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. Hello, everyone. Welcome to join us for First Financial Holding First Half 2022 Webcast Investor Conference. We'll start with our presentation, including first half snapshot, financial highlights and operating results. Then we will invite Ms. Annie Lee, who is currently our EVP, as well as Head of IR to proceed a Q&A session. [Operator Instructions].
Today's presentation material is on our IR website, www.ffhc.com.tw. Also, we will provide 1-year replay service of the webcast meeting for your convenience.
Now I'd like to turn over to my colleague, Mr. Keith Ke to begin today's presentation. Keith?
Okay. Thank you, K.C. Please turn to Slide 5. Here is the briefings of Group's performance in first half 2022. Group delivered a relatively steady result of TWD 10.2 billion under turbulent financial market in first half. The accumulated earnings was down 6.2% Y-o-Y to reflect the [ anxious ] of the economy slowing down. The dramatic inflation worldwide stimulated the global rate hike trends, which also increase the uncertainty in coming quarters.
The flagship subsidiary, First Bank, showed solid performance in first half 2022. Accumulated earnings increased 6.7% Y-o-Y. We believe the strong loan demand and the NIM expansion benefited by rate hike were the major keys. Total loan book had 11.2% growth Y-o-Y. It's worth to mention that mortgage had double-digit growth, which was mainly because of the strong property handovers in second quarter. However, we thought the transaction amount would be slowing down due to rate hike to impact in the second half. Both securities and the insurance were affected by the turbulent market to erode investment gains. Both with high based earnings last year were also another reason to cause the Y-o-Y drop. Okay I'll reveal the conclusion, we think we need to be more aggressive, taking proactive actions and grabbing the opportunities under the rate hike cycle environment.
Okay. Let's move to financial highlights. Please turn to Slide 7. This slide shows Group's key figures. Group's consolidated net income was TWD 10.2 billion, with 6.2% decrease Y-o-Y. Securities and insurance were the keys to break down Group's earnings, which we just mentioned. It also impacted the EPS, ROE and ROA, et cetera. Left pie chart shows the proportion of major units. Bank units occupied almost 99% of Group profits this year. Please take it as reference.
Okay. Please turn to Slide 8. This slide provides a breakdown of Group's net income. As of the top lines, total net revenue increased 3.3% Y-o-Y. However, with higher credit charge, insurance reserves and operating expense, the net income finished short to drop 6.2% Y-o-Y.
And next slide displays the earnings of major subsidiaries. Even Group displays a shrinking results with 6.2% decrease. First Bank still finished accumulated TWD 10.1 billion profit with 6.7% growth Y-o-Y. Securities and the insurance dropped quite a bit as we mentioned.
Okay, let's move to the next part, operating results. Please turn to Slide 11. This slide shows Group and Bank's net income and ROAE. Group's net income was TWD 10.2 billion with 9.4% ROAE. Bank's net income was TWD 10.1 billion with 9.2% ROAE.
Please turn to Slide 12. This slide provides the breakdown of Bank's earnings structure. Cumulative net revenue of first half was TWD 24.7 billion with 7.8% growth Y-o-Y, which was mainly driven by net interest income, 16.1% growth, and the fee income, 11.9% growth. Affected by turbulent environment, gains on investment had a huge slump first half, which was 34.3% decrease Y-o-Y.
Please turn to Slide 13. This slide presents the loan book mix. Total loan book reached TWD 2.23 trillion with 11.2% growth Y-o-Y. Large corp loan lead the -- increased with 31.5% growth. SME also had 9.4% growth. And both FX and mortgage also had a double-digit growth as well.
And Slide 14 shows the Q-on-Q trend. Overall, loan demand was quite strong still. Please take it as reference.
Okay. Let's move to Slide 15. This slide shows the trend of LDR, spread and NIM. LDR continued to improve to 72.2%. NT dollar LDR was up to 82.8%, while FX LDR also edged up to 47.3%. Loan-to-deposit spread had a huge improve to 1.44%. NIM also rose up to 1.04%.
