First Financial Holding Co Ltd
TWSE:2892
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First Financial Holding Co Ltd
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Good afternoon, ladies and gentlemen. Hi. I'm Casey. Welcome to join us for First Financial Holding First Quarter 2020 Webcast Investor Conference. We will start with our presentation, including first quarter snapshot, financial highlights and operating results. Then we will invite Ms. Annie Lee, our -- who is currently our EVP as well as Head of IR, to proceed the Q&A session. [Operator Instructions]
Today's presentation material is already on our IR website. Also, we will provide 1-year replay service of the webcast meeting for your convenience.
Now I'd like to turn over to Mr. Keith Ke to begin today's presentation. Keith?
Thank you, Casey. Okay. Let's start the presentation today. Please turn to Slide 5. Let's take a look of the performance of first quarter 2022. Overall, to say, group posted TWD 4.9 billion earnings with 1.7% decrease Y-o-Y, which were mainly dragged by securities and the insurance setbacks, however, benefited from the rate hike cycle due to the global monetary tightening policy. Bank unit still had a solid result to underpin the group's earnings.
It has been over 10 years since Taiwan's last rate hike. It would benefit bank unit by taking the tailwind in widening spread and NIM, especially when our CASA rate was over 70%, which was almost the best among peers. Insurance unit would also take advantage from new fixed income investment with higher yields eventually. And we think both corporate and consumer's loan demand would be impacted by the turbulent financial markets and up rising market interest rate recently. It would take time to have a more clear picture for a long demand trend.
And the proposal for TWD 1 cash dividend and TWD 0.2 stock dividend is subjected for AGM approval, which will be held on June 17.
Okay, let's move to financial highlights. Please turn to Slide 7. This slide shows group's key figures. As we mentioned beginning, net income decreased 1.7%, mainly dragged by weak securities and the insurance performance. EPS, ROE and ROA all fell behind in first quarter as well. Left pie chart shows the proportion of major units. Please take that as reference.
Let's move to Slide 8. This slide provides the breakdown of group's net income. As of the top line, total net revenue decreased 3% Y-o-Y, which was mainly caused from securities and the insurance units. Both credit charge and the insurance reserves were lower than the same period of previous year. Bottom line ended with 1.7% decrease Y-o-Y.
Please turn to Slide 9. This slide displays the earnings of major subsidiaries. Although group displays a shrinking result with 1.7% decrease Y-o-Y, our flag subsidiary, First Bank, still finished TWD 4.8 billion profit with 9.4% growth Y-o-Y.
Let's move to next part, operating results. Please turn to Slide 11. This slide shows group and the bank's net income and ROAEs. Group net income was TWD 4.9 billion and the ROAE was 8.7%. Bank's net income was TWD 4.8 billion with 8.5% ROAE.
And Slide 12 provides the breakdown of bank's earnings structure. Cumulative net revenue of first quarter was TWD 11.6 billion with 2.5% growth Y-o-Y. As of the breakdown, net interest income increased to 13.3% and the fee income also had 17.1% growth. However, gains on investment shrank 57.4%, which was impacted by turbulent financial markets.
Please turn to Slide 13. This slide presents the loan book mix. Total loan book reached TWD 2.12 trillion, with 9% growth Y-o-Y. Among the components, large corporate loan had 19.5% growth Y-o-Y. SME also had 8.9% growth. Both mortgage and the FX loan also performed well with 8.5% and 9.7% growth, respectively. And next slide shows the Q-o-Q trend. FX loan bounced back with 8.7% growth Q-o-Q.
Okay. Please move to Slide 15. Here shows the trend of LDR, spread and NIM. LDR slightly improved to 69.7%. NT dollar LDR slid to 79.7%, while FX LDR rose up to 45.7%. Loan-to-deposit spread decreased 1 bp to 1.4%, and the NIM improved 1 bp to 1.02%.
And please turn to Slide 16. This slide shows the Q-o-Q trend of NT dollar and FX spread. NT dollar spread slid 1 bp to 1.26%, while FX spread improved 2 bps to 2.03%.
