CTBC Financial Holding Co Ltd
TWSE:2891
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CTBC Financial Holding Co Ltd
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Thank you for joining CTBC 2022 Fourth Quarter Analyst Meeting. Today, we have Rachael Kao, spokesperson of CTBC Financial Holding Company; Megan Hsu, CFO of CTBC Financial Holding Company; Pai-Hung Yeh, CSO of Taiwan Life, joining the meeting.
Now we will have the spokesperson, Ms. Rachael Kao, to speak first.
Good afternoon, everyone. Welcome to the 2022 earnings meeting for ChinaTrust CTBC Financial Holding Company.
Before our analyst meeting, I would like to sum up what's happening in the year 2022. Because of the war between Russia and Ukraine, and inflation and the hike of Fed fund rate, the capital market has been impacted massively. Our business related will be like the life insurance investment business and the treasury business and so on. But in year 2022, CTBC Financial Holding Company still delivered, before tax, TWD 47.1 billion earnings, that's net decline of 24%. And after tax, it's TWD 31.3 billion, that's 42% decline compared a year ago. But if we exclude the impact from COVID, the P&C losses, there will be 7% decline compared a year ago.
And thanks for the good performance of our core business at the CTBC Bank, the 2022 before tax earnings was TWD 47.4 billion, which was 35% increase compared to year 2021. And after tax, it's TWD 37.2 billion and is 25% increase compared a year ago. And there's 3 reasons for that.
First of all, this -- because Greater China, which covered China, Taiwan, Hong Kong, with the momentum of this area, especially the strong franchise, we are the #1 cash management bank in this area, our margin -- net interest margin increased about 17 basis points. And we will have more highlights later on of the presentation.
And the second reason is because the smoothing of the COVID impact, some of the foreign countries like Southeast Asia or Japan, which was impacted deeply 2 years ago and, in 2022, we see better performance, and the earnings actually came back to before the COVID situation. So the overall overseas delivered TWD 15.1 billion pretax earnings, which accounted for about 32% of the total bank earnings.
And the third reason is our infrastructure. Our deposit and loan foundation continue to expand. Our loan expanded about 17%, and the deposit increased about 12%. And the bank actually booked a record high earnings into year 2022 and will continue to be the ranked top 1 among all Taiwanese banks.
And that's a brief update of our performance in year 2022. And then I will have our IR colleagues to go over more details. Thank you.
Thank you, everyone, for joining CTBC's 4Q 2022 earnings call.
Please turn to Page 4 on performance highlights. CTBC Holding's net profit reached TWD 31.3 billion in 2022, down 42% Y-o-Y, ranked #3 among peers. If excluding COVID policy-related loss, net profit would decline by 7%. Holding's total assets increased 9% Y-o-Y to reach TWD 7.7 trillion, thanks to strong growth at CTBC Bank. Capitalization remained adequate with CAR at 119%.
CTBC Bank delivered record high net profit of TWD 37.1 billion, up 25% Y-o-Y. Ranked #1 among peers, attributable to strong loan growth, widened margins, contained expense growth and benign credit costs. Asset quality was stable with NPL ratio at 0.49% as of 4Q and credit costs of 26 basis points in 2022. Bank's capitalization was sound, and CE Tier 1 ratio was 11%.
Taiwan Life reported net loss of TWD 3.4 billion due to COVID policy-related loss and subdued investment gains. Capitalization was sufficient with RBC ratio at 275%.
On ESG, 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 and Emerging Markets Index, FTSE4Good Index Series and Bloomberg Gender-Equality Index. In addition, we joined Coalition of Movers and Shakers on Sustainable Finance initiated by FSC and served as Chair.
Page 5 on 2023 focuses. On banking business, CTBC Bank continues to enhance wealth management and digital payment business models. We aim to scale up SME business and enlarge cross-border business in order to further expand our customer base. We will focus on cultivating business opportunities at overseas subsidiaries to enhance earnings. In addition, we will continue digital transformation to strengthen core competencies.
