of which foreign currency deposit accounted for 48%. NT dollar deposit was up 11% Y-o-Y while savings accounted for 57%.
Foreign currency deposit was up 5% Y-o-Y with savings accounting for 53%.
Page 15 on a loan-to-deposit ratio.
NT dollar loan-to-deposit ratio was 80.6%. Foreign currency loan-to-deposit ratio was 70.6%. Total loan-to-deposit ratio was 75.9% on faster deposit growth.
Page 16 on NIM and spreads.
NIM further increased 2 basis points Q-o-Q to 1.49%, driven by increased investments in marketable securities and improved investment yields. NT dollar spread was down 1 basis point Q-o-Q to 1.59% due to increased government-related loans and market competition. Foreign currency spread was 2.35%. Overall, spread narrow 1 basis point Q-o-Q to 1.92%.
Page 17 and 18 on fee breakdown.
Total fees fell 1% Y-o-Y. Wealth management fee was flat year-on-year, supported by strong sales of mutual funds despite of weaker bancassurance fees. Mutual funds fees was up 47% Y-o-Y on better investment sentiment last year. Bancassurance fee was down 16% Y-o-Y, mainly due to commission rate cuts. Credit card was down 8% Y-o-Y due to higher redemption of credit card rewards resulting from popular reward program while credit card consumption continued to increase 25%. Retail business was up 10% Y-o-Y due to strong ATM fees. Corporate business was down 4% Y-o-Y amid a weaker syndicated loan market last year. Overseas subsidiaries was down 1% Y-o-Y. Lottery business was stable, showing 1% growth Y-o-Y.
Page 19 on cost-income ratio excluding Life.
Expense growth remain contained Y-o-Y. If excluding ESOP impact, cost-income ratio was 15% -- 59% in 2017 compared to 60% in 2016.
Page 20 on asset quality.
Asset quality remained benign. NPL ratio improved to 0.41%, and NPL coverage ratio improved -- increased to 307%.
Page 21 on credit cost.
2017 net credit cost was 11 basis point versus 27 basis point in 2016. If excluding recovery at TSB in 2017 and additional provisions for TRF and TSB in 2016, credit costs will be 17 and 15 basis points in 2017 and 2016, respectively.
Page 22 on Life profit contribution.
Moving on to our Life business. With the synergy from the merger with Taiwan Life, Life profit has grown from $424 million in 2013 to $10.2 billion in 2017. And profit contribution to our group has increased from 2% to 27%. 2017 ROE was 13.7%.
Page 23 on total premiums.
Total premiums reached $288 billion in 2017, up 14% Y-o-Y, outpacing industry growth of 9%. Market share was 8%, ranked #4 in the industry.
Page 24 on first year premium.
FYP reached $144 billion in 2017, up 3% Y-o-Y, outperforming industry growth. Market share was 11%, ranked #4 in the industry.
Page 25 on FYP breakdown by channels and products.
In terms of channels, 37% of FYPs came from CTBC Bank, 38% from external banks and 14% from Thai agents and 10% from insurance brokers.
On the right is the product breakdown. Interest sensitive is still the majority. Investment-linked product has increased to 12%.
Page 26 on FYPE.
FYPE reached $30.6 billion. Market share was 8%, ranked #5 in the industry.
On the right is the FYPE mix for your reference.
Page 27 on investment asset portfolio.
Total investment assets in 2017 increased to $1.5 trillion. In terms of portfolio breakdown, cash accounted for 6.8%; domestic fixed income, 10.2%; overseas fixed income, 63.1%; equities, 6.4%; real estate, 5.5%; mutual funds, 4.4%; and mortgage and policy loans, 3.6%.
Page 28 on investment yield, cost of liability and hedging mix.
2017 investment yield was 3.95%, mostly due to rising hedging costs amid NT dollar appreciation. Cost of liability continued to improve. It was down 11 basis point Y-o-Y to 3.67%.