Please turn to Slide 17. This slide shows the deposit mix. Total deposit was up 10.7% Y-o-Y, which was mainly driven by FX deposits, which increased 29% Y-o-Y and NT dollar deposit also grew by 4.4%. NT dollar CASA rate decreased a little bit to 71.8%, but still ranks the top among peers. And as we mentioned, which would be a good rate hike cycle.
Please turn to Slide 18. This slide shows the loan book concentration for major exposures. There is no big move. So please take it as reference.
Let's turn to Slide 19. On this slide, it shows the mortgage book yield, LTV ratio and new mortgage lending trend. Mortgage yield stayed the same at 1.44%. New mortgage LTV ratio slid to 64.5%. Average mortgage LTV ratio edged up to 46.1%. And bottom bar chart shows first quarter's new mortgage lending trend. The amount of this quarter dropped a little bit comparing with last quarter.
Okay, please turn to Slide 20. Let's take a look of the fee revenue. Cumulative net fee income in first quarter reached TWD 2.1 billion, which was 17.1% growth Y-o-Y. As of the breakdown, wealth management fee income improved 12.1% while loan-related fee income had 42.8% growth.
Slide 21 shows the Q-o-Q trend of fee income. Total fee income dropped 3.4% Q-o-Q, which was mainly dragged down by mutual fund sales. Mutual fund sales decreased 16.3% Q-o-Q.
Okay. Please turn to Slide 22. Let's take a look at the operating expense. Total operating expense in first quarter was TWD 5.5 billion with 8.3% growth Y-o-Y, and the cost-to-income ratio stayed stable at 47.7%.
Okay, let's move to asset quality. Please turn to Slide 23. On this slide, top chart shows the coverage ratio and the NPL ratio. Coverage ratio was down a little bit to 615.9% and NPL ratio stayed at 0.2%. Both figures are stable. And the bottom chart shows the breakdown of NPL ratios. Both individual and the mortgage ratios kept at the same level. Large corp. NPL ratio was down to 0.11%. SME NPL ratio, however, was slightly up to 0.28%.
Please turn to Slide 24 for overseas profits. The pretax profits of overseas branches over total profits bounced back to 41.7%. OBU, Hong Kong and the New York branches all had great comebacks, especially for Hong Kong and New York. Top-left pie chart shows the profit breakdown. OBU and the Greater China combined over 60% of total overseas profits, ASEAN occupied another 18.1% and North America occupied 10.3%.
Okay. Please move to Slide 26. Let's take a look of the capital. Gross CAR was up to 134.2%. Bank's CAR and the Tier 1 also slightly improved to 14.7% and 12.6%, respectively, which shows our capital was still adequate.
And next slide shows our dividend trend, which we had mentioned at the very beginning. Please take it as reference.
Okay. That's the presentation today. I will turn back the microphone to Annie for the conclusion and the QA session.
Thank you, Keith. Now we'd like to proceed the QA session. May we remind you that you can type your question at the bottom of the webcast window.
Now the first question is from [ Mr. Jian of Guotai Group ]. Jian hopes to know that in terms of the full year's guidance, first of all, the growth target of deposit and the loan. Annie?
I began our prediction for both deposits and loans at the high single-digit projection in last quarter. As we witnessed, the strong loan demand still persisted and the deposit influx also remained quite substantial. Therefore, our deposit growth and loan growth would remain intact.
For deposit growth, we have recorded a nearly double-digit growth, and that should sustain thanks to the strong dollar momentum. And in terms of our loan book expansion, after we recorded a 9% loan growth, the whole year loan demand should maintain a solid or firm demand. So our loan book expansion will maintain at around 7% to 8% annual growth rate toward the end of the year thanks to the still solid CapEx demand and the strong exporting sectors.
Okay. And following question is the guidance of loan growth breakdown for the coming quarters. I think I just break down the loan growth mix for Annie to answer. First of all, how about the mortgage loan growth, Annie?
In fact, the major growth driver this year, first, came from the once very subdued FX loan last year, which was stressed by some delinquent problem in the major markets in Hong Kong and New York. And after we written -- we have wrote off most of the NPLs this year, the loan book in the FX loan resumed. So the strong comeback originated from FX lending, which we would grow by nearly 12% to 13%.
So FX loan growth will be 12% to 13%?
