Thank you for standing by, and welcome to Fubon Financial's first quarter 2024 financial results. At this time, all participants will be in listen-only mode. Questions will be taken at the end of the presentation. This call is being recorded. If you have any objections, you may disconnect at this time. Now, I will hand the call over to your host, Ms. Amanda Wang, IR Officer of Fubon Financial Holdings. You may begin.
Welcome, everyone, and thank you for joining Fubon Financial's Q1 results call today. This will be a two-section presentation today, including Fubon Financial's first quarter performance, and followed by the Embedded Value of Fubon Life 2023. Then we'll have the Q&A session hosted by President Mr. Harn and the senior management team. First, please turn to page 4 of the presentation. In the announcement a few days ago that the cash dividend for 2023 is announced. That including the cash dividend of TWD 2.5 and stock dividend at TWD 0.5. And that represents about 62.5% for the payout.
In Q1, the net profit will reach another record high level again, and that's more than doubled compared to the same period, Q1 last year, and reach over TWD 30 billion. In terms of total assets and the book value, we also record a meaningful growth, while the book value increased by over 35%. Fubon Life, the return continued to be strong. The total investment return reached 4.62%. And on the underwriting side, the first-year premium that ranked one in the Taiwan industry, while the capital position equity to asset ratio at about 10.9%. In Taipei Fubon Bank, the net profit of over TWD 8 billion that reach another record high for the same period.
The revenue growth from NII, driven by both the margin and the volume, while the fee income growth is quite strong at over 50% year-over-year. The digital platform that we also reach a meaningful growth of the customer base at 4.7 million, and the growth of nearly 30%. In Fubon Insurance, the net profit turned positive at 1.35%, while the market share that will remain at a solid number one. In Fubon Securities, that we are beneficiary from the strong market and also the strong daily turnover. We have a meaningful growth of over 40%, and net profit reach TWD 2.3 billion. The scale increase after the merger with Jih Sun that further help the earning growth.
In the following page that reiterate the growth that we just highlight, including the net profit and EPS growth. In the first 4 months, again, record a strong growth that reach TWD 43 billion the first 4 months. And in page 6, in terms of profit contribution by subsidiary, the growth from the rising profit of Fubon Life at more than doubled of earnings. And Taipei Fubon Bank grows at 22%, and Securities at 43%, and Insurance earnings turned around. And in page 7, in assets and net profit, that we both record quite a decent growth and led to our book value per share reach TWD 61.51 per share. And in page 8, ROA and ROE on an annualized basis, they both show some meaningful growth.
In page 9, in the ESG front, Fubon continue to play a leading role in the sustainability to deliver a positive impact across business and also products offered. Next section, please move on to page 11 in Fubon Life. The premium performance turned to a positive trend compared to a declining one during the past 3 years, including in FYP, total premium and renewal premium. In FYP, the growth of 18%, largely driven by the participating policies of traditional life, while the renewal premium also grow on back of the continuous push for regular pay product. And that also led to the total premiums growth. We can see all three indicators outperform the market's performance.
The breakdown of FYP in page 12, we can see the product mix, transition toward regular pay and protection type of product. So, the regular pay now accounts for over 51%, and health, accident, and others accounts for another 9.4%. And in the meantime, the foreign currency policy also grow. As you can see, the contribution now reach 43.4% of the total FYP. The mainly from the sales of the US dollar participating policy. And in page 13, in FYPE's growth of over 35%, that again represents the regular pay product strategy. While the VNB's increase is more moderate at only 0.1%, it's mainly because of the Fubon Life adjusts its product strategy.
In page 14, by channels, the bancassurance contributes 46% of the FYP, that is the top in the industry. In the meantime, the tied agent also contributes to another 43%. While in the FYPE contribution, we can see the growth deliver across all channels, and the bancassurance and tied agent channel both grew at over 30%. In page 15, the investment portfolio is largely stable. All the cash position that remains at around 3.7%. The increase in the equity position, mainly in domestic and foreign equity, that reflects the valuation increase and also the deployments. While in the fixed income side, in page 16, we can see is largely stable, with the focus in the investment grade, corporate bond, and financial bonds.
On page 17, in terms of the investment income, recurring investment income remain the key focus, which grow 8.6% over year, as we are under a higher interest rate environment and also the appreciation of dollar. While the total investment return, both before and after hedge and FX, that shows the year-over-year increase that reflect the strong growth in the realized gains of the equity investment. Page 18, in terms of the FX and hedging costs, the FX part is again in Q1 and 96 basis points, mainly on back of a strong dollar. While the recurring hedge costs, they remain flat at 198 basis points, largely because of the rate differential, pretty much at a similar range.
