First Financial Holding Co Ltd
TWSE:2892
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First Financial Holding Co Ltd
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Good afternoon, everyone. I'm K.C. Welcome to join us for First Financial Holding Third Quarter 2021 Webcast Investor Conference. Before we proceed the presentation, I'd like to disclose the following information. Starting from December 2015 in order to improve corporate governance code, First Financial Holding has set out ethical corporate management best practice principles and conducting procedures and guidelines. For more information, please refer to our website. Let's start with our performance presentation. The materials can be downloaded from our website and the 1-year replay will be available after today's conference. After today's presentation, we will invite Ms. Annie Lee, our IR Head and EVP, to proceed the QA session and talk about 2022 outlook as well. [Operator Instructions]
Now I'd like to turn over to Mr. Keith Ke to begin today's presentation. Keith?
Thank you, K.C. Please turn to Slide 5. Let's wrap up the conclusions for first 3 quarters 2021. The group delivered cumulative earnings of TWD 16.5 billion with 23.5% growth Y-o-Y for first 3 quarters, which was in line with our expectation. Not only bank units made a contribution, but also other major subsidiaries together combined this double-digit growth result. First Bank's total loan book grew by 7.9% Y-o-Y mainly driven by large corp. and SME loans. This related loan growth was quite similar to post-financial crisis back to 2008. Management team will keep chasing with the follow up. On the other hand, mortgage loans slowed down to reflect the renewed capital gain tax on property in second half 2021. Overseas loan demand was weak this year. However, we look forward to reverse the result next year with low basis this year and a better economic prediction around the world.
Although securities and insurance units slowed down a little bit in third quarter, however, non-bank's cumulative earnings still occupied 12% profit over group's total profit, which shows the diversified revenue streams and it is good for group's long-term development. Increased oil price drove inflation fears and the U.S. government will start to undertake its tightening. All these situations implied in the macro economy was moving toward a rate hiking cycle and in this case, it would be benefit for banks unit especially. Let's move to financial highlights. Please turn to Slide 7. This slide is explains group's key figures. As we mentioned at beginning, consolidated net income had 23.5% growth Y-o-Y and both EPS and ROAE had over 20% growth as well. Please take other figures 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 increased 9.2% Y-o-Y. As of the cost side, bank units thanks to lower credit charge also have boosted the bottom line with total 23.5% growth.
Please turn to Slide 9, here displayed the earnings from major subsidiaries. Bank reported TWD 14.8 billion profit with 17.2% growth Y-o-Y. Securities generated a historical high of TWD 1.2 billion profit in first 3 quarters, which was 180% growth Y-o-Y. Issuers also helped to create TWD 577 million profit with 32.6% growth in first 3 quarters. Let's move to the next part, operating results. Please turn to Slide 11. This slide shows the group and bank's net income and ROAE. Please take it as reference. And Slide 12 provides the breakdown of bank's earnings structure. Cumulative net revenue reached TWD 35.2 billion with 5.1% growth Y-o-Y. As of the breakdown: net interest income increased 11.9%, fee income also had 6.4% growth. The momentum of core earnings was still solid. On the other hand, net provisionings was down by 27%, which also helped to boost the net profit.
Please turn to Slide 13. This slide presents the loan book mix. Total loan book reached TWD 2.03 trillion with 7.9% growth Y-o-Y. Corporate loan was the key to drive the growth. Large corp. loans increased 13.6% Y-o-Y. SME loan was also up 11.9%. Among others, mortgage improved organically with 2.7% growth. FX also had 4.8% growth Y-o-Y, which was mainly driven from the domestic FX loan and OBU branch. Slide 14 shows the Q-o-Q trend of loan book. Please take it as reference. Please flip to Slide 15. This slide shows the trend of LDR, spread and NIM. LDR slightly dipped to 71.7%. Both NT dollar LDR and FX LDR didn't change much. Loan to deposit spread also stayed the same at 1.4%. NIM improved 1 bp to stand at 1%. Please turn to Slide 16. This slide shows the Q-o-Q trend of NT dollar and FX spread. NT dollar spreads trended up to 1.27% while FX spreads dropped to 2.01%.
