First Financial Holding Co Ltd

TWSE:2892

Earnings Call Analysis

Financial Growth with Environmental Commitments and Future Outlook

In the first half of 2024, First Financial Holding reported a net income of TWD 13.7 billion, up by 4.3% year-on-year, with EPS of TWD 0.98. The company's bank subsidiary achieved its highest-ever half-year profit of TWD 12.8 billion. Key revenue drivers included robust fee income, particularly from wealth management up 41%, and a heated mortgage business with a 12% growth forecast for the year. The company also committed to reducing Scope 1 and Scope 2 greenhouse gas emissions by 63% by 2035. Looking ahead, the bank aims for a 30% annual growth in fee income despite anticipated minimal impacts on NIM due to potential US rate cuts.

Overview of Performance

In the first half of 2024, First Financial Holding Company reported a net income of TWD 13.7 billion, marking a 4.3% year-on-year increase. The company achieved an earnings per share (EPS) of TWD 0.98. The bank subsidiary was a significant contributor, posting its best-ever half-year profits of TWD 12.8 billion, while other subsidiaries combined reported a net income of TWD 1.2 billion.

Drivers of Profit

The bank’s profits were driven by two primary factors: robust fee income, which offset declines in net interest income and swap gains, and reduced credit costs following the sale of impaired commercial real estate (CRE) loans. This period saw an 8.1% growth in total loans, driven primarily by mortgage and large corporate lending, which grew by 14% and 20%, respectively.

Financial Highlights

For the first half of 2024, the group’s consolidated revenue increased by 2.5% year-on-year to TWD 36 billion. Despite a 9% rise in operating expenses, the net profit rose by 4.3% due to an increase in revenue and a 23% decrease in credit charges and insurance reserves. Key financial metrics included a return on equity (ROE) of 10.92% and a return on assets (ROA) of 0.6%.

Sustainability Efforts

First Financial Holding Company made significant strides in its environmental sustainability efforts. The Science-Based Target initiative validated its net-zero targets, committing to a 63% reduction in Scope 1 and Scope 2 greenhouse gas emissions by 2035 from the 2022 baseline.

Loan and Deposit Analysis

The loan-to-deposit ratio slightly dipped to about 70%, with NT dollar loan-to-deposit ratio nearing 80% and FX loan-to-deposit ratio at 42.5%. Total deposits grew by 8% year-on-year to TWD 3.6 trillion by the end of June 2024. The Net Interest Margin (NIM) remained stable at 70 basis points.

Profitability from Fees

Fee income showed a remarkable growth of 38% year-on-year, totaling about TWD 6 billion in the first half of 2024. Wealth management fees contributed TWD 3.5 billion, up by 41% year-on-year. Looking ahead, the company expects fee income to continue growing, targeting a 30% year-on-year growth for the full year.

Operating Expenses and Asset Quality

Operating expenses increased by 8% year-on-year to TWD 13.7 billion, primarily due to a salary hike. The cost-to-income ratio for the first half was 44.18%. The bank maintained strong asset quality, with a coverage ratio of 745.24% and a non-performing loan (NPL) ratio of 0.18%.

Overseas Operations

Profits from overseas operations returned to normal levels after previous CRE losses, accounting for 24% of the bank's overall pretax profits, which totaled TWD 3.7 billion by June 2024. The bank's capital strength was robust, with a Capital Adequacy Ratio (CAR) of 13.87%, Tier 1 at 11.96%, and CET1 at 10.37%.

Interest Rate Impact and Future Outlook

The potential for a U.S. Federal Reserve rate cut in the second half of 2024 was discussed, noting that a 25 basis point cut could minimally impact the NIM by approximately 0.5 basis points. However, swap gains could see a significant contraction of 20% to 30% if rate cuts are aggressive. The company aims to achieve TWD 13 billion in swap gains for the full year 2024 but may face challenges in 2025 depending on further rate cuts.

Forecast for Loan Book Growth

First Financial Holding maintained a strong loan demand, projecting a total loan book growth of 5.5% to 6% for the full year. Mortgage lending is expected to grow by 12% year-on-year, while FX lending is revised down to 1% to 2% due to delayed U.S. rate cuts. SME loans are projected to grow by 4% year-on-year.