While the recurring return before hedge increased by about 23 basis points to 3.31%, but the recurring return, as we just mentioned, the hedge costs remain high, so it decreased down to around 2%. And in page 19, the spread remain a positive 1 between cost of liability and total investment return, and the spread widen to 1.47 cents in Q1 this year. And while the break-even point versus the recurring return is a negative 1, as we mentioned, mainly due to the recurring hedging cost was high. But also, if we look at the dividend income that were gradually booked in Q2 and Q3, that should help to mitigate the gap between the two ratios.
In page 20, investment performance from the unrealized balance that we can see, quite a meaningful turnaround. We deliver a positive unrealized gains at over TWD 40 billion, by end of March, and actually also as of end of April, as we see the financial market, gradually recover. And also the, equity to assets or the total shareholder equity also increased as a result. Next section, let's move on to, Taipei Fubon Bank. In page 22, the revenue of the bank, increased, 16%, driven by, both the NII and fees. The NII growth, mainly, comes from the volume and also the margin. Margin increased by six basis points year-over-year.
While the fee income shows a very robust growth result at over 50% from wealth management and also the credit card business. While on the other hand, the treasury-related income is a decline that mainly reflect the volatility from the fixed income market and also the swap revenue decrease. And page 23 from the loan growth across the corporate and retail, both deliver quite decent growth at double digit. That led to the total outstanding up by 12.8%, compared to the market at only 6%-7%, that Fubon outperformed actually both in corporate and also retail.
In page 24, the corporate loan growth from NT and foreign currency, both quite balanced at over 10% type of 14% growth in NT and 16% growth in other foreign currencies. That compared to, again, the market's growth that we outperformed, while the SME also continued to grow at over 11%. In mortgage, in page 25, we reached the level of over TWD 1 trillion outstanding, and the growth rate remains strong at over 10%, while other personal unsecured loan that increased specifically from personal unsecured, the growth is 24-25%, and also consumer credit card revolving also at a strong level.
On page 26, on the liability side, on the total deposit growth at 8.6%, while the time deposits remain always the growth in deposit that reflect the interest rate environment. Well, on your lower right-hand side, the foreign currencies utilization continue to improve. And in page 27, the margin from year-over-year basis, the margin expand by six basis points, while the spread narrow largely because of the higher funding costs from the deposit structures change into more in time deposit. On a quarter-over-quarter basis, the NIM and spread narrow mainly reflect the decline in the lendings benchmark rate in Q1 versus Q4 last year.
Also, the growth in the non-US dollars, the foreign currencies loan are, are comparatively stronger, than dollars loan, and that led to a decrease in the lending rate. In the following page, the asset quality, overall speaking, is stable. While you may see, in the, lower right-hand side, the provisioning costs increased, due to a stronger loan growth, and therefore, general provisions , is higher. The following page in credit card, the active cards shows, meaningful growth, and we reach, 5.6 million now, with the card spending, up by over 50%. That lead to the credit card's contribution to the fee, in the following page, actually, continue to grow. On the per card spending basis, you may see, slightly down.
That mainly reflects the insurance contribution, and also because of the insurance product strategy move toward the regular pay policy. And the rest of the consumption, actually, the level remains decent and stable. While the NPL ratio is slightly edged up, is largely due to the government's bailout measures is expired. While the level, NPL ratio level, compared to the industry average, that Fubon continues to outperform. And in page 30, the fee growth was over 50% year-over-year, largely driven by the wealth management fee and also the cards business. While wealth management, you can see across all business lines, the fee income all increases, that reflects the strong investment market.
And lastly, in page 31, in Taipei Fubon Bank, the overseas branch also delivered decent growth from its revenue and also the contribution of the total bank's net profit that reach around 20%. And in page 33 in Fubon Insurance, the written premium grows at 6%, and we record a market share at top one at 24.7% market share. While the underwriting results continue to improve as we see the COVID policies impact is pretty much behind us, and also we adjust the product combination selection strategy, and therefore, the combined ratio improve and down to 84% in Q1 this year.
In page 35, Fubon Securities profit also record quite strong growth at 43% YOY. That reflect the daily turnover strength at nearly TWD 500 billion daily basis in Q1, and also the brokerage and also the investment income's a strong result. And we also complete the merger with Jih Sun quite successfully last year, that expand our scale, that we hope that can further help to expand our brokerage and also wealth management business outlook. In page 37, in Fubon Bank China, the balance sheet item in loans growth that mainly reflect a lower base as we start to have the addition of the mortgage asset starting from second quarter in 2023. Yeah, and that also lead to the growth in deposit.