Please turn to next slide. This slide shows the Q-on-Q trend of NT dollar and FX rate, benefited by rate hike, NT dollar spread improved 5 bps to 1.31%. FX spread was even better, lifting 20 bps to finish at 2.23%.
Please turn to Slide 17. This slide shows the deposit mix. Total deposit was up 10.8% Y-o-Y, mainly driven by FX deposits, which increased to 25.7%. NT dollar deposit also grew by 5.4%. In the right part, NT dollar CASA rates started to drop with the rate hike effect, which was down to 71% from the high point of 73.4%.
Okay, please turn to Slide 18. This slide shows the loan book concentration and major exposures. Please take it as reference.
Okay, let's move to Slide 19. This slide shows the mortgage book yield, LTV ratio and the new mortgage lending trend. Mortgage yield shot up to 1.69%, thanks for the rate hike. New mortgage LTV ratio stayed at 64.5%, while average mortgage LTV ratio edged up to 46.3%. And the bottom bar chart shows the new mortgage lending trend monthly. The momentum of this quarter was quite strong with which we had explained the reason.
Please turn to Slide 20. Let's take a look of the fee revenue. Accumulated net fee income in first half reached TWD 4.2 billion, which was 11.9% growth Y-o-Y. As of the breakdown, wealth management fee income increased 5.1%, while loan-related fee income had 36.7% growth. However, we think it would slow down in second quarter. You may find it on the next slide for Q-o-Q trend. Both bancassurance and the mutual funds showed shrinkage on second quarter. Please take it as reference.
Let's move to Slide 22 for operating expense. Total operating expense in first half was TWD 11.3 billion with 8.6% growth Y-o-Y. And cost-to-income ratio was down to 45.7% now.
Okay. Let's move to Slide 23 for the asset quality. On this slide, top chart shows the coverage ratio and NPL ratio. Coverage ratio re-stood to 620.4% again. And the NPL ratio dipped 1 bp to 0.19%. And bottom charts show the breakdown of NPL ratios. Both individual and the mortgage ratios stayed steady. Large corp.'s NPL ratio continued to lower down to 0.08%. However, SME NPL ratio was up to 0.31% now.
Please turn to Slide 24 for overseas profit. The pretax profits of overseas branches over total profit dropped to 34.7%, mainly suffered by one-off influx from Tokyo branch. You can see on the top left pie chart, this is the category of other regions was negative. That's because of the one-off reason.
And please move to Slide 25. Gross CAR dropped to 124.1%. Bank's CAR and Tier 1 also decreased to 13.7% and 11.7%, respectively. However, all of them reached the standard so far.
Okay, that's the presentation. I will turn back the microphone to Annie for the conclusions and the QA session.
Thank you, Keith. Now we'd like to proceed the Q&A session. We have several questions about our NIM and spread. Okay. So first of all, I'd like to ask Annie, from Gurpreet of Goldman. Gurpreet hopes to know that why is Group spread or NIM is not much higher, given the fixed price in NT dollar and U.S. dollar spread? I think it's -- this question is related to the Q-on-Q NIM and spread expansion.
Okay. I think I'll further elaborate on the structure and the timing that was devised on our assets. The first, I mean, the first rate hike in March this year, both in NT dollars and U.S. dollars would have a so-called time lag until April that we actually repriced our NT dollars loan in April. So, for NT dollars rate hike, even though this is a surprising move, but the time lag would only reflect the actual NIM expansion until the next quarter of the first rate hike in NT dollars.