Earnings Call Transcript 2024-Q2

[Keith Ke, executive]

Good afternoon, ladies and gentlemen. Welcome to joining us for First Financial Holding Company Second Quarter 2024 Webcast Investor Conference. We will start with the presentation, which includes the snapshots, financial highlights and operating results. Then we will invite Ms. Annie Lee, our EVP and IR Head, to proceed with the Q&A session. [Operator Instructions]

Okay, I will hand over the microphone to Ms. [indiscernible] to start the presentation.

[Unknown Executive]

Thank you, Keith. Hello. Good Friday afternoon, everyone. For the first half 2024 earnings results, in group, we reported a profit growth with a record contribution from First Bank in bank. The first half featured robust fee income and heated mortgage business. [indiscernible] are now in further momentum. We'll start by walking you through this presentation before we enter Q&A.

In Page 5, we look at what First Financial Holding has delivered year to June. We reported a net income of TWD 13.7 billion, up by 4.3% year-on-year. EPS was TWD 0.98. Under the hood, bank subsidiary reported its best ever half year profits. It was TWD 12.8 billion. Other subs together posted a net income of TWD 1.2 billion. Net profit at Bank was driven up by 4.4% year-on-year for 2 major reasons: one, what if fee was able to offset a decline in net interest income and a decrease in swap gains; two, credit costs was trimmed down and normalized after First Bank offloaded its impaired CRE loans.

As to growing the loan book, mortgage and large corp lending led the annual growth of 8.1%. SME loans saw a pickup of 3.9% and U.S. dollar lending was still soft in light of high U.S. interest rate environment. Before moving on to discuss financial numbers, we would like to report a group milestone on efforts towards environmental sustainability. This June, Science-Based Target initiative has validated our net 0 targets. We commit to reduce Scope 1 and Scope 2 greenhouse gas emissions by 63% before 2035 from the baseline year of 2022. Our Scope 3 finance initial targets cover 17% of total lending and investments.

Back to financial numbers in Page 7. Key figures for the group during the first half 2024 are highlighted in the right table. ROE was 10.92%. ROA was 0.6%. Book value per share was 18.13. Group CAR was at 122.45%. Double leverage ratio stood at 11.43%. The pie chart on the left shows bank subsidiary accounts for overnight [9/10 ] of the group's profits.

In Page 8, key elements of group's consolidated P&L statements are listed in the bar chart. For the first half of 2024, First Group's consolidated revenue was TWD 36 billion, up by 2.5% year-on-year. Credit charge and insurance reserves together was about TWD 3.3 billion. It was down by 23% year-on-year. The increase in revenue and decrease in charge and reserves made up for the 9% climb in overall operating expenses. Net-net, the bottom line grew 4.3% to TWD 13.7 billion.

Next in Page 9. Key subs net income are given in graph for the same period this year and last year.

Now let's turn to bank's operating results. Starting on bank's return on equity in Page 11. It was 9.92% during the first half of 2024, on back of a net income of TWD 12.8 billion. Pretax profit discussion is the next page. Pretax profit was supported by a 38% jump in fee and a 32% fall in net provisioning for impaired loans. This offset a 7% decrease in gains on financial products and an 8% increase in operating expenses.

Net interest saw a decline of 2% due to funding cost pressure. At the same time, total loans grew about 8.1% year-on-year to TWD 2.5 trillion.

Further breakdown on loan is in Page 13. In the end of June, mortgage outstanding, large corp lending and SME loan balance all reached new highs. Mortgage demand and large companies were again the key drivers. Mortgage has an annual growth rate of 14%. Large corp has about 20%. Central Bank tightened creditors due to [indiscernible] housing market. Mortgage volume is to go down as month goes on. On the other hand, we see economic activities broadening out across industries and various types of companies beyond AI-related fields.

We are looking for mid-single-digit growth in corporate and SME loans. Softening FX lending continued. FX lending demand will largely depend on how and how far U.S. Fed cost rate and was the neutral rate.

Quarter-by-quarter loan breakdown is available in Page 14. Large corp and SME lending improved during past quarter. It was a mix of capital investments, seasonal effects and working capital needs pushing up the growth.