Margins trend is a downward one, down by 13 basis points, largely driven by the interest rate environment in China. While if we include the swap revenue, actually the NIM will be slightly up by 2 basis points. And in terms of asset quality, the NPL ratio at around 1%, and we continue to aim for a stable level going forward. Okay, and next section, we will like to introduce Grace Shi. She's the Senior Vice President and the Appointed Actuary of Fubon Life, and she'll walk you through Fubon Life's embedded value of 2023. Thank you.
Thank you, Amanda. Page 39 shows the value creation summary for Fubon Life. Net worth increases by two hundred and twenty-one billion, due to the solid earnings and asset valuation. With VNB continuing to grow, VIF growth, the embedded value is nine hundred and thirty-one billion, posting a 16.6% growth. 2023 VNB is twenty billion, increased by 20.3%. Though FYP is decreased by 11% due to overall market downtrend, Fubon posted FYPE at 42% growth and improved VNB margin by focusing on regular pay and high margin protection products. The EV per share and appraisal value per share for Fubon Financial Holding Company are 71.5 and 86.8 dollars respectively. Page 40 shows the movement for adjusted net worth.
This page shows the net worth movement between 2022 and 2023, and how it is adjusted for the embedded value calculation. In 2023, the statutory net worth is TWD 492 billion, or 81.6% increase from previous year, mainly due to financial asset appreciation and also TWD 36.1 billion earning is recorded. The adjusted net worth is calculated similar to previous years with following adjustments. Firstly, special reserve is added back as it could be treated as available capital from regulators' perspective in RBC calculation. Secondly, the unrealized capital gain and loss of fixed income asset is adjusted to align with the book year return assumptions used for Value In Force calculation. Lastly, at the own use, real estate, its mark-to-market value appreciation is not recognized in current accounting book.
Page 41, the movement analysis for Value In Force before cost of capital. The expected earning and required return explain how Value In Force roll over 1 year. 21.1 billion earning is transferred to the net worth, and the unwinding of 9% discounting rate contributed 50.2 billion. As last February, actual experience is observed, the negative impact is both reflected in non-economic assumption and data change, totaling 35 billion. This is mainly due to the higher surrender and claim costs, similar to overall industry situation. The investment return assumptions are updated, and it will be elaborated more in economic assumption section. The impact in this year is around negative 0.7% from slightly lower return. The Value of New Business before cost of capital contributed additional 23.1 billion.
The 2023 Value In Force, because, before cost of capital, reached TWD 582.3 billion, grew 2.0% compared to last year. Page 42, the movement analysis for VNB. On the same basis, VNB increased by 24%, with the negative impact for sales volume reduction and positive impact from improved product mix. The economic assumption change impact is negative 0.7 billion to reflect lower interest rate for interest-sensitive life products due to market competition. There is also a minor positive impact from non-economic assumption. Page 43, we summarize the economic assumption here for your easy reference. Page 44 and page 45 shows the investment return assumption for in-force block and new business policies. The overall return assumption is not materially changed compared to previous year, and the ultimate assumption remains at the same level as long-term view is not changed.
The minor changes are made to NTD return with adjustment for short-term higher hedge costs, but the yield is picked up quickly with higher return in the future. Page 46, the discount rate assumption. The methodology is the same as previous practice. The parameters are showing the table here, which result in the equivalent RDR is less than 9%. It is decided to use the discount rate of 9%, same as last year, for value calculation. Page 47, cost of capital. We follow the latest RBC regulation and determine the cost of capital at 200% RBC level. Page 48 and 49 shows the sensitivity result. This provides a sense on how these two major assumptions drive changes to different value metrics. I will hand over to-
Okay, thank you, operator. We are now open for Q&A.
We are now in Q&A section. If you would like to ask a question, please press star one on your telephone keypad and you will enter a queue. After you are announced, please ask your question. If you would like to cancel your question, please press star two. The first question is from Stephen Leung, Bloomberg.
Hi, thank you. Can you hear me?
Yep.
Hi, thank you. Yes, it's Stephen Leung from Bloomberg Intelligence. Congratulations on the good set of results. Just a couple of follow-up questions from the Chinese call. Some of these could be just number verification, but if I may, I'll start with the life insurance side. So it seems like the guidance or the expectation is that there will be double digits FYP and VNB growth. Are we talking about in the range of, say, in the teens, or it could be possibly a little higher? And I was just curious, is that mostly driven by the volume growth, for example, FYPE growth, while your margin stabilize from second quarter and onwards, after the decline in the first quarter because of the base effect on participating policies?