In terms of U.S. dollars rate hike, the main reason was due to that the U.S. dollars portfolio only account for around 20%. So actually, the NIM expansion would be more evident to reflect the NT dollar's rate hike rather than the U.S. dollars rate hike, even though our dollar FX lending also expanded quite significantly for the first half, the U.S. dollars lending extended by around 17%, but it still takes time to further translate into our actual interest rate revenue. So that would be the time lag and also the proportion for the U.S. dollars share among our loan portfolio. So, for the whole year, the translation will be more evident until we move towards the end of the year for the year for this -- only for one single quarter in the second quarter cannot fully reflect the NIM expansion benefit.
Okay. And also, the related question is Jemmy Huang from JPMorgan. So given that the Q-o-Q NIM expansion, it seems to be smaller than the sensitivity, what's the trend in the third quarter so far? And also, we have a related question from Tina Chen. Tina hopes to know that the second quarter, we only have had 4 bps Q-o-Q expansion and spread, but NIM only expanded by 2 bps, what's the reason behind this? So, all are the related questions about the NIM expansion, can one more moderate than peers. So can we give them the trend in the third quarter?
We had actually made some calculation for the NIM expansion this year. And the absolute amount or the NIM impact will be more evident if we roll over to the -- towards the end of the year. If we look back to the actual amounts that are being rolled out into the net interest income every month, we can see that the incremental amount of the net interest income per month was up to about TWD 200 million per month. So we have a simple calculation that, that will reflect to around TWD 2.4 billion per year, starting from the rate hike in the late first quarter. So for the whole year, we had a calculation that the net interest income incremental value will be up to TWD 1.6 billion to TWD 1.8 billion, TWD 1.6 billion and TWD 1.8 billion for the net interest income.
But part of this rate hike benefit will be transformed to the so-called swap gains being booked in the treasury income. And if we incorporate the swap transaction gains, the total amount for -- until the end of the year would be further increased up to TWD 3 billion to TWD 3.2 billion. And the full reflection of the NIM will be -- I mean, the adjusted NIM will be up to another TWD 9 billion until the end of the year. So in that sense, the whole year projection for the rate hike benefit for our banks would be TWD 3 billion to TWD 3.2 billion until the end of this year.
But if we further, I mean, factoring the -- a further rate hike in the third and the fourth quarter, including U.S. Fed and the Taiwan Central Bank, we actually would forecast that Taiwan Central Bank would further rate hike by another 25 basis points in the coming months towards the end. And the U.S. dollars -- U.S. Fed would further -- have a further aggressive move to have a further rate hike. And then for next year, I mean, for 2023, our net interest income will be further add up to more than TWD 4 billion. So that will be translate into a NIM expansion by 10 bps to 12 bps.
Well, this will be our president calculation based on the rate hike assumption by both Taiwan Central Bank and the Fed that the total rain hike incorporates until the end of the year. So that will be -- for this year, including the swap, the net revenue will be up TWD 3 billion to TWD 3.2 billion, and the NIM would expand by again the 9 bps. And for next year, if the rates stay there unchanged, then for 2023, the total gains for this rate hike will be up to TWD 4 billion, and that would represent a 10 bps to 12 bps hike for next year. Yes, that will be my calculation for your reference.
Okay. Thank you, Annie. And we have another related question. It's about our large corporate loans. Gurpreet hopes to know that, what's the reason for strong demand for large corporate loan in the quarter.
Actually, the so-called repatriated capital we invested in Taiwan would be quite, I mean, strong. So the loan demand from this large corp, as they re-establish their capacity or expand their operation here, would really become the demand that they have to fund their expansion plan or their investments here. And that would also, I mean, add up to the supply chain loan demand.
So the large corp loan book expansion would pretty much reflect the repatriated investments in Taiwan as the trade confliction -- conflicts between the 2 nations from U.S. and China really had some positive influence on this, particularly, those export-related sectors. So that was pretty much being part of the reason that the loan demand from this large corp remain quite solid and persistent.
And also, we do, I mean, extend our strong relation and invite or organize more syndication lending to help this corporate, large corporate, in particular, those groups as a whole to fund their investment plan here in domestic market.