Let's move to Slide 17. This slide shows the deposit mix. Total deposit was up 10% Y-o-Y mainly driven by FX deposit, which increased 24% Y-o-Y. On the other hand, NT dollar deposits had a moderate growth of 5.6% Y-o-Y. NT dollar CASA rate now reached 72.1% at the end of third quarter. Please turn to Slide 18. This slide shows the loan book concentration of major exposures. Please take it as reference. Let's move to Slide 19. This slide shows the mortgage book yield, LTV ratios and the new mortgage lending trend, et cetera. Mortgage yield slid 1 bp to 1.45%. Both new mortgage LTV ratio and average mortgage LTV ratio stayed stable at 64.7% and 45.7%, respectively. And the bottom bar chart shows that the quarter's new mortgage lending trended down with 9.6% decrease Q-o-Q.
Please turn to Slide 20. Let's take a look of the fee income. Total net fee income was TWD 5.78 billion in first 3 quarters 2021, which was 6.4% growth Y-o-Y. As for the breakdown: wealth management fee income increased 8.4%, loan related fee income also had a 6.1% growth Y-o-Y. Both were the keys to drive the fee revenue growth. And Slide 21 shows the Q-o-Q trend of fee income. Total fee income had 2% growth Q-o-Q. Among wealth management fee income, bancassurance dropped 6.8%, but mutual fund had 2.4% growth Q-o-Q. Let's turn to Slide 22 for the operating expense. Total operating expense reached TWD 15.9 billion, which was 4.2% growth Y-o-Y. Cost-to-income ratio was slightly stable at 45.3%. Please turn to Slide 23. Let's take a look of the asset quality. Top chart shows the coverage ratio and NPL ratio. Coverage ratio stood at 600% to amount at 601.7%. NPL ratio was up 1 bp to 0.21%. The bottom chart shows the breakdown of NPL ratios. Please take it as reference.
Let's move to Slide 24 for overseas profits. The pretax profit of overseas branches over total profit edged up to 35.6%. Top left pie chart shows the profits breakdown. OBU and Greater China combined 45.9% of overseas traffic. ASEAN occupied another 20.3% while North Americas part dropped to only 7.6%, which was mainly distorted by the negative earnings from New York branch and the new opened Houston branch and the management team expects the New York branch to become normal and Houston branch to catch up next year. Please turn to Slide 25 for the capital ratios. Group CAR dropped to 125.2%. Bank's CAR and Tier 1 also slid to 13.9% and 12.1%, respectively. Please take it as reference.
That's the presentation. I will turn back the microphone to Annie for the conclusion and QA.
Thank you, Keith. Now we'd like to proceed the QA session. And the first question is from Jemmy Huang of JPMorgan. Jemmy hopes to know that how's our Taiwan dollar and foreign currency spread migration Q-o-Q in the third quarter of 2021. So the first question, I'd like to invite our EVP, Ms. Annie Lee, to answer the question. Annie?
When we look at the results of this NT dollars and U.S. dollar spread going into the third quarter of this year, we notice that the NT dollar spread moved higher up about 3 bps from the second quarter this year, which was mainly driven by our enhanced lending to more CapEx loan in domestic markets where the investment bond did create more demand. And this CapEx lending mostly concentrated in the tenure of about up to 5 years, which will contribute more yield than the short-term or very price competition mortgage lending build. So the lending spread for NT dollars moved higher for the third quarter this year. However, when we take a look at the FX -- current FX spread because of this investment bond, which also helped to increase our lending in our OBU trade finance capabilities. In this sense, this trade finance will be more on the short term, which normally will be less than 1 year and mostly concentrated on 6 months or lower. So that's why the pricing for FX currency, especially in U.S. dollars lending yield, tend to be lower than the other longer-term loan facility. So the FX currency's lending spread trend lower from 2.07% to just 2.01%. So this will be the major composition for different product mix in the NT dollars lending and the FX currency lending portfolio.