Readings for interest earnings assets are in Page 15. Loan-to-deposit ratio slightly dipped and was about 70%. NT dollar loan-to-deposit ratio was up a little, which is close to 80%. FX loan-to-deposit ratio was down a bit to 42.5%. Spread and NIM remain unchanged. 1.2% was spread and a 70 basis points for NIM.

Taking [indiscernible] into account, adjusted NIM was 104 basis points. Swap gains was about TWD 6.8 billion for the first half of 2024, a drop of 5% from TWD 7.1 billion for the same period last year.

Next page, here comes more data on spread. Quarterly average lending rate, quarterly average deposit rates, together with their spreads are provided for NT dollar loans and USD loans.

In Page 17, deposit data is provided. Total deposit was about TWD 3.6 trillion by end of June 2024, up by about 8% year-on-year. CASA ratio for NT dollar pool held up at 63% during the first half. So going back to loan portfolio, loan concentration data is in Page 18. Mortgage details is in Page 19.

In Page 19, monthly new mortgage volumes reflects the year's vibrant housing market. In the upper left graph, data on new mortgage loan-to-value ratio, the average mortgage loan-to-value ratio and the average mortgage yield has been trending up. The data again evidenced the hot home buying demand unlocked by government-sponsored program coupled by elevated home prices. Breakdown of mortgage by property location is given in the pie chart. The proportion is the same as previous reporting.

Now we'll elaborate more on fee revenue. Fee accounts for nearly 20% of bank's net revenue. In Page 19, it shows for the first half 2024, total fees jumped 38% year-on-year and accumulative to about TWD 6 billion. For the period, Wealth Management business delivered about TWD 3.5 billion, up by 41% year-on-year. We expect the good performance to carry out into the second half. In view of the investors' mindset of searching for safe means in the context of uncertainties, sentiments on stock markets after all-time highs, [indiscernible] based on soft lending or mild recession in U.S. economy, and the prolonged tensions and the conflicts in geopolitics and the U.S. presidential election. As to loan-related fee, it contributed about TWD 1.7 billion, including one-off revenue of TWD 0.56 billion recorded in the first quarter.

Page 21 provides quarter-by-quarter fee breakdown in further details. Specifically, wealth management fee was broken down into 3 sub lines to review. General reminder, excluding one-off loan-related of TWD 0.56 billion. The overall fee income during the second quarter this year was up by about 5% when compared to the previous quarter.

Turning to Page 22, bank's operating expenses. It was up about 8% year-on-year to TWD 13.7 billion. The increase was due to a salary hike for employees. For the first half, cost-to-income ratio was 44.18%. Regarding asset quality of the bank, coverage and NPL ratios are in next page.

Coverage ratio was up to 745.24%. NPL ratio was 0.18%. NPL ratios on personal loans, mortgage, large corp lending and SME financing remains steady as showcased in the bottom graph.

Finally, we brief on bank's overseas operations in Page 24. For the first half of 2024, after CRE losses is behind us, profits from overseas operations returned to a usual level. It accounts for 24% of bank's overall pretax profits. Contributions from overseas operations totaled TWD 3.7 billion year to June.

One more page. Bank's capital strength in Page 25. Bank's CAR was 13.87%. Tier 1 was 11.96%. The CET1 for your note was 10.37%.

Now back to Keith.

[Keith Ke, executive]

Okay. Thanks, [indiscernible]. And now we will go on to the Q&A session. Right now, we found Peggy from Morgan Stanley have raised several questions and we will answer all the questions one by one. First of all, it's about the questions related to our NIM and our currency swap gain. So Peggy would like to know because everybody expected and will have the rate card in the second half. So what's the impact on NIM? If we say provide NIM the impact of every 25 bp rate cut from fit. What will it be the impact for our NIM?

[Annie Lee, executive]

Okay. We have made some calculation about the potential rate cut from our U.S. dollars portfolio. Actually, the adjusted NIM -- I mean, for the lending spread, including the potential adjusted swap that every 25 basis point cut would impact a drop about 0.5 basis points of our NIM, it implies that because of lower LDR for our U.S. dollars lending portfolio, which now stands for less than 42% to 43%. So the actual impact from the U.S. rate cut will be minimum. So the major drag will be for the potential swap gains going into next year. The swap gains may not be so you see like it did last year and this year.

