Thank you for standing by, welcome to Fubon Financial's Q1 2023 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'll hand the call over to your host, Miss Amanda Wang, the IR Officer of Fubon Financial Holdings. Miss Wang, please begin.
Thank you everyone. Welcome to join Fubon's Q1 Result Briefing. Please turn to page 4. Okay. In April, the company announced the cash dividend of TWD 0.015 and stock dividend of TWD 0.005, which represent the total payout ratio of over 56%. In holding company's net profit in Q1, it is TWD 14 billion and EPS of TWD 1.13. Both are actually is the top among financial holdings. The total assets of over TWD 10 trillion that shows a continuous growth. While the book value per share at TWD 49.80. In Fubon Life, the net profit reaches over TWD 7.25 billion, and the net profit is ranked top among life insurers in Taiwan.
In terms of underwriting performance, we ranked top two, in terms of FYTDP and FYTE. For in the investment side, the return of 3.32%, mainly supported by the recurring, income. While the capital's perspective remain solid, with equity to asset ratio at about 8.3% and RBC nearly at 300%. In page 5, in Taipei Fubon Bank, the net profit reach TWD 6.91 billion. That if we exclude one-time foreign purchase gain that booked last year, then the earning actually would up by 60% YoY. Out of the earning drivers, we see the fee income growth is a bright spot for this quarter.
The YoY growth of over 17%, mainly on back of the wealth management's growth and also credit card business. We see a new card issuance this quarter has been quite strong at over 0.8 million growth... million of new card issuance. Out of which, over 80% are from the Costco co-branded card. We complete the merger with Jih Sun Bank on April 1. That will push our numbers of branches the top among private banks. In Fubon Insurance, the net loss in Q1 is TWD 4.25 billion. While if we exclude the impact from the COVID-related policies, the net profit will be about TWD 0.97 billion. In April, we see the net profit turn positive to eight...
TWD 380 million in April. In terms of the premium, it grow by over 10% in Q1, while the market share that we remain as the market leader. On the investment front, we remain a stable performance at 5.89%. While the capital position that we complete the capital injection of TWD 16 billion, say, and the RBC ratio fit the legal requirements. In Fubon Securities, the net profit is TWD 1.53 billion in Q1, which is doubled year-over-year, mainly from the investment gains due to the Taiwan stock market trend up. Here, we also complete the merger of Jih Sun Securities, which would help to support the growth in market position.
In page six, in the ESG perspective, it is our honor that we are top 5% ranked in the ESG score from the S&P's yearbook on ESG. In terms of the results that deliver in our business lines that you can see across Life, Bank, Insurance and Securities, we each deliver these concrete actions in support of the low carbon strategy. In page seven, the net profit of TWD 14 billion and EPS of 1.13 in this page that which is for your reference. In the following page, we can see the decline of nearly 70% YoY, largely from one is the Fubon Life, that's mainly due to a more volatile capital market and therefore lower capital gain.
Secondly, from the Fubon Insurance because of the COVID-related policies claim. While we see the performance in the bank, Taipei Fubon Bank and Fubon Securities actually is quite robust. While we also see the first four months of profit performance for the holding company that has reached at over TWD 21.8 billion. The YoY decline now is about 64%. In page nine, in terms of the assets, we see a continuous growth while the book value is mainly up and down due to the market volatility. From last year-end till the Q1, we see the asset value upwards trend and also asset reclassification.
That push up our net worth and also the book value per share, as we can see, by last year-end, it's TWD 37.9, and by this quarter end, up to TWD 49.8 per common share. In page 10, ROA and ROE is a data point for your reference. Next, in page 12, for Fubon Life, the premiums, the decline of over 23%, come from, one is the renewal premium, which is due to the paid up of, some regular pay policies and also the FYP, decline. Compared to the industry's level, Fubon's performance is still relatively better.
In page 13, if we further break down the FYP, the company's strategies is quite delivered in our focus of the regular pay product, which we can see the traditional lives contribution increase to 39% of the total FYP and the health accident and others now reach over 8% of total FYP. While the decline in investment-linked policy mainly because of the volatile capital market, and that led to FYP's decline. Going to the following page, we can see FYPE actually increased by over 20% on back of this regular pay policies increase. That's strong outperform compared to the industry's performance of a decline.