Okay. And the third -- the second question is from Daiwa Mr. Fang. Mr. Fang hopes to know that since First Bank was listed in one of the TSEC banks this year and he hopes to know that is there any chance that the dividend payout ratio of First Financial will change accordingly this year or in the future.
In fact when we were first listed on the 6 major banks that will be required for higher capital levels, we did plan some strategy to lower our risk-weighted assets and also try to reduce the payout for dividend revenue. So we also highlighted in the prior meetings that this would be pretty much subject to how much that we can enhance our earnings going forward. Say if the top line does improve going forward, then the whole earnings structure will be different and that would also help us to recover our payout ability in the future. So for the first year of being the TSEC bank this year, we did lower our payout to be more conservative that we no longer distribute very generous dividend payout up to 70% like we did before. We lowered that to just about 60%. And we would see if we can boost our earnings going forward, we would adopt a more, I mean, contingent strategy to increase our dividend payout say if our earnings does increase by, let's say, 20% or 20% something, then maybe the dividend payout would be able to be escalated to the prior level. So the payout ratio will be conservative indeed, but the absolute figures would be in proportion to the actual earnings that we can generate in the future. So I must say that the dividend payout ratio would still remain conservative, but the total figures will be more like a floating basis. But I must say that we still stick to above 60% payout ratio going forward.
Okay. 60%. All right. The following question from Mr. Fang is about our overseas strategy. Is there any overseas presence that we can expect for the following quarters of First Bank?
In terms of the overseas business, in fact for this year in the western nations like that in U.S. or Europe, which did still remain quite subdued because of the post pandemic recovery is still not -- was not very strong. And also our once very profitable Greater China region, especially in Hong Kong offices, they still try to recover from the legacy losses from their exposure to China investment. So the one that now outperformed would be 2 areas. One, mostly concentrated in the Asia Pacific region. One is in the ASEAN countries, particularly in Cambodia which still remain the champion of our overseas profit source. And the second one will be from our Sydney, Australia. The economic performance there still remains solid. So these 2 areas will be a target that will continue to grow.
However, because the recovery from U.S. markets would gradually in the pipeline and also the U.S. rates would become more normalized so we should see the once very important profit source from both New York and Los Angeles office and even for Toronto in the Canada office will gradually become more normalized and can contribute to some bottom line for our overseas portfolio. And apart from that, we are now considering the reallocation of our headcount from the Greater China region to other overseas presences, including ASEAN or other areas, which will help us to be more efficient to penetrate into local markets and capture the business development opportunities. So the major strategy for our next couple of years will be also reallocation of this manpower from Greater China region to other areas, including ASEAN and U.S. markets. We did anticipate that after the U.S. expansion that our Frankfurt office may be next stage opportunities that we can grow our business in the Eurozone area. So that will be the whole picture of our overseas plan now.
Okay. Now I'd like to talk about the outlook and guidance for the year of 2022. The first question is from Mr. Jemmy Huang. He hopes to know the major guidance for the NIM. First of all, he wants to know that the loan growth outlook for the fourth quarter of this year. So let's just get some wrap-up conclusion for this year first, Annie. For the NIM and loan growth of the fourth quarter 2021, a wrap-up conclusion?
After we reached nearly 8% to 9% loan growth for the third quarter, we would conclude that for this year the 8% loan growth would be a positive post nearly 8%. Actually outperform the overall GDP growth thanks to the investment bond from the corporate lending across SME and domestic of OBU lending mostly from CapEx and the trade finance. So for overall loan book, we would expect to expand by 8% this year. In terms of the retail lending for mortgage, actually after the -- some cooling measures being announced by the government authorities, including the Central Bank and also the Ministry of Finance, and also the property prices hike would lead to some negative impact for the attitude of a lender like us.