In terms of hedging, 65% of overseas investment assets were NT dollar policy, of which 34% (sic) [ 74% ] were fully hedged, 11% were AFS. 2017 hedging cost was 1.02%.
This will conclude the presentation. And we can now open for Q&A.
[Operator Instructions] The first one to ask question is Yafei Tian from Citigroup.
I have couple of questions, if I may. The first one is on the capital improvement Tier 1 and CE Tier 1 in the last quarter of the year. So it's at quite a mature improvement, about 90 bps or so Q-on-Q. So appreciate any breakdown of what's driving that 90 bps or so of improvement? That's number one. I'll come to number two.
This is Yaling. For the capital ratio, CET1 improvement, a major reason is the RWA...
Risk weight.
Yes, the risk weight, the risk weight cut from regulation. For mortgage, we -- our risk weight ratio adjusts down from 45% to 35% -- for non-unoccupied -- sorry, for non-occupied -- self-occupied mortgage, the risk weight is from 100%, adjusts down to 75%. But for self-occupied mortgage, it was -- the risk weight is from 45%, adjusts down to 35%. So that's the key reason for our capital ratio improve. For '17 CET1 -- because of this reason, CET1 improved by 56 basis point.
So you explained a majority of that. Is there any other reason? So the rest will be organic capital generation, I presume?
Yes, right.
Okay. Okay. The second question is on the Taiwan Life business. Clearly, it's a very -- again, a very strong set of results. I think it's a more strategic question as well as a long-term number question. On the strategic side, what is the target contribution from Taiwan Life in your view over a long term? And then the -- along with that, life insurance business this year has been, I would say, impacted, number one, by a higher U.S. rate and number two by higher NT dollar. Will appreciate any color you might give us around what is the impact of higher U.S. rates to Taiwan Life's business? And also, what is the impact of higher hedging cost for your business?
I'll answer the contribution of Taiwan Life in the long run. For next 3 to 5 years, our plan is for Taiwan Life contribution maintained at 25% to 30%. Because for our banking business, we are still growing our earning for banking. At the same time, Taiwan Life is growing, so both our major
[Audio Gap]
are growing for the next 3 to 5 years, so the contribution portion of Taiwan Life will pretty much remain the same as 2017. And for U.S. NT dollar impact, I'll transfer to Po-heng.
Regarding to the hedging cost, the main factor is that hedging is strong, the cost of our hedging instrument is higher than last year, maybe 75 basis points. The positive factor is that the Taiwan Dollar's...
Appreciation.
[indiscernible].
Appreciation is or was 8% for last year and for first 2 months is 2%. We estimate that the appreciation will be lower than last year due to the U.S.A. interest rate...
Rate hike.
Rate hike. So the U.S. dollar will go to U.S.A. So the appreciation will lower than last year. This is a positive factor. As of that -- we saw that the A rating [ bump], the investment [ yield ] is 48 basis point higher than the end of last year. This is another positive factor. So overall, the current year estimate hedge could be lower than last year. But we also have 3 positive impacts for interest gain: the first one is our AUM's, well, 15% growth; and the second one is the [ costs ] of -- for the [ hedging ] were lower than the end of last year; the third one is we will keep increase to invest on high-yield -- high-dividend stocks. So after these factor mixed together, we estimate that interest gain will still low-digit growth than last year.
Can I just double-check that? Did you mention that the NT dollar hedging cost in 2017 was at 75 bps? Or was that the 2016 number?
I mean, the swap, the -- in hedging instrument cost. But yes, 75 basis points higher.
All right. Do you mind helping us to disclose what is the total hedging cost -- NT dollar hedging cost for 2017?
The total cost -- the total hedging cost is 1.2% -- 1.02%.
[Operator Instructions] Right now we're having [ Hansen Liew ] from HSBC.