And it implies that the actual impact for NIM would be pretty much minimum. However, due to the size of the rate cut is still ongoing, that we have to further roll out our projection for the potential rate count, not just in this year, but going into next year.

So I just highlight that for the 25 basis point U.S. dollars rate cut would only impact our NIM around just 0.5% is very, very minimal. However, the impact for the swaps will be much more significant in case that the rate cut is much more aggressive than people projected -- the drag on the swap will be much more substantial, maybe somewhere around 20% to 30% lower than this year's range.

Actually, for this year's swap gains, we have already had some projections around just about 15% lower than last year's level, we would be able to reach around TWD 13 billion year, which is higher than our original projection, I mean, at the beginning of the year because the actually -- the rate cut is, I mean, later than most people projected them. And also the size of the rate cut is quite meaningful for our further projection. So for next year, the swap gains contraction would pretty much have to go how far that the rate cut will go up. But for the moment, based on current calculation, the impact for the rate cut would pretty much reflect on the swap gains, which may be about 20% to 30% impact.

[Keith Ke, executive]

Okay. Thanks, Annie. So let me reply on what Annie just said. Because Annie said every 25 bps for the Fed rate cut, it will impact about 0.5 bps for our NIM, at least for 1 year loan. So that's not just to the end of this year, which means even there is a rate cut in the coming months, at the end of the impact for the NIM should be even less than 0.5 bps.

[Annie Lee, executive]

Yes. That's right. Thank you for the clarification. I would just like to highlight that the major impact will be future, I mean, for future swap gap, that will be much more meaningful next year. Okay, let me put it this way. Actually, for this year, we are still able to reach about TWD 1 billion swap gains for this year. So that would sum up to total gains for the whole year around TWD 13 billion that I just mentioned. But for next year, if this rate cut continue to be in place, then I mean, the implication for further contraction for the swaps will still pretty much, I mean, will have to be revised further down, but it's still not confirm that how far this rate cut would go and how fast it would move up. So we just say that maybe next year, the contraction for the swap will be, let's say, 20% to 30% per month. And it will reflect like less swap gains, and that will be definitely next year.

[Keith Ke, executive]

Okay. So I think there are coming more questions related to the NIM question. So we will answer the NIM question first now. And because Annie has already answered also for the full year target our swap gains. But Peggy would also like to know what our currency swap gains for the first half 2024.

[Annie Lee, executive]

For the first half, we have met TWD 6.8 billion for the first half and up to July. I mean for the first 7 months, we are able to met about TWD 8.2 billion. It means that we actually reached about more than TWD 1.3 billion to TWD 1.4 billion for the second quarter until recently. So this, I mean, influence of the rate cut will be gradually fade, I mean, factoring into our swap portfolio, pretty much because that we have already, I mean, had a substantial portfolio in this swap transaction. So even though the rate cut will be most people's projections, but the impact would be gradually translate into the actual P&L account, not immediately or overnight. That's why we still managed to meet the target that for this year, the swap gains can still maintain around TWD 13 billion. It means that we can still have around TWD 1 billion per month until the end of this year.

[Keith Ke, executive]

Okay. So the full year target is TWD 13 billion. And what's the adjusted NIM for this year?

[Annie Lee, executive]

Okay. So for this revised swap gains that we actually slightly revised down our NIM projection maybe just 1 or 2 bps lower to 1.03% to 1.04%. The major reason for this will be we still witnessed a very strong loan demand for this year. and the new lending actually helped to make up some of the losses on the swap gains contraction. So the revised down NIM could be quite slightly or minimum, just 1 or 2 bps lower than our original projection around 1.05%. Yes, very, very minimal, 1 to 2 bps only.

[Keith Ke, executive]

Okay. So the impact for our adjusted NIM for the coming quarter, we think it's minimal. And from the following question, Eric Shih from KGI also would like to know more about our swap gains. He wants to know what is our target for 2025?