Okay. Thank you, Annie. And we have a related question, which is from Eric Shih. He hopes to know what's the loan growth breakdown guidance for, like, FX loan growth, mortgage and SME loan growth, can you give some guidance for the full year loan growth?
Sure. So we made quite a, I mean, solid growth in the first half, nearly all sectors booked double-digit advance in the first half. However, due to the rate hike effect and also because of the inflation impact, we would see that the loan book would see some deceleration effect going into the second half. Therefore, we would project our loan book would slow down to grow at around just 8% to 9% for the whole year, this year.
And in terms of the corporate lending for large or SME book would continue to expand by 7% to 8% something. But for mortgage book, which would be seeing some branding effect, because we have to follow the ceiling that's set by the property -- the banking law, which is somewhere around 30%, and now we are around 28%. So that would curb the further loan book expansion by mortgage lending. So we only project our mortgage book would grow by 4% to 5% for the whole year, which is -- have seen some ceiling by the laws.
And in terms of the overseas market, we would be quite keen to further explore the post-pandemic demand. So the FX trend, it will continue to expand that we would see the overseas FX lending would grow by 13% to 14%, 13% to 14%. So in that sense, domestic loan book would see some deceleration after the first half ROCE picture. However, for overseas FX lending would continue to grow at double-digit growth.
So I will repeat that the whole total loan book would expand by 8% to 9% and the large and SME would grow by 7% to 8%. However, mortgage book would only book a 4% to 5% growth. However, for FX lending, we will continue to expand by double digits at 13% to 14%.
Okay. Let me consolidate, the result of our loan target growth is 8% to 9% this year, and also including corporate lending and including SME lending will be 7% to 8% something. Mortgage lending will be 4% to 5% growth. FX lending will be 13% to 14% growth.
Okay. Let's talk about the investment gains. Jemmy Huang from JPMorgan hopes to know, for the investment gains, any breakdown on the 34% Y-o-Y decline.
Right. The first half was mainly dragged by the sluggish capital markets at both the fixed income and the equity investment do see some drawback. So that would drag down the whole investment gains in these 2 major markets. However, we just talked about that the rate hike effect was gradually set into -- feed into the treasury transaction, particularly for the swap business. So even though the first half gains from the traditional investment portfolio, including fixed income equity did not see very satisfactory results, but we would compensate part of the losses from our swap transaction, mainly gain from the interest rate gap between 2 countries in Taiwan and U.S. So the -- and also the dividend income in the third quarter. So for the whole year, we still project the treasury gains would remain at least flattish or slightly marginal growth. So for the first half, it was not so good. But in the second half, we'll see some come back for the swap transaction.
Okay. Thank you, Annie. And now we'd like to move to fee income part. From -- in terms of the fee income growth, we have questions from Jemmy Huang and Peggy Shih. Their question is about, first of all, will management revise of the 2022 loan-related fee income still will be grown like 12% to 13% in fiscal year 2022, which implies that the momentum will slow down in the second half of this year.
The thing is that, actually the loan-related fees still remains pretty strong after we booked nearly 30%, right? 30% growth in the first half. Let me see, yes, around 30% growth, 3-0, right. But -- yes, actually, the loan-related fee income grew by 36%, which was quite a dramatic result. But as we project the loan expansion was decelerate going into the second half. So we're still seeing some stream -- revenue stream would continue or sustain and list until the end of the year. That's why we would see the loan-related fee income would come up to around 18%, but still higher than my original projection at 12% to 13% because it was already half of the sites in the actual figures. So the loan-related fee income will be -- just be rolled down to 18%.
However, I would like to touch upon the wealth management fee. The wealth maintenance fee actually grew by 5%, thanks to a very strong sales on the bancassurance products. The bancassurance fee revenue advanced by nearly 49%, nearly 50%, because a lot of investors, they jumped into the high yield -- the higher yield savings products denominated in U.S. dollars. So that would create a very good results for the fee generated from bancassurance products. However, because the markets came off in the second quarter due to the rate hike and fluctuation in the capital markets, our mutual fund sales dropped by nearly 20% in the first half Y-o-Y.