Anthony here. I have some follow-up on the previous questions on hedging and -- as well as business strategy for Taiwan Life side. I'm just wondering, what's the amount of balance of the FX volatility at the end of fourth quarter? That's the first one. And I think second one is kind of longer-term question about the business strategy for Taiwan Life. I'm not [ quite sure of the position ] why policy mix in your present -- your FYPE is still quite low at 3%. And I think -- and I noticed the FYPE ratio to FYP is still quite low. So that mean that you actually still selling quite a bit of single-pay products declined. And what about plans to adjust the product mix towards a [ more ] different strategy? And how would you modify your distribution strategy in terms of your current hedge and distribution and -- from this year onwards? I believe that the guarantee to the previous -- I mean, the previous guarantee for the Taiwan Life employees expired in last year. So you probably have some scope to revamp your distribution this year. So wondering what initiatives are you taking to improve the product mix and distribution mix to help drive the value of your strategy?
Can you please repeat your first question?
Oh, so -- but just a quick one. Just the balance of FX towards the -- at the end of fourth quarter. I think third quarter, it was about TWD 1.05 billion. Just want to get an update on the fourth quarter number.
Are you referring to the FX results, Tony, [indiscernible]?
Yes, that's right. Yes, yes. Yes, fourth quarter.
Yes.
Well, at the end of 2017, the reserve is $7.3 billion -- $0.73 billion.
Okay, got it.
And for product strategy, we'd like to increase the stability of profits. It means through enhanced mortality gain and loading gain. So we keep increased rate growth ahead from 2016 -- rate growth ahead among the traditional product is about 32% and for 2017 is 41%. And for -- and January is 48%. And the investment product was potentially also increased, and that's from 162% and 174%. For January, it's 47%. And we also tried to -- on a stable place. It means to enhance the foreign currency policy percentage. The percentage is -- was 24% in 2016 and 32% in 2017. For January, it's 40%. So the portfolio for product mix, we think, is getting better than before. You mentioned the FYPE in 2017 is -- was decreased from 2016 because of the impact of commission cuts, like you said, is -- affected -- affect the fixed [ yield ] pay more, the more [indiscernible]. So the FYPE was decreased. And compared to the...
[indiscernible].
Compared to the industry, we -- in the first quarter, you can see the hedge 2018 we -- I think we are better than industry.
Right. Yes, referring to the FYPE breakdown by channel, right? [indiscernible]?
Well, FYPE for -- breakdown by channel.
I'm sorry, so you plan to have the detailed number for each channel?
No, no, no. It's not much about the figures themselves as of 2017 but more about more forward-looking strategy or steps you'll take to increase the distribution mix because that will obviously help with your value different strategy. And I think after a series of acquisitions of life insurance companies with the -- end of Taiwan Life 2015, 2016, you actually got to the end of guarantee for the previous existing Taiwan Life employees. Now in 2018, that's going to expire. And the officers have got to revamp the distribution capabilities of your previous insurance companies in a more aligned way to help drive to the -- your strategy. Just wondering what kind of steps you'll take to do that.
For agent channel, we keep increasing the regular pay and the investment type of product to earn more mortality gain and loading gain even after the guarantee period expired. We -- currently, we develop the [ Agent 3.0 ]...
Project.
Project to enhance the productivity and to increase the number of agents. And the 2 years guarantee period actually did not have any negative impact for the agent channel.
Oh, I understand.
Yes.
Yes.
So we can't see a significant turnover for agents, so we don't see any impact from the guaranteed program expiration.
Okay, so no negative impact from that, but you're trying to actually have some increment in productivity given your [ Agent 3.0 project. ] Is that what you're trying to get across?
Yes, correct.
[Operator Instructions] Next we're having Katie Brown from Citi.
Hello.
Yes. Katie, you're on the line.
Okay. I have 2 brief questions. The first one is on the preferred shares issuance. I know that it has -- the issuance has been completed, and your double leverage ratio has been brought down. May I know the purpose, like, the further use of the preferred shares, if they're going to be injected into the bank? And when will that be completed? The second one is on the credit fee decline. You mentioned that it was because of high redemption of some program rewards. Would you elaborate more on that?