And, in relation to the participating policies, could you just quickly remind us, is this, why-- what is the main reason why it's lower than the interest-sensitive policies, in that regard? And then last question on the life insurance is about, can you remind us what's driving the higher surrender rates? Is it because people are switching to higher return policies? And, you know, after factoring in all these surrender, issues, would that have, would that cause some sort of adjustment on your EV or Value In Force? So that's life insurance side. On the bank side, just a quick one. I think it's very clear that the bank income is very good. I just want to understand a little bit more about net interest income outlook specifically.
Can we assume that, the increase, say, double digits or whatnot, are mostly coming from loans while your NIM expectation, it's probably flat, for the rest of the year, as far as this 2023? And then a couple of questions on investment very quickly. I just want to verify, I think, I think it's very positive that the total investment income, for example, dividends plus interest, will go up. And then the mix, is that mostly coming from higher interest income, while dividend income will, will decline a little bit? Is that, is that a fair assumption? So the interpretation on your recurring yield and total yield is that basically on an after-hedge basis, your recurring yield might go down slightly, but total yield is expected to rise, for the full year.
I guess, just very quickly, on your... Just curious, do you have any exposure, I mean, you, you have, you flagged the German office property impairment, but I'm curious, do you have U.S. commercial real estate loans that you can give us some color on or, CLOs, in that regard? Any color that you can provide, that'll be wonderful. Thank you.
Okay. I think I'll come back on the last one. We don't have any commercial real estate exposure in the U.S.
Okay.
Okay. On the NIM? Okay, for the bank.
Okay. Your question on the net interest income for the bank. I think for this year, it will mainly come from our loan growth. Either it's from the corporate side or retail side, then we will see the teams growth of on both sectors. And on the NIM increase, we are expecting a mid-single digit increase compared to last last year, 2023. I think this will be the main two parts that drive the NII increase of this year.
To be sure, it would come from both on the volume as well as the spread growth. We expect mid-teens growth in the spread, on the spread, and double-digit or low teens growth on the loan side.
Got it. Thank you.
Yeah.
Okay.
FY 2023.
Okay. For life insurance, we expect a high-teen growth for FYP and a low-teen growth for VNB. The growth mainly come from the FYP growth, meaning the regular premium the volume growth. Why participating has a lower VNB margin? The main reason is the way we recognize profit on current accounting standard, it is deferred than the interest sensitive product. And when we calculate VNB, we're using 9% to discount the future profit. That's why the present value is lower than interest sensitive product. And the other reason is, under the current RBC rule, participating product needs to hold more capital than the interest sensitive product. But after the adoption of ICS, it will be reversed.
That's why we try to push more participating product in order to prepare for the ICS adoption in 2026.
... the high surrender rate mainly caused by the high interest rate, short-term interest rate, especially the bank deposit. Because right now, the bank deposit offer higher short-term rate than insurance credit rate. And the other reason is, the US dollar appreciate a lot, the first quarter. And for some policyholder, they bought US dollar policy. They try to realize the gain on currency. And we, we expect it will be stabilized in the second half of the year.
The higher surrender experience has already reflected in the Value In Force calculation accordingly.
Recurring yield. I see. Thank you.
Okay. For the current recurring yield, we believe that recurring yield will decrease due to currently high hedging costs. But as you just asked about the total return, I think it will depends on realized capital gain, also as the unrealized gain. And just as I just mentioned earlier, we still believe that Taiwan's equity market remain. We keep the optimistic performance in the long run. That means that they still have upside on the stock market, so that we think in terms of total returns, that has opportunity to goes up.
That's perfect. Thank you so much.
Thank you. We are now in Q&A section. If you would like to ask a question, please press star one on your telephone keypad. The next question is from Jimmy Huang, J.P. Morgan.
Thanks for the presentation. I have three questions. First one is a follow-up on, I think the, you mentioned about the VNB margin lower for participating policies that you pointed out that cost of capital calculation is higher under the current RBC, but would be reversed on the ICS. Could you explain a little bit details why this would be the case? And the second question is on, I think the recurring yield, if we're just looking at before hedge, is it possible that we can see some year-on-year improvement? And on the full year basis, what's the likely range? I think maybe the first quarter, we see over 20 basis point year-on-year increase could be a little bit high.
But just trying to understand what's the likely range for the full year. And the third question is for net interest margin at Fubon Bank, China. We can see the net interest margin showing some sequential recovery. So should we assume that if there is further RR R or LPR cuts in China that would be a tailwind for the net interest margin for Fubon Bank, China? Thanks.