So, as a whole, the whole year projection for the wealth management fee will be revised down to just around 4%, though it can be compensated by the growing loan related fees. So, for the whole year in 2022, I will only project our fee revenue growth by about 5% to 6%, mainly dragged by the falling wealth management momentum. But the loan-related fees remain high double digit, around 18%, all right?
Okay. So let's touch base on the guidance of the FX swap. Due to the -- they are pretty much related to our income top line of this year. So we have a question from Eric Shih is, talking about how about the FX swap guidance in the second half of this year. So do you think it's pretty positive in the coming quarters?
Yes, sure. We have some -- that calculation about our swap gains, were gradually expanded and increased. We project after the rate hike accelerator going into the -- I mean, the third and fourth quarter in U.S. dollars, the swap gains would further expanded to about TWD 1.5 billion, which was leveraging, I mean, about 2 years ago that we actually had a very pick swap games in 2018 to 2019, about 2 years to 3 years ago. So as the U.S. rate hike continue and even though Taiwan Central Bank follow a bit, but the rate gap with still maintain, that would further encourage investors, including the institutional investor, life insurance or other corporates that would translate their NT dollars into U.S. dollar portfolio and the swap hedge, the demand for swap hedge was increased.
So I just talked about that for the swap gains this year would be around TWD 1.5 billion. And for next year, it will further increase to more than TWD 2 billion. That would help to, I mean, increase our total net revenue, particularly for this liquidity transaction from U.S. dollar rate hikes. So for this year, the soft gains would be TWD 1.5 billion, next year would be up to TWD 2 billion.
Okay. Thank you, Annie. And another related question from guests. When we say the expansion of NIM for like 9 bps, does that include the FX swap income?
Yes, yes.
All right. Yes. Okay. So the 9 bps expansion in NIM will include the FX swap income, all right. And we have another question from Mr. Huang. Mr. Huang hopes to know what's the reason that, given our FVTPL position, also we still remain positive in the second quarter compared to other peers. What's the reason behind the situation?
Well, that may…
Fair value and your impact.
I mean, the accounting rules. We booked most of our equity investments and the fixed income portfolio into the OCI comprehensive income accounts. So the fair value through P&L accounts remain stable, because we are not heavy trading player in the markets, not like our peers. So the P&L account for this investment portfolio, but it's mainly for to create stable, let's say, dividend income or the investment in the fixed income revenue. So that will be the reason that we do not have a very volatile P&L results for this trading portfolio. We have not a very sizable trading portfolio, most for the long-term investments, both in banks and in the our life insurance unit.
Okay. And another question is from Peggy Shih. Peggy hopes to know, why is our first half financial holdings equity decreased by 5% year-to-date. What's the impact of this mark-to-market loss and dividend payout ratio?
Well, for most of the financial players in this market, we all suffer from the mark-to-market losses on the valuation of our investment portfolio. Actually, the main drag comes from our fixed income portfolio, the total decrease for this equity value was up to around TWD 10 billion -- up to more than TWD 10 billion, right, TWD 10 billion.
And part of that was offsetted by our FX gains from our overseas capital pool, but most of that was stressed by the mark-to-market losses from -- sorry, from the value devaluation of the fixed income portfolio. And for the up to TWD 10 billion decrease of our equity value, up to 90% came from fixed income valuation and another 10% came from equity investments. But that still remain manageable, because we still continue to generate a decent profit to cover the losses.
And I also mentioned that the appreciation of our FX gains from the overseas capital accounts would continue to compensate a part of this devaluation of loss of value of the equity base. So that would not -- up to now, it would not impact our capability to deliver dividends next year, because we will continue to generate our profits.
All right. Okay. We have a question from [ Aileen Chen ]. Aileen hopes to know what's our view on the future CDC and the U.S.A. rate hike guidance.