So we would see the mortgage lending will be more conservative. We would only conclude that our mortgage loan would only have very moderate growth around 3% something for this year. For FX loan, we would see that it would recover from the negative territory and gradually pick up following the escalation of a lockdown in the major countries even though we're now still facing some new viruses ahead. In terms of the NIM projection, we would see the NIM would stabilize here above 1% after we adopted a strategy to expand our CapEx loan and also the overseas lending, which would definitely help to stabilize the basis of our NIM and gradually pick up. So for NIM this year, 1% will be a norm. Well, that will be the major projection for loan and NIM for this year.
Okay. Let's move forward to the year of 2022. Can Annie give us some guidance for the preliminary 2022 guidance as usual? First of all, I'd like to start with the business side, for example the loan growth. Yes.
Okay. After we booked a very solid growth of nearly 8% loan growth this year, next year we would target a slower growth but still robust around 6.5% to 7% as this reinvestment cycle would suspend throughout next year particularly from the SME sectors, which will still witness quite strong or strengthened momentum. And given that the tightened or the price hike in the property market will persist so our projection for mortgage lending will not be so aggressive, maybe just around 4.5% something, but still slightly higher than this year's results. When we talk about the overseas lending will be more aggressive that we would target double-digit growth around 10% to 11% to grow our overseas loan book more proactively in order to capture the market recovery momentum. So for the overall loan book, it will be focused more on the SME, corporate lending and overseas FX currency lending, both around 6% to 7% or 10% to 11% next year.
Okay. In terms of the revenue side, I'd like to discuss about the fee revenue. How about fee revenue outlook for 2022, Annie?
Next year the fee outlook will still remain quite bright. We would target around 9% to 10% fee growth after we may conclude around 7% growth for our fee revenue, mostly would source from the wealth management and the overseas operating revenue. For the wealth management fee, we would target a 9% to 10% growth and the overseas fee would be around 11%. In terms of still robust loan growth, our loan related fee would also advance by 7% to 8%. So in that sense, the outlook for our fee revenue growth is still in the nearly high single-digit level.
Okay. In terms of the investment income in next year, I have another question from Jemmy Huang. Jemmy hopes to know that until the third quarter of this year can Annie elaborate more about how our investment income moving like the driving factors for the decline of the worldwide decline for the investment income until the third quarter of this year?
For our treasury gains this year still impacted by the falling gains from the swap transactions, which accounted for at least TWD 1.5 billion to TWD 2 billion for this year. And in fact the major profit source from the treasury segments will be from our dividend income, which was about TWD 1.4 billion and also the disposition gain for the fixed income portfolio, which amounted to around TWD 1.2 billion. So this will be the primary earnings source for our treasury gains. But you can see that our net interest income did increase by nearly 12% so that implies that this excess liquidity channeled by the treasury gains actually is a substitute for the swap gains in the past. It implies that the net interest income revenue would actually...
Actually flow from some benefit.
Yes, swap gains in the past. So these 2 segments should be viewed as a combined source of the total fund.
So Annie wants to explain that when we conclude investment gains, their decline should be considered as improving gains from the net interest account together.
Yes.
Okay. Let's go back to the outlook of investment income for the next year. So how do you, Annie, or how do First Financial expect that the outlook for the next year?
Our treasury department would act more proactively next year to be more aggressive in investments in the equity market because we notice that after most of the listed company have booked a very huge profit, it actually generates more than 4 billion -- TWD 4 trillion profits this year, the dividend payout next year should be quite funded. So we would see that our investment in the equity markets should be -- I mean the volume or the size will be more broad based. In that sense, we would see our treasury gains have more -- I mean be more outperformed than this year after they become more actively engaged into the very attractive or look like a very good return from the investment from equity markets. So our target for treasury investment next year as a whole will be at least 7% to 8% growth next year, which is mostly from the investment gain from equity investment.
Okay. And after we have wrapped up the revenue side, let's go to the expense side. The first of all is our credit cost, how do you -- Annie, how do you forecast net credit cost for First Bank for the next year?