Yes, for this year. Actually, we recorded a very strong first quarter. And then we will move down to our corporate lending. The SME loan still remained quite firm. So for the whole year, we would see our corporate lending, especially from SME, would maintain its strong demand and grow by 7% to 8% for the corporate lending this year.
However, one sector which is the major target that the Central Bank would like to cooling will be the mortgage lending or the property-related sectors, which would see a more cautious attitude to accommodate the new mortgage lending. Therefore, our mortgage book would only expand by 4% to 5%.
In that sense, I can say that the major driver for this year would be 2 parts: one is the overseas market, especially U.S.-related lending; and the other source would be for corporate lending, particularly from SME.
Okay. And let's talk about the NIM expansion. What's the expected NIM expansion for the coming 12 months?
After we reflected the rising rate phenomenon in April, which was last month, we witnessed that the markup for the monthly net interest income was around TWD 200 million in total. So we actually calculated the figures that would be boosted by the rate hike for both local or U.S. central banks. We had projected a 7 bps NIM expansion for every 25 basis point rate hike. So it would pretty much subject to how high that the rate rising cycle would sustain. But up to now, we would see the 7 bps rate hike would be the minimum for this year for the already in place 25 basis points from both U.S. dollars and NT dollars. As NT dollars still dominates the lion's share of our loan book, which accounts for nearly 80%. So if the local central bank takes a more aggressive step to hike rate, then the positive influence for our NIM expansion will be more evident. So 7 bps NIM expansion will be our current projection. [indiscernible] NIM hike.
Okay. A follow-up question is from Mr. Gurpreet of Goldman. Gurpreet hopes to know why is the -- why did the NIM not go up more in the first quarter as CBC raised rates and so did the Fed?
Because we only reprice our assets and our deposit cost -- deposit costs reflected immediately. But as the repricing would be -- would come into effect for quarterly, which was…
In the middle April.
It took place -- yes, it took place in the middle of April. So that's why we would see a fully translation or fully reflection after we recorded our net interest income in May. That will be the 4 months figures.
Okay. And another follow-up question is from Ms. Peggy Shih of Morgan Stanley. Peggy hopes to know what's the reason that the NIM actually expansion exceeds the spread expansion, which means that the NIM expanded about 4 bps, however, the spread only expanded by 1 bp in NT dollar and 3 bps in FX?
Well, actually, because our LDR remained not so high, around 73%…
70%.
Yes, around 7 -- yes, 70%.
69% actually.
Yes, yes, 70%. Not to mention the lower LDR in U.S. dollars. So the -- actually, loan spread would not be so evident. However, because the excessive fund that we absorbed from our deposit source will be placed into the money market. So that will be booked into our treasury division. So all in all, that would not be completely translated into the loan spread, but as a whole will be booked into the net interest income. So I'll just highlight that.
Currently, the markup in the net interest income did gradually surface that we have already booked TWD 200 million extra net interest income since early May. So that will be much more -- become more intact in the coming months.
Okay. And another following question regarding asset and loan growth is CASA rate. Mr. Jemmy Huang from JPMorgan hopes to know, do you see the declining CASA ratio as seasonality or more a longer-term trend?
If we look back to our, I mean, experience, whenever the deposit rate moves higher, CASA rate should gradually decrease because the low -- I mean, low return -- the low return deposit would not be so attractive, particularly when retail or corporate clients they can seek for higher returns from some wealth management products. For instance, people actually can convert their NT dollar deposit into U.S. dollars deposit. Not to mention that they can also purchase some -- what we call it, the U.S. dollars savings products in the bancassurance channels.
So the CASA rate would not be sustainable when the rates start to move higher. So the trend for our CASA rate, I would say that, that should be the peak of -- at current level around 70% -- about 70%. When the rates start to go higher, the CASA rate definitely would move lower.
Okay. Next question is about the fee income revenue. Let's talk about the fee income revenue. A question from Mr. Jian and Ms. Shih and also from Mr. Wang from Fuh Hwa. They mentioned about that, we saw the first quarter of wealth management fee income rising. However, the volatility of the capital market was pretty high right now. So what's the guidance of the full year's wealth management fee income revenue? And also, a question is about the full year's fee income revenue, including the wealth management and other sectors.