[Annie Lee, executive]

I just mentioned that, let's say, 20% to 30% contraction for this year's level. My formula will be for next year, maybe for the first half, it will be, let's say, TWD 800 million to TWD 900 million per month. But going into the second half, it'll be lower than TWD 600 million to TWD 700 million. So this will come up around just TWD 10 billion-something, TWD 10 billion swap gains, but it still have to be further rolled out based on the actual rate cut in U.S.

[Keith Ke, executive]

Okay. So I think Annie has answered the NIM-related questions very clearly already. So if any of you have further questions related to NIM, you can raise your questions again at the bottom of the box. Now we will move on to the next topic. So -- okay, let's from the second one. What's the target of our loan book target -- loan book growth for the full year? Did we change any of our target?

[Annie Lee, executive]

Actually, we're still having a quite strong demand from our mortgage lending and also a rising demand for the SME sectors, thanks to the recovery of the economy. The other weakening part would be the FX lending due to the delay of the U.S. rate cut. Therefore, we have seen that loan demand for FX lending still remains quite subdued. So for this year, as the mortgage lending for the second half may maintain its momentum around 12%. I mean the major reason behind this would be because we have already granted those credit lines for the new home buyers in the first half. So when they continue to draw down the approved credit line, this would sustain our mortgage lending going into the second half of this year. And if the mortgage lending would see some meaningful slowdown, it will be move on to next year. It means that we have to fulfill the commitment for those already applied for the credit line for the mortgage lending in the first half. So this will be the reason that we did not revise the our mortgage lending going into the second half of this year.

However, as I just mentioned that FX lending still remains not very strong. So for the whole year that our total loan book growth may be able to sustain around 5.5% to 6% after we have booked quite strong growth, around 8% in the first half. Yes.

Total lending, our gross projection still maintains 5.5%. And mortgage lending, for the whole year, still maintains about 12% after we booked 13% in the first half. But we revised on our FX lending from about 4% to 5%, now down to 1% to 2% due to the delay of the rate cut. And SME lending, we are now still projecting around 4%.

[Keith Ke, executive]

Okay. So let me conclude the projection. For total loan book, we still maintain at about 5% to 5.5% growth. But for the breakdown, we have adjusted a little bit. So for the mortgage, it's about 12% growth for full year. And for FX, it's down to only 1% to 2% growth for full year Y-o-Y. And the SME is about 4% growth Y-o-Y.

[Annie Lee, executive]

It implies that similar momentum in the first half of this year. Yes.

[Keith Ke, executive]

Okay. So Peggy also wants to know the CBC has a tightening policy for our mortgage. So she originally wants to know if any impact for our mortgage book. So as Annie answered, it should not minimal impact for this year, right?

[Annie Lee, executive]

Yes. Well, even though the CBC has already tightened the lending standards or guidance for most banks. But as I just explained, we have to honor our commitment to the already approved credit for the mortgage barrel. So we would not revise down our mortgage lending and the actual impact will be for next year's mortgage growth, particularly after the higher base period this year, definitely, for next year's mortgage lending will see some slowdown anyway. I mean, not for this year, but for next year. But we can still maintain our lending momentum to the mortgage, there is no problem because we are not breaching any ceiling for this property lending at the moment.

Ceiling restriction for the so-called banking loan of 72 to [indiscernible] that we still have some room to, I mean, fulfill our mortgage lending. We still have room to let.

[Keith Ke, executive]

Okay. Annie just answered the question to Peggy. But a follow-up because she wants to know how much amount we generally still have?

[Annie Lee, executive]

Well, this is quite dynamic. The actual level now we have is about 27.4%. But it implies that we can still attract more deposits to fill the demand for the lending from mortgage. So the actual ceiling now we are maintained at 27.4%, still have room. We're not the top lender anyway, maybe among the top 5, but not at the top, we still have room because we can continue to attract deposits to fill property lending, including mortgage.

[Keith Ke, executive]

Okay. I think it's very clear. And let's move to the next topic. So let's talk about the fee income. Because we know that first, fee income momentum is still strong for first half. So what's the major driver for the fee income? And is it sustainable for second half?

[Annie Lee, executive]

Well, for the first half, we managed to reach nearly 40% growth for both wealth management and other fee revenue, which is pretty much can be attributed to a very booming and the bullish capital market in the first half, particularly for the strong tech sector and also -- I mean, a very solid macro that helped to boost the demand.