Our life insurance business, Taiwan Life will prioritize growth in value-driven products in order to enhance sustainable earnings. Considering the implementation of IFRS 17 and ICS, we adjust investment portfolio by balancing capital allocation and investment returns. In addition, we'll leverage digital competency and develop new core systems in order to provide better product and service offerings.
On sustainability, we aim to take constructive actions to advocate biodiversity. To realize our commitment to net zero emissions by 2050 using SBTi standard, we will intensify engagements with our customers and investees. We also served as Chair on Coalition of Movers and Shakers on Sustainable Finance to lead more active measures on sustainable development.
We are committed in expanding our impact to ESG through our core financial business, and we'll continue to develop sustainable financial products and innovative digital services. In addition, we support community development through social investments in 5 key areas, including charity, antidrug awareness, sports, education, and arts and culture.
Page 6 on profitability. Holding's 2022 net income was TWD 31.3 billion. EPS was TWD 1.55. Group ROE was 8.2%, and ROA was 0.4%.
Page 7 on capital ratio. We remain well capitalized with group CAR at 119%, Life RBC ratio at 275%, Bank CAR at 14.1% and CE Tier 1 ratio at 11.1%.
Page 8 on profit breakdown by entity. In 4Q, Bank net profit reached TWD 8.2 billion, down 35% Q-o-Q, mostly due to increased provisions and higher ESOP valuations. Life made a loss of TWD 8.6 billion, mostly due to loss related to COVID policies. Holding's net loss was TWD 9 million.
In 2022, Bank's net profit reached TWD 37.1 billion, up 25% Y-o-Y, driven by increases in net interest income and trading gains, benign credit costs and contained growth in operating expense. Life reported net loss of TWD 3.4 billion, mostly due to COVID policy-related loss and lower investment income on base effect. Excluding COVID policy-related loss, Life net profit reached TWD 15.7 billion, down 32% Y-o-Y.
Other subsidiaries, together, reported net profit of TWD 1.9 billion, down 53% Y-o-Y due to lower trading income at Securities and Venture Capital subsidiaries. Holding reported net profit of TWD 31.3 billion, down 42% Y-o-Y. Excluding COVID policy-related loss, Holding's net profit reached TWD 50.4 billion, down 7% Y-o-Y.
Page 9 on net profit movements. On the bottom, operating revenue was up 11%, with loan growth and widened net interest margin underpinning increases in net interest income. Provisions were up 8% Y-o-Y, mostly due to impact from LH. Credit costs remained benign at 26 basis points. Expense growth was contained on lower ESOP valuation. Life pretax profit declined on COVID policy-related loss and subdued investment income. Holding's pretax profit reached TWD 47 billion, down 24% Y-o-Y.
Page 10 on revenue breakdown, excluding Life. Total revenue was up 11% Y-o-Y. Net interest income was up 27% Y-o-Y with total lending grew 17% Y-o-Y, and net interest margin widened by 17 basis points, benefiting from rate hikes. Fee income was down 8% Y-o-Y with volatility in capital markets, the wealth management and securities fees lower, but credit card, corporate, retail and investment trust fees increased.
Combined derivatives, FX and trading gains was down 3% Y-o-Y, mostly due to lower trading income at Securities and Venture Capital subsidiaries. Despite that, FX-related trading income increased. Long-term investment and other income declined in 2022 as the Bank no longer booked long-term investment income from LH after consolidating the entities since 4Q 2021.
Page 12 on Bank's loan breakdown. Total lending with credit card revolving was up 17% Y-o-Y. NT dollar corporate loan was up 31% Y-o-Y, driven by higher investment demand, working capital needs and property development. Foreign currency loan was up 13% Y-o-Y. Mortgage was up 14% Y-o-Y, supported by stable business momentum and our participation in lending to civil servants. Unsecured and other loans were up 7% Y-o-Y, mostly on growth in unsecured consumer loans as we continue to expand our customer base.