Hello, this is Yaling. For preferred shares -- the usage of the preferred share, majority of the funding coming in from preferred share will be paid down our liability like short-term borrowing. And, yes, the majority is for that purpose. Then the second question is -- you're referring credit card fee incomes, right?
Yes, the lower credit card fee in fourth quarter.
Okay. Yes, because the loyalty program for our new card -- we call it LINE Pay co-brand card, we issue a co-brand card with LINE, it's the communication -- very popular communication app in Taiwan and Japan and Thailand. The loyalty program scheme for LINE PAY co-brand card is -- for last year is 3% of your spending, then we will rebate for -- from LINE point. Then you can redeem a LINE point for spending, like in Shinkong Mitsukoshi Department Store and other places. And this accounting treatment for this loyalty program is the -- we call it contract revenue. You have to deduct fee income for this loyalty program. So that's -- and our LINE Pay co-brand card is a big success last year. Within 1 year, we issue over 1 million cards, and the spending is over TWD 100 million -- TWD 100 billion, sorry, TWD 100 billion. So that's why we reward a lot of reward point for this card last year. And that caused the decrease of our net credit card fee. But that's -- the scheme we designed for this card. For other -- it's quite unique loyalty program. For other co-brand card, in addition to the rebate from spending, we also have marketing -- we also rebate the co-brand partner. And also -- we also had marketing expenses for other co-brand card, and they were booked in operating expenses. That's why there is no impact on credit card fee income. Therefore, this card is different. So you will see the impact on the credit card fee income.
I assume this is not -- the reward, it's not one-off. So should we expect lower credit card income going forward because of this highly successful card?
Well, I would say, in the future, credit card fee income will be about the same level because when you issue more card and spending growing more and -- it still have some impact on net credit card fee income, but we use this card to cross-sell. This card is just a customer acquisition tool. So we have 1 million cards, and half of the card issuance is on new customers. So we cross-sell like wealth management product or insurance to these cardholders. And when we altogether to come -- the cross-sell income and credit card fee income altogether, it's mainly is increasing. So it is [indiscernible]
Next one, we're having Yafei Tian from Citigroup again.
I really wanted to go through a couple of points that might have been covered in the Chinese call. Just wanted to double check with you a couple of 2018 outlook guidance that perhaps was mentioned in your call and was reported in the media. Number one is that there was a mention of NIM expansion of 3 bps to 5 bps expected for 2018. Is that the case?
Yes. NIM will expand 3 bps to 5 bps, that's our outlook.
Do you mind elaborating a little bit of what are the key drivers behind that or key assumptions behind that NIM expansion?
Major key driver for this NIM expansion, there are 2 reasons. One is U.S. rate hike. So every 1 bps will impact our net interest income around TWD 26 million. So because of that, we foresee our NIM expense. Second reason is -- second key driver is we still growing our foreign currency loan book. We see our loan book momentum will remain the same as 2017. For 2017, part of foreign currency loan book was impact by the FX because NT dollar appreciate around 8% last year. If we -- if there's no such volatile FX impact in 2018, we will grow our loan book around mid- to high-single digit, which is the same momentum if you strip out FX impact for last year. So for loan structures change and the U.S. rate hike, it contribute to our NIM expansion.
Okay, okay. That's very clear. And then coming to the loan growth on FX loans. Is there also a group loan growth target of 7% to 8%? That seems rather high, given how much the FX [ part impacts the growth ] 6% to 7% and domestically and also the credit demand is that strong.
We don't see 7% to 8% for loan book growth is too strong because it's the same momentum with last year, if you see our FX impact. For last year, NT dollar loan book grow around 7% and for foreign currency loan book also grew around 7% if you take out FX impact. And for -- overall, economic outlook is good, and all the trade momentum is strong. We see our customer has some needs for, like, trade finance or working capital, and Taiwan is expo-oriented country, so we'll help our customers' needs for financing. And that's our opportunity for our loan book to grow.
Okay, okay. And assuming that 7% to 8% guidance is basically on the constant currency basis, it doesn't take into account of the effect of NT dollar appreciation this year?
Yes, correct.