We segregate our fee revenue source into 2 parts. First will be the wealth management area. For the first quarter, actually, we delivered a quite significant volume through the channel of our bank assurance products, where the one called the multiple protection insurance products denominated in U.S. dollars received a very good result. That was mainly because that the strong strength in the dollar and the rising rates attract a lot of interest from retail clients. So our bancassurance revenue actually grew by nearly double. The fee revenue from bancassurance grew by 98%.
However, the sluggish or volatile financial markets dampened the confidence of the investors. So the sales of mutual funds decreased by about 24% to 25% from -- so we would see the wealth management would be mainly boosted by the phenomenon that I've just mentioned, that the strong and rising rates, U.S. dollars, would continue to attract a lot of interest from these clients that they would seek for enhanced returns by putting their low rate deposits or other volatile products into this more attractive bancassurance products throughout the whole year as the U.S. rates may continue to go up. Therefore, we project our wealth management fee would be able to grow at least 8% to 9% for the whole year after we booked a good result in the first quarter.
And another part of glory would be our loan-related fee. We did witness a strong loan book expansion. Therefore, the commitment fee or other syndication-related fee would help to channel into our fee revenue in this area. So we should see our fee revenue from our loan-related business would continue to expand. And for the whole year, the loan-related fee will be able to grow by about 12% to 13%.
And the other areas like overseas or FX-related fee would remain flattish or not so -- not as strong as they did before. So as a whole, the fee revenue projection for this year would be around -- at around 8% to 9%, and mainly boosted by the wealth management and the loan-related fee, which is about 8% to 9% and 12% to 13%, respectively.
Okay. Thank you, Annie. And we have -- I think Annie just also answered a question from Tina Chen. Tina hopes to know the loan-related fee revenue rose quite a bit in the first quarter. What's the reason? I think Annie just answered it. And also, we -- let's talk about the investment income. We have -- Mr. Jemmy Huang hopes to know, is the first quarter's investment income hit by the equity or fixed income? Or what's the updated outlook for fiscal year 2022?
The treasury activities did receive some hit by the not very good financial markets in the first quarter. But we had already did some adjustments into our portfolio. The major drag would be 2 sources: one is the valuation of the swap transaction and the other part was the valuation losses from both the fixed income and the equity markets. As you all know that these 2 markets did not perform well in the first quarter.
So for the whole year, we would see when the dollar strengthens and the demand for swap transactions start to emerge, then the fee -- I mean, the transaction gain would gradually move upward. And also another source for treasury would be the -- what we call it, the placement activities in interbank lending. As we have excessive funds to be managed into the interbank businesses, so that would also contribute some profit into the net interest income. However, it was -- it would be booked into the treasury gains.
So for this year, we hope that our treasury business can maintain its result like it did before, and we would target flattish treasury gains for the whole year, mainly boosted by the interbank lending and also the swap transaction. But for -- the fixed income and the equity gains may not be so much this year.
Okay. Before we move to credit cost questions -- I know a lot of you are just asking the credit cost question. I would like to answer another question from Ms. Peggy Shih. She hopes to know what's the area -- which areas are the major growth driver for the FX loan growth target this year?
That will be from U.S., North American markets, and also the ASEAN countries. These 2 areas will recover from the trough last year and also the pandemic drag problem. They actually cleaned up the balance sheet and they now have the capacity to boost their loan and their lending. And another area would be the recovery of the Greater China region. But the Greater China business is not our focal point. So we would place our emphasis or our efforts into the U.S. market and also the ASEAN countries.
And we would -- hopefully, we can start with our Frankfurt operations at the end of this year, and it would also introduce new source of business in the future. So I would say that North America and ASEAN business would dominate our future expansion in the overseas markets.
Okay. And let's move to the credit cost. The first related question is that the first quarter credit cost dropped significantly, that only booked 5 bps. And what's the target of the credit cost? Is the target of 14 to 70 bps for full year unchanged?
Yes, supposedly. I did project around 14 bps net credit cost in the prior quarter. Now I would see -- the level was still there, around 14 to 15. It's lower than that…
14, 15 [ change ]. And we have another question from Mr. Shih. Mr. Shih hopes to know that based on our experience, at what point in the interest rate hike cycle should we expect NPL start to rise or edge higher? And how far are we from the risks? And can we remind you our gross credit cost guidance for 2022. And is it reasonable to assume the credit cost should move higher in 2023?