And the rationale behind our strong fee revenue, particularly for the wealth management was mainly driven by that a lot of high net worth customers that they actually would like to look into some, what we call, the investment-grade bonds that will help them to lock in a higher yield with quality investment portfolio and that really drive up the demand for the overseas bond investments. And that would also help us to generate decent fee revenue because this can be part of a very solid source with the fee revenue.

And the other source for the wealth management will be the bancassurance products, particularly for some inheritors-related products was quite popular among our customers because we actually serve a lot of the SME owner or those high network customers that they would like to translate their wealth from generation to generation and the bancassurance products can be a good tool to help them to waive those tax burden or other -- I mean, projects that help them to transfer the wealth to the next generation.

And so these 2 products are quite keen to help us drive up the whole momentum for fee revenue but we would see this demand should continue going into the second half because currently, the rate gap between Taiwan and U.S. still remains pretty substantial. So the demand for the 2 products that I just mentioned, and its momentum going into the second half of this year. So we would see that for the whole year's fee revenue target, we will target a 30% growth for the whole year projection that it will still maintain quite intact for the fee revenue to grow high double-digit growth at around 30%, up to 40% growth in the first half.

[Keith Ke, executive]

Okay. So the full year fee income will -- our target is 30% growth Y-o-Y. And let's move to the next topic, because there are several questions still related to NIM, but we will answer the NIM questions at the end of the session. So we will go on for our credit cost first. Peggy stated that she found that our second quarter credit cost was lower. What part of the reason behind that, the second quarter?

[Annie Lee, executive]

Well, the truth is that we have charged off most of the delinquent loans until the end of first quarter. So as most of the CI exposure has been written off, there is no more fresh influx going into the second quarter, which will be maybe some link to stabilize property market in the overseas or major markets. So in fact, in the second quarter, our influx dropped to just -- for 1 quarter dropped to just TWD 1 billion after we written off more than TWD 5.5 billion last year in the overseas market. So that pretty much helped to ease the influx that dragged down our total P&L in the prior 2 years. So the -- I must say that we charge off the major losses in the overseas CI, which helped to ease the burden for our further loan growth going forward. So the main reason would be there's no more significant CRE losses going forward after we charge most of the legacy pool.

[Keith Ke, executive]

Okay. So the following up question was that what's our management team's opinion about our asset quality in second half and also what's our target for the credit cost for the full year?

[Annie Lee, executive]

We will maintain the net credit cost around 15 bps for the whole year. There is no any revision. Yes.

[Keith Ke, executive]

Okay. So there is no change for our -- predictions for our credit cost, 15 bps for 2024.

[Annie Lee, executive]

Yes.

[Keith Ke, executive]

Okay. So Eric Shih wants to know, can Annie offer our currency bond position side duration and unrealized gains?

[Annie Lee, executive]

I don't think I have this figures in hand. What I remember will be -- okay, for foreign currency portfolio, it accounts for around 60% of our total fixed income portfolio. Duration, no, I don't think I get the figure and unrealized gains. Can I get back to you after I check the figures, okay?

[Keith Ke, executive]

Okay. Eric, we will get back to you after the meeting. Okay. So we'll go back to the NIM questions because we found several investors have the interest, yes, about our...

[Annie Lee, executive]

Contraction.

[Keith Ke, executive]

Because several investors, they just didn't hear clearly that our predictions for our full year adjusted NIM prediction. So it's around 1.03% to 1.05%. That's for our prediction for the full year adjusted NIM.

Okay. And for the first half, adjusted NIM is about 1.05%, first half. So the full year should be dragged down a little bit, but the first half is 1.05%.

And [ Tina ] from the [indiscernible] would like to know because Annie just said the rate cut from Fed will impact the NIM. And do we also calculate any other scenarios like because layer should be maybe lower the currency swap gains or if we have our more opportunity to put our money investor to FX loans. So there should be maybe lower swap gains -- so what's under scenario of our 2025 NIM direction?