Most analysts or participants in the market, all view that Central Bank around the globe continue to do hike rate in order to curb rampant inflation. For our in-house view that we would predict our Central Bank here would continue to increase rates by 25 basis points, another 25 basis points until the end of the year. In terms of U.S. Fed, we would see there will be another 7 to 8, 25 basis point of rate hike. So, any projection would be -- will be possible, but the U.S. Fed should see more aggressive move to curb the skyrocketing inflation. So for Taiwan Central Bank, 25 basis points rate hike, for U.S. Fed would be 7 to 8.
All right. Let's touch base on the NPL ratio. Ms. Peggy Shih hopes to know that, actually she saw the SME NPL ratio is inching up to 0.3% in the first half. What's the outlook for the second half? Will it still increase?
As we look back to the first half asset quality, the main influx actually came -- still came from overseas. We mentioned about one single case in our Tokyo branch, which actually eroded our overseas profits by nearly TWD 1 billion, as we set aside around half of the portfolio in the lending. So in terms of the asset quality for the SME, yes, we did see some new influx. But as the size of these accounts seems to be relatively small when compared to the large account that I just mentioned in the overseas markets. So the SME -- the asset quality of SME still remain manageable. So we would be more cautious on the so-called overseas, their asset quality and the SME should be manageable over the time being.
And in terms of the whole projection this year, the credit cost -- I mean, the net credit cost, including our recovery, we would revise up our projection from the original around 15 bps up to 18 bps for this year. Part of the reason would be the loan book expansion with the -- we will be required to set aside a general provision, that would also represent a higher provision cost due to the expanding loan portfolio. But in terms of the influx, it remained stable. So we would not particularly worry about the performance of the SME book, but have to be cautious for the overseas lending portfolio.
Okay. Can we have the credit cost guidance for the full year?
Okay, 18 bps, 1-8.
Okay, 1-8, 18 bps for the full year for guidance. All right, and also we have a question about the swap gains in the first half. If we look back on our first half, can we divide it that how much is from swap game from our treasury part?
Well, for the first half, the swap gains was quite minimum, because the interest rate gap start to widen in the second quarter, right? So we only have just one single quarter. So the swap gains for the first half remained quite minimum. It would be gradually extended into the second half as the both nations rate hike become more and more evident. So, for the first half, not much swap gains, no.
All right. Okay. And also, we have a question from Taiwan Life, Alan. Alan hopes to know, can Annie give us some guidance on the spread expectation to the end of this year? Because we already had…
Already -- yes, we already highlighted.
Yes, NIM guidance per spread.
For the spread, do we have the spread? I don't think we have the spread calculation. Can we get back to you at the…
Okay. Yes, Alan can we get back to you with the spread assumption. Great guidance, because it is quite volatile.
The rate is not that meaningful. Normally, when we calculate the net interest income would be mostly I mean, related to the net -- I mean, the 2 parts, one is the lending portfolio. Other parts would be the, so-called, the Interbank transaction, including swap games. And when -- as these 2 portions migrated into -- I mean, future markets, it would a little bit distorted the lending spread. Maybe the lending spread would expand, but as the liquidity became quite ample and swap gains become more -- I mean, maybe enlarged, then the swap gains would be not so meaningful, anyway. So normally we would not highlight the spread, okay.
Okay. Thank you, Annie. And we have a question about our provisions for the overseas case. Is that mostly booked in the second quarter? And will it be offset until now?
Yes, yes. For this Tokyo exposure, we have already provided half of credit charges against these exposures. So it's already charged off and sufficient provision has been provided. So going into the second half and next year, we'd see if this restructure plan would become -- I mean, to make this lending or this borrow has become up and running and it will become a performing loan further.
Okay. And we have a question. It's about our CI ratio. Can Annie give us some guidance for the fiscal year of CI ratio?