Page 13 on foreign currency loan breakdown. Foreign currency loan accounted for 36% of total lending. Overseas subsidiaries accounted for 59% of foreign currency loans with TSB and LH being 2 larger subsidiaries. Overseas branches accounted for 29%. OBU plus DBU was 12%. Looking at the foreign currency loan breakdown by region, Japan accounted for 31%; Southeast Asia, 29%; Greater China, 14%; and North America, 14%.
Overseas subsidiaries loan was up 11% Y-o-Y, driven by solid business momentum at LH, U.S., Philippines and Indonesia subsidiaries. Overseas branch loan was up 16% Y-o-Y as Hong Kong, Singapore and New York branches observed double-digit growth. OBU and DBU was up 27% Y-o-Y, driven by growth in syndicated loans.
Page 14 on Bank deposit mix. Total deposit reached TWD 4.6 trillion, up 12% Y-o-Y. On the right, total NT dollar deposits were up 10% Y-o-Y. NT dollar savings accounted for 62%. Total foreign currency deposits were up 16% Y-o-Y. Foreign currency savings accounted for 46%.
Page 15 on loan-to-deposit ratio. Based on average loans and deposits, overall LDR was 72%. NT dollar LDR was 81%. Foreign currency LDR was 60%.
Page 16 on NIM and spreads. In 4Q, foreign currency spread was 2.77%, up 7 basis points Q-o-Q due to rate hikes and changes in loan mix. NT dollar spread was 1.75%, down 2 basis points Q-o-Q, reflecting rising deposit rates and changes in deposit mix. Overall spread was 2.08%, down 2 basis points Q-o-Q. In addition, rate hikes led higher yields for marketable securities. 4Q NIM was up 1 basis point Q-o-Q at 1.63%. NIM in 2022 was 1.57%, up 17 basis points Y-o-Y, benefiting from rate hikes.
Page 17 on fee breakdown. Total fees were down 8% Y-o-Y. Wealth management fee was down 24% Y-o-Y as volatility in capital markets impacted customer demand and caused sales of bancassurance and mutual funds to weaken. However, fees on bonds increased as rate hikes triggered rises in bond yields and prompted customers to invest in bonds.
Credit card fee was up 15% Y-o-Y due to increased consumption, supported by increasing cross-border travels post-COVID, expanded customer base and further penetration of mobile payments. Retail business was up 14% Y-o-Y due to increases in ATM and loan-related fees. Corporate business fee was up 13% Y-o-Y, driven by syndicated loan and trust fees. Overseas subsidiary fee was up 8% Y-o-Y, mostly due to the consolidation of LH. Lottery fee was up 1% Y-o-Y due to a lack of high price last year.
Page 18 on wealth management fee. For wealth management fee breakdown in 2022, bancassurance contributed 61%; mutual fund, 23%; custodian and trust, 4%; and others, 12%, to total wealth management fees.
Page 19 on cost/income ratio. In 4Q, Bank operating expense increased 21% Q-o-Q, mainly driven by higher ESOP valuations, leading to cost/income ratio at 55.9%. In 2022, cost/income ratio was 53.2%, lower compared to that in 2021, mostly due to 13% growth in operating revenue and lower ESOP valuation. Overall operating expense growth was contained.
Page 20 on asset quality. Asset quality remained stable with NPL ratio at 0.49%. NPL coverage ratio was 332%. 4Q credit cost was 38 basis points, up 13 basis points Q-o-Q, due to adjustment of impairment parameters and increased specific provisions. 2022 credit cost was benign at 26 basis points, down 2 basis points Y-o-Y.
Moving on to Life business. Page 22 on total premiums and first year premium. Total premiums were TWD 138 billion in 2022, down 33% Y-o-Y. FYPs were TWD 57.5 billion in 2022, down 46% Y-o-Y, as volatile capital markets affected sales of investment-linked products and customers turned to interest-sensitive policies that capture rate hike trend.