[Annie Lee, executive]

This is a tough question. Because nobody knows how far that the Fed will cut rates. All right. I'll just try my best to describe the picture of how our NIM will look like. In fact, the swap gains were definitely contracted lower than this year level. But the lending to FX loan would be higher than this year. But the thing is that we will see that loan growth for FX lending will be gradual, but the swap gains may maybe quite, I mean, imminent, but we still have to see that how the market will react when the Fed cut rate, because for the scenario that if most borrowers would project that the U.S. rate would continue to drop, so they would not I mean, tap into the bank to borrow U.S. dollars immediately because the cost of U.S. dollar fund is still quite high, but they can use swap transaction to fund their U.S. dollars demand. So this will be a trade-off between FX lending and swap gains, if you know what I mean.

Because if most people would see that the actual funding cost of U.S. dollars will continue to drop. So if the borrowers need the U.S. dollar funding, maybe they can continue to apply for the swap gains to -- I mean, to fund their U.S. dollars demand. So this would be a progressive scenario that our swap gains will gradually move down by the FX lending. NII would gradually improve, but we would see how that do the further migrated to cure a more back-to-normal lending picture. So I guess I have to wait until we actually witness that the rate cut in U.S., and then we can have further projection. But this scenario that I just described can be -- maybe can give you some hint. Yes, these 2 top line definitely would have some growth and contractor, but it will be mild and gradual, okay?

So I cannot have actual figures for you, but this will be the scenario. I mean, this swap gains or FX loan growth would not be, I mean, it would not be changed overnight, it will gradually migrate all right? But the figures, sorry, I have no actual projection, can give you some hint because we have to see how -- I mean, actually how Fed cut rates? Would it be aggressive or just very gradual? It will actually be subject to how Fed moves. Okay?

[Keith Ke, executive]

Okay. Thanks, Annie. And thanks, Tina, for asking a tough question to end. And we have another question from [indiscernible]. Because she said the First Financial has been chosen as the [indiscernible] bank. So the dividend pay, everybody knows is being constrained. And she would like to know now -- we said our cash dividend policy was about 50% something. But when will be the time that the cash dividend go back to 60% above?

[Annie Lee, executive]

All right. This is a must answer question, about 60%. Next year, we will have to meet the test that would deter us from being generous to distribute our cash dividend. We actually have mentioned about that until the year after next one, I mean, until 2026, we may have the chance to lift up our payout ratio up to 60% after we get the approval for the IRB model for the regulators that it will help us to improve our CAR ratio to the regulatory requirements level. So for the 60% of ratio, we will have to wait for 1 more year, until maybe in the middle of 2026. Yes. Maybe -- not next year. Next year, I project that we may have to still maintain around 50%, and that will be when we can actually achieve, yes, 50%.

[Keith Ke, executive]

50%, okay. And we have questions from Gurpreet from Goldman. And he'd like to know our mortgage policy about the [indiscernible], I don't know. He was wondering why should we be worried about that. There are the mortgage, which was not just for personal -- I mean for investors.

[Annie Lee, executive]

You mean, the debt serviceability of high home buyers [indiscernible]?

[Keith Ke, executive]

Means 1 person to buy not only one house.

[Annie Lee, executive]

Okay. You mean the debt service level for the mortgage borrower. We have quite credit policy for our mortgage lending. In fact, including all the property lending, as we had suffered substantial losses in the early 2000 in the prior cycle. So actually, we normally would impose quite restricted lending standards on the mortgage-related underwriting policy, including mortgage. First, we would choose those, let's say, quality collateral. It implies that we would see how this collateral is a quality one. It makes sense that this would help us to know the potential losses when we are forced to foreclose or dispose this collateral.

And the second one would be, we are quite focused on the -- actually the income level for this borrower. Not just look into the collateral itself. We have sticked to the so-called their day-to-day income levels to round what would be their actually debt level that would be less 1/3 of their per month income, not just for the collateral. So this is for the income control. And the third one will be we have some data source that to track with this for the investment purpose or for owners, I mean, for the household occupied property. And that would help us to lower the risk that should the property prices drop, that we may suffer from the losses for the property losses. And we also are quite keen to maintain the LTV guidance that our current LTV average around less than 65%. And this will be a historical -- I mean, risk appetite cases.