For this year, our SG&A or operating cost would grow by 5%. So in this sense, as the net revenue increased quite significantly, the CI ratio would further going down to 45% to 46%, which is slightly lower than our original projection around 47%. So, efficiency ratio would further roll down to 45%, some 45% to 46%. It looks okay now.
Okay, all right. And we have -- another question is from Ms. Peggy Shih and kind of guests. They are talking about the sensitivity on NIM. Can Annie give us some guidance like, every 20 bps high from Fed, how much will it reflect to our NIM and hike. Every 25 bps hike from CDC, how much NIM can we have had expansion? How much NIM expansion can we have?
All right. For every 25 basis hike for NT dollars, that would represent 6 bps NIM expansion. And for Fed and rate hike, every 25 basis points would be around TWD 1 billion, yes. 6 bps and TWD 1 billion, NT dollars 6 bps, NT US dollars 1 bps, because NT dollars account for 80% and the rest 20% is U.S. Therefore, the sensitivity for NT dollars is more evident.
Okay. We have -- the last question is about our overseas earnings guidance. Can Annie give us some guidance on overseas earnings line proportion or something?
For this year, we remain keen to further expand our loan portfolio, particularly in the -- to grab the opportunities or the recovery in U.S. and ASEAN markets. Therefore, the loan book expanded by nearly 12% to 13% for the overseas market. And in North America and the ASEAN countries, all see quite strong growth. For U.S. markets, the loan book expanded by more than 40%, and ASEAN countries continued to expand by 7%. These 2 markets now represent the main growth driver for our overseas loan portfolio.
But in terms of the profit contribution due to some one-off credit charge that I just explained from Tokyo. So the pretax profit only grew by 3%. However, the major profit hub, including Cambodia, Hong Kong and North America, all demonstrate quite strong recovery. So, we would still target a more than 40% pretax profit contribution going into the coming quarters or even next year, as this area represents the major profit driver or the growth momentum would persist. So we would remain keen to further expand those lending activities in these major markets.
But I would like to particularly highlight that our exposure into the Greater China areas would remain, I mean, unchanged or even slightly slower due to the slowing down economy in the Greater China region. So the main hub for the future growth in overseas market would come from North America and ASEAN and Greater China would remain stable.
Okay. Thank you, Annie. And we have the last -- last chance is about our dividend payout ratio. Do you think that we will maintain the same level as prior years?
Up to now, we have seen some shrinkage in the equity base after the first year's volatility in the markets, but our equity base remain positive or stable. So we would see if we can continue to generate a decent, I mean, profits, both in the incremental net interest income and also the current, I mean, the well content asset quality, we would continue to deliver or sustain our dividend policy in order to reward our long-term investors. So I would not see any reason that we cannot maintain our dividend policy like we did before.
But one factor would have to be -- looking to be -- can we actually meeting the criteria of this player in next year's calculation. So I mean, both of these factors would -- can be, I mean, unavoidably infected. Yes, okay. impacting our dividend policy.
All right. Okay. Thank you. And the last question coming is about a decent capital strategy. So I think Annie already answered the question is about the strategy that we hope to remain resilient capital adequacy ratio for the DCIPs. So any collaboration -- Annie, you want to add on the DCIPs, in the past?
Yes, the DCIP criteria would be progressive. I mean, a progressive move that we have to meet this requirement set by the regulators. But for -- up to now, we are in compliance with the requirements. So it would -- it takes time to fulfill this criteria. So that's why we would be quite cautious around the capital management policy and also the dividend payout strategy, we have to meet in between and to balance these 2 criteria.
But most of all, I should say that the important part of it will be how much that we can generate the actual profit to add up our total profitability that can meet the both ends. So it means the profitability would be the key, yes, we can comply both requirements.
All right. Thank you. I think we have had answered all the questions, and we hope you enjoyed today's conference. And if you have any further questions, please do not hesitate to contact us by email. And also we'd like to thank you.