For this year, we did make a very good reduction from our new influx of NPL. So you can see that actually the influx for the first 3 quarters did reduce by nearly 60%. However, when we enter into the final quarter of this year, we would manage to write-off one major exposure in the China -- in the Taiwan business space in China, which would lift up our overall credit cost from current 12 basis points up to nearly 17 basis points to 18 basis points, which is major exposure in China. And for next year after we clean up this delinquent portfolios, next year's credit cost will also become normalized and we would project a net credit cost around 13 bps to 14 bps.
Okay. This year should be 17 bps to 18 bps for the net credit cost and next year will be down to 13 bps to 14 bps. All right. Okay. And how about the OpEx, operating expense?
Actually, this year we have seen very slow growth on the OpEx due to the lower economic activities especially when there's travel ban and there's bans on gathering to have some sales promotion. For this year, the OpEx growth was around just less than 4%. But next year we would see this economic activities will gradually recover and travel will become more normalized so the OpEx would grow around 7% especially when we factor in the pay hike of around 3% next year. There's also a pay hike around 3% next year. So the CI ratio would be slightly higher than this year up to 47% from this year's 46.5%.
So the CI ratio forecast would be 46%.
This year and next year will be 47%.
Okay. Next year will be 47%. All right. And I think we have had all the outlook for the year 2022, enjoy it. And let's move to another question from Ms. Monica Wong. Ms. Wong hopes to know that what's our strategy on the bond investment for the year 2022. Annie?
We actually adopt a very cautious strategy when we enter into our fixed income investments this year as most people are aware that the rates would trend higher in the future after most central banks stop easing their monetary policies. So we had prepared that we would tap the fixed income market whenever that long-term rates move up to 1.7% to 1.8%. Otherwise, we will remain empty handed not to engage into the fixed income investment unless the yield target meets our pre-defined range. So it implies that our bond investments would be pretty much conservative going forward. We talked about the dividend policy?
Yes, we already did. And also we have another question from an investor anonymous. He hopes to know what's our view on the property market of Taiwan for the next year. Annie?
For most the bankers or lenders like us, which provide the major liquidity, will become more and more cautious against this price hike in the domestic property investments. But the truth is that the GDP growth remains strong and the liquidity still remain ample and most of the rates is still relatively low. And another factor that inflation outlook are now mounting so we would see in the short term in the property prices -- I mean the outlook for property prices will not be muted at least for the next 1 year. Also the cost of construction will become more and more expensive. So for this cost push, price hike in the property markets would not be eased in the short term. So for us, we would see the prices in the property segment will be -- it's easier to hike them in Q4 unless the rates move higher or the demand become not so strong. Otherwise, the price high goods will still become intact. But for us, we as major lenders for mortgage book, we would be -- we'll maintain a more conservative stance towards this price hike. That's why our LTV on the mortgage book remain quite conservative around just 65% something.
Okay. So do you think that how high of the rate level will impact the borrowers for the following quarters?
Based on our start in the prior cycle, I suppose up to -- I mean the mortgage lending rate up to around 2.5% to 3%. That will really make the borrower feel something, which is they can feel the pain that they have to pay the interest.
So still a long road to go. Okay.
Yes. Now it's around just 1.4%, 1.3% at least one time -- at least double-digit run rate.
Yes. And we have another question, which is related to our non-bank subsidiaries. What's First Financial's target for the non-bank subsidiaries' profit contribution for the future?
We would always like to boost the non-bank profits or the contribution for the whole group. So we actually try to allocate more resources to help our, let's say, issuance unit or our broker unit to help them improve their infrastructure for instance to facilitate their electronic trading or other sales channels campaign that can help them to garner more revenues that would help to -- sorry, that will help to improve their profit. So we are still targeting around a 10% profit contribution from the non-bank unit next year after they posted a nearly 12% profit contribution this year, a 10% profit contribution.