So that is a longer-term question that, in 2023, do we expect a higher NPL when the rate hike cycle continues. I think the question can be summed up like this.
That's not the absolute answer to your question. Because for every credit cycle, as long as the corporate or the investor continue to input their money into their investment target and they can well receive the return from their investment targets and the economy continues to boom, then the NPL would not surface anyway.
So it's not, I mean, relevant to how high the rate will be. It's pretty much linked to the economic cycle, but not the rate cycle.
Okay. You know what I mean? It's not related to how high the rate will be, but how far that we are from the end of the economic cycle. For instance, if we take the example from China, not in Taiwan -- because in China why the government there would have to maintain its economic growth, I mean, around 5% or 6%? Because if the economic growth decelerated, then it means the unemployment rate would go up, or the people can derive from their investment gain would decrease. Then they would not be able to service their debt because if they have leveraged their borrowing or whatever.
But when the economy continues to be boom and people can make money out of their investments or they can have a decent return, then there's no problem for the NPL. Normally, it's in the down cycle where the NPL would surface.
So I should explain that this is pretty much linked to the credit cycle or economic cycle, but not the rate cycle, okay? So I hope I can answer your question. It's irrelevant to the rate cycle.
All right. Okay. I hope this has answered your question. And we have another follow-up question from Gurpreet. He asks a question about the April provisions. Why did provisions rise in the month of April, Annie?
April? Sorry, could you repeat the question?
Okay. His question is why did provisions rise -- I think that it means the net provision rise in the month of April. In the month of April only, just last month. I think probably because of recovery.
Yes. You mean the net provisioning going up, right?
Yes.
Yes. Part of the reason -- if there was no single delinquent cases, that will be to increase our capital ratio and also to set aside provisions following the growth of the loan portfolio. Yes, there was no one single delinquent, yes -- for the 1 month figures.
Okay. Okay. And also, we have -- the last question is about the guidance of our cost-to-income ratio. Is it remaining unchanged?
Yes, around 47%. However, should the net interest income grow more substantially following a more aggressive rate hike cycle, then the CI ratio may be lower to 46% supposedly. Yes. It's pretty much linked to how high the net revenue can go.
Okay. And I think we have answered all of the questions. Oh, there is another question coming in. Mr. Jian, he hopes to know what's the expectation about the Fed and the Taiwan CBC, central bank's, rate hike expectation. What's your expectation? Do you think that the Taiwan's CBC will move rates, yes?
Yes, we think so. Yes. Yes, next month in June. Most analysts would expect Central Bank will follow the Fed to hike rates. But maybe not so aggressive to hike 25 basis. Maybe just 12.5 to see whether the rate -- I mean, the rate -- the gap between U.S. and Taiwan would not be exaggerated, and also to disturb further depreciation of NT dollars. Because it seems that the Taiwan Central Bank would target a balanced FX rate and local rates between U.S. and Taiwan.
But in the past decades, most Taiwan central bankers that would follow the U.S. move to hike their rates in order to narrow the interest rate gap that the exodus of the capital would not be so evident.
Okay. Okay. Do you think that the LDR ratio will keep lowering down for the coming quarters? Or will it just coming to above 70%?
Should be higher. As I've mentioned, the CASA rate would go lower and the deposit outflow would become more evident.
As the Fed rates going -- hike high…
Yes, the Fed rate going higher, that the low rates deposits would become less attractive. So money would go out to seek for enhanced returns.
Okay. Thank you, Annie. I think we have answered all of the questions today. And we hope that you enjoyed today's conference. And is there any conclusion, Annie, you want to make?
Well, one thing that I can address here that we do not suffer any losses out of the substantial claims over the COVID-related quarantine products. So our insurance units remain quite prudent. They only deliver or offer the health insurance product which is quite adequate. So we did not suffer any claims for this issue. Yes, that is for the reference.
Okay. Okay, just for your reference only. Thank you for joining us today. We hope you stay safe, and see you next quarter.
Yes.
See you.
So happy Dragon Boat Festival holiday. Bye.
Bye-bye.