Okay. And finally is -- also, is the fee income growth target of single digit, is that [ true ]?
Yes.
Okay, okay. So is there any other guidance that was mentioned in the Mandarin -- in the Chinese call that we haven't discussed in the English version?
I think we pretty much discussed loan book outlook, NIM and fee. We mentioned about credit cost outlook in Mandarin session, the afternoon. For credit cost, we see for this year, we will remain at around 15 bps to 20 bps, which is our average credit cost in the past.
Next in line for question, Chung Hsu from Crédit Suisse.
I just have a follow-up question. Just wanted to clarify your NIM guidance. When you say 3 to 5 bps increase year-over-year, are you referring to year average to this year average or starting in end 2017? Because your fourth quarter '17 NIM is 1.49. And if -- that's really 3 bps higher than the full year 1.46. Just want to clarify your NIM guidance for 2018.
On the 3 to 5 bps increase is against average NIM of 2017. So we -- our NIM for 2017 average full year is 1.46. So for 2018, full year average NIM will be around 1.49 to 1.51.
Okay, okay. So that's very flat compared to fourth quarter last year?
Yes. We still have some concern about the pricing competition. We see the liquidity is still strong in the market this year. We didn't see any liquidity heightened now. So actually, we consider in the pricing competition in this assumption.
So you're expecting some pricing competition. Okay. And can I just also clarify your loan growth. Earlier in the Chinese session, you mentioned the growth on the foreign currencies overseas were quite even across the 4 major divisions. Do you have a number for your Tokyo Star, or do you have a target for Tokyo Star for us in 2018? Because that is one of your largest or the largest overseas segment.
For Tokyo Star, if you look at growth rate for TSB only, it will be low single-digit growth. But given its size is about half of our foreign currency loan book, so the [ attributable ] amount of loan growth is quite even to other region. And for other region, it will be growing around low double-digit. It's the same momentum as last year.
So the U.S. dollar would be at close to double-digit growth in 2018?
Right.
And with that, you're still factoring a -- you still expect a flattish or modest NIM increase from end 2017. So that's...
Yes.
Can I just ask last question, sorry? Preferred shares. Do you have any plan to issue more preferred shares? I think some of your major peers have issued their second preferred shares or a noncompliant issue of their second preferred shares. So is there any plan to issue another preferred shares this year?
No, not for this year. We see our capital is quite sufficient, adequate for this -- for the time being.
Okay. So you're still on track to lower your double leverage to 115% -- [ expect ] the 115% in 3 to 4 years -- by 2021. Is that fair to say?
Yes. Our plan is to maintain our double leverage ratio at around 115% in next 3 to 5 years.
Next one to ask question, Katie Brown from Citi.
So I have another question. On your slide, Page 38, the CTBC Bank P&L. I saw an item called long-term investment income. So this item has been quite flat over from 2014 to 2016 and has been flat until third quarter this year, but in fourth quarter, it jumped to TWD 1 billion. May I know what's underlying? And is it -- so my understanding is this is part of your, maybe, long-term bonds -- the interest income from long-term bonds. But if that's the case, why don't you just combine with the net interest income? Or what's the underlying asset of that long-term investment income?
Okay, this is operator. It seems like we are probably having some kind of technical issue. Can everyone hold online please while I confirm? And Katie Brown, Ms. Katie, I'm going to put you back into the conference room. And if you would like to ask question after I announce that everything is back on track, please press 01 again.
[Technical Difficulty]
Ladies and gentlemen, we thank you for your patience. We are now back online. So I still see Ms. Katie Brown is still on the line from Citi. [Operator Instructions]. Okay, now we're having Ms. Katie Brown from Citi.
I have one last question, is on your slide, Page 38. There is a item called long-term investment income, which has been quite stable over the past 3 years, but it just jumped in fourth quarter. I'd like to understand what's the underlying asset of that? And is this income included in your net interest income?