Okay. After achieving 12% this year so we targeted a 10% profit contribution for the next year. Okay. And I think Jemmy just reminded us that we forgot to mention about the NIM guidance for the year of 2022.
Okay. At least 1% and above.
All right. Okay. Jemmy, you hear. At least 1% for the year of 2022.
Let me check once again.
Yes, I think so.
One more second, I'm remembering it.
Okay. Yes, sure. 1%...
The rate hike will wait until next -- second half of 2022, right? Official rate hike of second half.
Okay. We have another follow-up question from Ms. Tina Chen. Tina hopes to know that Annie just mentioned that there is one exposure on China resulting in a 17 bps to 18 bps of net credit cost this year. May I know that is there any specific one single case or if there is, could we provide the company of the name -- the name of the company.
That one is automakers based in China. A Taiwan automaker based in China and the exposure was around 13 -- yes.
TWD1.3 billion.
Yes, around TWD 1.3 billion to TWD 1.4 billion because it's U.S. dollars equivalent. Around TWD 1.3 billion to TWD 1.4 billion.
Alright. Tina, you heard her. It's an automaker and exposure amount is around TWD 1.3 billion to TWD 1.4 billion.
Yes. So we will clean up this.
And how about the provisioning schedule on this case?
In the fourth quarter.
All right. We will wrap it up in the fourth quarter. Okay. And I think we just answered all of the questions so far. So I'd like to wait for 1 more minute just for you to raise your questions. To be honest, we have answered all of the questions you mentioned. I didn't delete any of your questions. Okay. One more minute.
Actually K.C., we did make some statistic calculation about how the earnings growth for the rate hike. K.C. can elaborate on the rate hike.
There is one follow-up question that we have prepared, but no one asked. There is a question regarding our rate hike impact on our net interest income. First of all is that we have calculated that for each time if Central Bank rate hike like 12.5 bps at a time that how First Bank can generate more net interest income for the whole year, which is like we can...
Like 7 bps.
It's in NT dollars or U.S. dollar.
NT dollars.
NT dollars, like 7 bps for the whole NIM and for the net interest income like we can have increase of TWD 1.5 billion for the whole year, right? It's for the -- not 12.5 bps, it's 25 bps of the rate hike.
Yes. Actually the actual net interest income figures was around just TWD 200 million and the spread was up about 7 -- around 7 bps. Because now the LTV -- LDR for our U.S. dollars lending portfolio is as low as 40%. And most of this excess liquidity for U.S. deposit will be placed into the interbank lending. So the overall lending spread will be around 7 bps for every 25 basis point hike for U.S. dollars. But if the U.S. dollar lending growth accelerated, then of course the lending spread will widen more.
Okay. So there is one prediction on our Fed rate hike for 25 bps one time for the whole year that we predicted our FX spread will increase by around 7 bps for each -- for the whole year. And as the whole because of the cost side will also be increased by 5 bps to 20 bps for the time deposit to the non-time deposit so our net interest income will actually decline a little bit for the whole year, right? For the -- that's our prediction for the Fed's rate hike for the 25 bps as a whole.
But anyway, the rate hike is a good story for us anyway, yes.
Yes. But anyway, it's still a good story for the bank-centric financial holding company, especially for the bank staff which relies on the...
Overseas operations like.
Okay. It's just a prediction only, okay..
For the moment.
Is there anything that, Annie, you want to conclude? I'd like to end up this conference.
It appears that most people now have had consensus that the rate hike would come earlier than most people expected because the inflation projection is pretty intact. As we know that the cost of living and the price hike in the risk investment did dip into everybody's market. So we should see the rate hike will become more imminent in maybe next quarter or 2. Yes. So we would see the rate hike will be a genuine story next year anyway.
Okay. Thank you, Annie. Thank you for your participation and we hope you enjoyed today's conference and wish you a Happy New Year and a Merry Christmas. Annie?
All right. Thank you all. Let's meet next year. Hope everybody can have a safe and sound and Happy Christmas and New Year to you. Bye-bye, everyone.
Bye-bye.