I think on the net interest margin for the Fubon Bank (China), under the current environments, we do not expect the net interest margin will expand. On the contrary, we believe that it's still under pressures under pressures to further narrow, but we will try to adjust our portfolio. As you probably know, we are expanding more our allocate more our resources toward the retail loan, and therefore, we might be balancing the entire portfolio and sustain our interest rate margin. And at the same time, we'll also expand modestly on our scale and try to maintain our revenue earning capability under a you know, the rate declining environment. Okay.
So even including swap revenues, the adjusted NIM could probably see very limited upside, more pressure than upside?
Well, it's difficult. I mean, Jimmy, you know that better than I do. If you know, the interest rate gap widens between the RMB and the US dollar, obviously, there are much more opportunity to expand our swap revenue. But it's difficult to actually to-
... forecast, you know, how much that we will gain more from the, swap transactions. It's all depend on the markets.
I see. Thank you.
Yeah.
Okay, and I will come to the, cost of capital calculations under RBC basis and under ICS basis, what's the difference between these two? Firstly, for the RBC calculation, it's mainly based on, look at the asset and liability side risk. So when we have the par policy product, the risk and profit has been shared with the policyholders. But under current RBC regime, this is not recognized in the calculation. But toward ICS, regime, because the sharing risk with the policyholders, the ICS could recognize this so-called loss-absorbing capacity. So when we can account for this kind of loss-absorbing capacity, we think the capital charge under, par policies could be fairly recognized in the future. Hope this, explain the detail that is... Is that fine with you?
So if we look at CSM margin between participating policies and interest-sensitive policies, would that be quite similar if there is no major difference in terms of the ACO location?
For CSM, because it's mainly look at the margin that can be taken by the shareholders. So actually the CSM margin for par policies is also lower than the interest-sensitive policies. But when we look at the CSM versus the required capital or the cost of capital, broadly , then we think the par policies is a par product is still a good product type that we can suit. That can be suited, suitable for future IFRS 17 and ICS, both. Not just look at the IFRS 17 alone, but also consider the ICS requirement in the future. So if the CSM-
Got it, got it.
Yeah. Okay.
Yeah, got it. Thank you.
Thank you.
All right.
Okay. About the recurring yield increase compared to last year in the first quarter, it's benefit by the New Taiwan dollar's depreciation, as well as we also increased some ETF position. But for the outlook of this whole year, we expect that in investment interest income will increase because we will keep invest in New Taiwan dollar-denominated bond ETF. But about the dividend payout ratio decrease, and also we focus turn to growth stocks, then we expect that dividend income will be lower than last year. So overall, the recurring yield before hedge, we think it will be lower than last year. That's all.
Okay. Yeah. Thank you.
Thank you. Next question is from Stephen Leung, Bloomberg Intelligence.
Hi, thank you. Just a couple of follow-up. I know we talked a lot about participating policies, but, if I may. So can we assume that this is probably not right now, but after the adoption, will we get sort of a revision upward in terms of the NBV? Is that sort of something that can be expected, because of the dynamics that you outlined earlier? And then just for, like, data disclosure purposes, is it possible to start sort of telling us, you know, how much of par policies you've sold, in the FYP or FYPE disclosure? I would assume that those are sort of embedded within your traditional, quote, unquote, "regular pay," bucket. I think in the Chinese call, I heard something about 55%. That was a rough figure.
I don't know if I heard it correctly, so I would like to verify that for first quarter 2024. Then, last question on coming back to investment. I think there was some discussion about how much of your FX assets are backed by foreign, I guess, forex policies, foreign denominated policies. I think I heard 32%, but I wasn't exactly sure. I know there's a pie chart there, but the number wasn't really on there. And on the pie chart, specifically, is my way to interpret that when you say your equity and funds were 15.9%, those are actually... See, we can just assume those are not hedged. So whatever is hedged, it's only within the bonds and cash or deposits? Yeah, that would be all. Thank you.
... Correct. Our foreign policy exposure is about 32%. Correct. And also you mentioned about the equities. Yes, yeah, we did not hedge on that.
So the 32% is within that 75.7?
Correct.
Oh, okay. So, okay. Gotcha. Gotcha. So those are foreign denominated.
Yeah.
Okay, thank you.
Okay, for first quarter, about 55% of our total sales are participating product, and out of which, over 60% are regular pay product.
Okay. So there could be some par products or a single pay, that's what you're saying?
Yeah, yeah, yeah.
Okay. Gotcha. Gotcha. Okay, that's helpful. Yeah, thank you.
Okay. Any more questions? Okay, if not, for the moment, we will call the meeting off for now. If you have any further questions after the call, you are most welcome to contact our IR department, and we will provide as much information as we could, on a timely basis, of course. Yeah. Thank you for your participation for the day. Thank you.