So this would help us to also reduce the risk associated with this cyclical property market. So all of this can be part of the measures that mitigate the risk associated with the potential property downside. And I must say that the exposure that we have now, we also concentrated on the areas in the metropolitan cities like in northern part of Taiwan, where the liquidity of the property market is much more secure than the rest part of other areas. So all these measures would help us to avoid the potential losses on the property downside.

[Keith Ke, executive]

Okay. And also we have questions coming in. And the one is from Tina. She would also like to follow up on the mortgage related questions, that because the government seems to have some kind of tightened policies. So well, this issue -- I mean, the mortgage tightened policy will be continued to next year or even the year -- yes, next year or the year after next?

[Annie Lee, executive]

Yes. supposedly. Currently, we have tightened a bit for our lending standards for the mortgage lending. One reason is that because the mortgage represents lower margin products apart from the so-called the risk. So I must highlight that we prefer to shift the resources to other products like SME or less FX lending because those products they offer us higher margin or other source of revenue. So yes, I think our tightening for the mortgage lending would continue until next year and maybe 2 years later. Yes. .

[Keith Ke, executive]

Okay. So it might be continued. And also, the questions from Tina, she was wondering that because the write-backs for the first half sounds very good for our company. So do we expect even more -- some more cases for the write-backs in the second half?

[Annie Lee, executive]

Yes. After we wrote off huge losses on the overseas CRE, we continue to write back those provision debt losses that we had to recover some of the losses that we charge off. Up to end of July, we have recovered for about TWD 1.8 billion to TWD 1.9 billion recovery. Up to end of the year, we will continue to recover those NPL. Most of them will be from the disposal of the collateral. And the good thing is that the most of recovery ratio is up to 80%. So as I mentioned in the prior conference that we actually have charge of excessive appeal, which will help us to recover in the coming quarter. And going into next year, as most of our overseas CAR exposure are secured by collateral. So we will continue to recover all this NPL in the overseas market. It would be up to, let's say, TWD 1.5 billion for next year, hopefully, yes.

[Keith Ke, executive]

Okay. And also another question from Tina. She also would like to know, because she said she did miss listening. So she said how many cases for the one-off fee income this year so far?

[Annie Lee, executive]

That one with the fee revenue from Taiwan High Speed Rail, which was TWD 580 million on Taiwan High Speed Rail.

[Keith Ke, executive]

Maybe TWD 560 million, around. Okay. All right.

And also another question from Eric. He would like to know, does management team expect the CBC to read the reserve rate?

[Annie Lee, executive]

Any tightening measure in the third quarter. Well, I suppose that the press actually reported. The Central Bank governor has already committed to ask the most of the lenders here to propose their tightening measure for mortgage lending. So I think if we submit our plan that we would self-governing our lending, that it may not be that -- I mean, the Central Bank governor may not impose further restrictions on this reserve requirements or other restrict measure because there are a lot of complaints in the market now.

I don't see that there's further -- I mean, measures will be taken by the central banks to tighten the market, because banks already, I mean, set a break to lower our lending into market share. Most bankers are aware that there's a risk in the market. We should stop here for a while. But for this year, we cannot set a break immediately. But next year, yes, definitely, most lending will be softened. Yes.

[Keith Ke, executive]

Okay. So I think there is no more questions coming in. We don't expect there's so many questions coming in today. So thank you so very much for participating our meeting.

[Annie Lee, executive]

Okay. Maybe if I just finalize or conclude the discussion this year.

For this year, the momentum for the lending is pretty much beyond our imagination that the very booming property market, especially for the mortgage was a surprise for banks. But still because this will be the actual loan demand from the markets that we have to fill the demand of the borrowers. But when we going into next year, it will be much more normalized due to the still growing economy and recovered exporting sectors. And the best thing is the U.S. dollar rate will be lower and that the bank lending strategy will be back to more normalized to corporate sector instead of this year's mortgage lending book. Okay?

[Keith Ke, executive]

Okay. Thank you, Annie.

[Annie Lee, executive]

Thank you. See you next quarter.

[Keith Ke, executive]

Okay. See you. Bye-bye.

[Annie Lee, executive]

Bye.