Page 23 on FYP breakdown by products and channels. On the left is the product breakdown. Investment-linked products accounted for 16%; interest-sensitive policies, 77%; health and PA, 6%; and traditional, 1%, of FYP. On the right, in terms of channels, 49% of FYPs came from CTBC Bank, 32% from external banks, 10% from tied agents and 8% from insurance brokers and others.
Page 24 on FYP breakdown by type of payment and currencies. On the left, regular paid products accounted for 40% and single paid products accounted for 44% of FYPs. On the right, investment-linked products accounted for 16%; foreign currency policy, 65%; and NT dollar policy, 19%, of FYP.
Page 25 on FYPE. FYPE was TWD 17.7 billion in 2022. On the right is the FYPE mix for your reference.
Page 26 on investment asset mix. Total investment assets reached nearly TWD 2 trillion. Taiwan Life took suitable opportunities to adjust its investment portfolio.
In terms of breakdown, cash accounted for 4.3%; domestic fixed income, 9.1%; overseas fixed income, 60.6%; equities, 9.5%; mortgage, 2.3%; policy loans, 1.3%; real estate, 5%; and mutual fund, 7.9%. On the right is the pre-hedge return for each type of investment assets for your reference. Equities position generated a negative return of 6.1%, largely due to a loss at P&C.
Page 27 on investment yield, cost of liability and breakeven point. In 2022, with impact from P&C, overall investment yield after hedge was 2.61%, and recurring yield before hedge was 2.35%. If excluding impact from P&C, overall investment yield after hedge was 3.68%, and recurring yield before hedge was 3.42%. Cost of liability increased 6 basis points Y-o-Y to 3.11% as foreign currency policies increased. Breakeven point continued to improve at 2.68%.
Page 28 on hedging mix. On the left, 43% of overseas investment assets were foreign currency policies, 30% were fully hedged, 10% were OCI position and 17% were unhedged. On the right, FX reserve amounted to TWD 12.2 billion as of 4Q. Overall hedging cost was 15 basis points in 2022, declined 104 basis points Y-o-Y, thanks to NT dollar depreciation.
Next section is the ESG highlights for your reference. That concludes the presentation.
[Operator Instructions] First, we have questions from JPMorgan, Jaime. The first question is about the hedging cost guidance of 1.08% in 2023. What is the embedded assumption for USD-NT dollar FX rates?
So for this question that we have, Pai-Hung Yeh, that's the Chief Strategist from Taiwan Life, to answer the question. Thank you.
Give me a minute, I will check for it. [ 30.708 ] is our assumption.
The second question is also coming from JPMorgan, Jaime. The P&C Insurance Association just announced that mild COVID cases are no longer qualified for claim payment. Do we see any possibility for reserve reversal for CTBC Life -- CTBC -- yes, CTBC Life, IBNR reserve?
Around TWD 0.8 billion to TWD 1 billion reversal. And for equity position, around 28 -- okay, so...
Yes, sorry, the microphone has some problems. So the third question is also from Jaime Huang -- JPMorgan, Jaime Huang. And the question is about the URCG equity and bond investment at Taiwan Life as of fourth quarter 2022.
For equity position, the unrealized loss is -- was TWD 28.2 billion. And then for fee income position, it was TWD 17.6 billion loss.
[Operator Instructions] Thank you for listening to CTBC Holding Company Fourth Quarter Analyst Meeting. [Operator Instructions] And now we have a question from Michael. For the TWD 0.8 billion to TWD 1 billion reversal of IBNR reserves, will this be recorded as a net gain in March or April?
Thank you, Michael, for your question. For the reserves on IBNR, we will wait until all the policies would be due, which will be by end of April. So I think we will clean up the whole COVID policy and then reverse if there's still a reserve left. Thank you.
Thank you for listening to CTBC Fourth Quarter Analyst Meeting. Now we are in the Q&A session. [Operator Instructions]
It seems there's no more follow-up questions. It's 5:30 at Taipei time. If there's no question, I think I would suggest that we end for today's analyst meeting, and wish you a nice weekend. Thank you.