Hi, this is Yaling. The reason for the increase of long-term investment income, there are 2 reasons. One is the gain from LH Bank we just -- yes, equity participation starting from July. So we recognized the gain from this investment. And the second one is there is a PE fund investment in Tokyo Star Bank. So the PE fund -- IPO and the sales from stock, so they distribute dividend to Tokyo Star Bank. And that's long-term -- that's -- the accounting treatment for Tokyo Star Bank is long-term investment. So when you consolidate back to Taiwan, it would be booking in long-term investment also.
Understood.
Yes, Ms. Brown, do you still got more questions?
Sure. So on the LH Bank profit sharing, would you give us some guidance, like what's the magnitude going forward? So the -- out of the TWD 1 billion long-term investment income, how much is from LH Bank and, how much should we expect going forward?
For LH Bank, in 2017, it's quite stable. It contributes about TWD 70 million per month. So for this year, you can expect the same momentum. But from their plan, I see they have quite aggressive plan for this year and next 3 years. Because we had some -- we have a team stationed there to help them to develop cash management product, wealth management product, and we set up a Taiwan desk to serve our Taiwanese corporate clients in Thailand. So I'd say TWD 70 million per month, I believe, is baseline. And going forward, you can foresee it was -- has some growth for this profit sharing.
Ladies and gentlemen, we are going to take the last question. The last question is from Anthony Lam, HSBC.
Just some final [ lot of ] questions. Talking so much about the guidance for banks and just some thoughts about the Taiwan Life Business Bank VNB in 2016, was over, I think, TWD 10 billion. I think that's around TWD 12 billion, TWD 14 billion, I think. It would be down quite a bit in 2017. Just trying to get my head around what kind of VNB we should expect in 2018 and going forward. And also a little bit about the strategy you mentioned in the -- [indiscernible] getting with PowerPoint, seeing you probably have more cooperation with regional players and Chinese banks. And just wondering what it would mean for your expansion strategy. Would it be less driven by large-scale mergers and acquisitions or equity stake investment as you did with LH [ invest LH ] or somewhat asking the question [indiscernible] adopt more joint venture or equity stake investment approach that will have less impact on your capital adequacy? So those are my 2 questions.
We will disclose the VNB table at the first quarter conference.
So we will disclose VNB for next investor conference.
Yes, [ the expense chart ] [indiscernible] Yes.
Yes, as far as strategic alliance with other banks, basically, I think we are not talking about equity participation or mergers and acquisitions. Mainly, it's now focusing on the business alliance. For example, we have signed MOU with [indiscernible] to study Japanese banks. And also we had signed 2 MOUs with Japanese banks -- sorry, with a Chinese bank. So these are the one we are talking about, our business alliance with the intent of our overseas expansion. So I think in the midterm, we're more focusing on organic growth and also to the strategic alliance. For example, like signing MOUs, we hope that we will have [indiscernible] [ difference in the ] local market and also to enlarge our business scale in our overseas market.
Yes, just to clarify, so that would mean quite a bit difference from the previous -- I mean, style or -- I mean, strategy of doing acquisitions in the past in 2011 so I think 2016, 2017. So that's quite a big departure in terms of expense and strategy in terms of whether you do M&A or strategic alliances. So now you probably go for strategic alliance, which has less [indiscernible] impact than your previous M&A style of expansion. Is that the case?
Yes, for last 5 years, internally, we carried out first 5-year plan. It's more focusing on expanding our business footprint. So we have a partner bank in Japan. So we have footprint in North Asia and we have now in Southeast Asia, too. We set up a branch in Singapore and also we set up [indiscernible] base in Malaysia, Myanmar, Sydney, and also in China, we have set up 3 branches already. And we are currently in preparation to upgrade it to a sublicense. So basically, we have a more complete footprint across the region. So here comes the second 5-year plan. Starting from 2017, we are more focusing on exclusion and delivering the results and delivering the synergies. So that will be a different focus of our business for this 5-year plan.
Ladies and gentlemen, we thank you for all your questions and also your participation in CTBC Financial Holding Company's Conference Call. You may now disconnect. Have a good evening, and goodbye.