As a result, we can also see Fubon Life's VNB growth of nearly 30% YoY, and also VNB margin reach over 25%. In page 15, in terms of the distribution channels, our internal channels are our focus, which contribute over 70%, including tied agents, Taipei Fubon Bank, and also other cross-sell channels. In the banks, bank assurance still is a strength of Fubon Life, which we are top ranked in the industry. We can see the bank assurance through external banks' contribution in FYP also increased up to 22.6%. In page 16, from investment perspective, the portfolio-wise, we see the cash position still relatively at a higher level of over 4%, that will help us to see some market opportunities going forward.
While the increase, you can see is mainly in the domestic equity position, that reflect one is the rebound of the stock market and secondly is the increase in our equity allocation. Following the fixed income side in page 17, the mix is pretty much stable. In page 18, from the investment income perspective, a recurring return shows a more meaningful improvement of a 13.2% YoY. That reflect a higher interest income. While the total investment income trend down mainly because of the capital market volatility and also a higher base in Q1 last year in capital gains. While the FX-related cost is also high this quarter. In the following page, we further elaborate more on the hedging perspective.
Firstly, on recurring hedging costs, including currency swap and NDF, this part is still at a high level, due to the interest rate spread still wide. Therefore, the recurring hedging cost is at 141 basis points this quarter. While the FX gain and loss on this portion shows quite meaningful improvement, mainly because of the exchange rate was more of a range-bound level, and it came down to 47 bits this quarter. Therefore, the recurring return before hedge actually increased up to 3.08% on back of a higher market rate, while the after hedge basis declined down to 2.17%.
In page 20, the overall investment return came down as we just mentioned, the capital gains reduction. While the spreads, if we compare cost of liability versus the total investment return, we continue to keep at a positive zone of 20 bits. While the break-even point also shows improvement by about 14 basis points year-over-year, mainly on back of the product mix adjustment as we see the investment-linked policy reduced, and therefore the first year strength is lower. While the recurring return after hedge decreased because of a higher hedge cost. In page 21, the unrealized balance, we see a meaningful improvement quarter-over-quarter, largely because of the market recovery in both equity and also fixed income. We also have the financial asset reclassification that's starting from this year.
Okay, the net worth, if we use last year end, of TWD 270 billion, as a base, actually it grew up by about 50% YoY, in spite of there is... Sorry, YTD. In spite of we can see the YoY still book value decline. The equity to asset ratio was 8.3%. Again, if we compare to the year end last year, which is about 5.7%, which also shows improvement, and also the RBC of around 300% by the quarter end. In page 23, in Bank's revenue mix. Firstly the NII growth of 2.7% YoY, mainly on back of the deposit and loan structure improvement.
The fee growth of over 17%, largely from wealth management. From the treasury income, the growth mainly come from a valuation increase in financial assets and FX gains. While other income decreased, largely because of the high base effect last year. The total revenue was up by 10 and half % YoY or 39% if we exclude that one-time gain last year. In page 24, in terms of the loan mix, banks grew by 4.4%, from a total book perspective, while the retail loan grow at 5.7%, faster than a corporate loan of 3%.
In page 25, if we further break down the corporate loans, component, the key growth driver comes from the foreign currency loan of over 7%, while the NTD loan is more flattish at 0.9% YoY. SME, also grow, by over 7%. In page 26, the mortgage growth of 7% that outperform the market average and the personal unsecured loan, was down, largely reflect the adjustment, in the customer, segment and also the repayment from the top-tier, customers as the market interest rate, is higher.
In page 27, in terms of the deposit and LDR, the bank's total deposit is 6.1% growth YoY, mainly from the NT dollar growth, which is 8.7% growth and to a lesser degree from the foreign currency of 1.6%. We focus on the growth of the retail deposit, while the CASA ratio, both NTD and USD, came down. That reflects the customers' preference for time deposit under this higher rate environment. While the LDR, in the foreign currency here we see some improvement. In the meantime is that we also improve in our swap revenue.
In page 26, the NIM and the spread both shows improvement quarter-over-quarter, up by 2 bips in NIM and 4 bips in spread, on back of the foreign currency's loan growth. While the spread on a YoY perspective it came down, largely reflect the funding cost was higher, especially from the USD. Okay. However, if we include the swap revenue, which will see on the full picture of the NIM's performance, that is 1.29% in this quarter. That is up by 25 bips, if we compare to the same quarter last year. In asset quality, overall speaking is a stable one.
While in page 30, we can see the improvement in corporate loans NPL, largely due to the write-off, in Q1. In page 31, in credit card business, in terms of active card size and also the card spending, we show growth of, in the range of about 20% or plus, and continue to gain market share. While the per card spending, especially from the general consumption, shows improvement, and the asset quality here also shows a stable trend. In page 32, in terms of fee income, it grew by, over 17%, while the wealth management, deliver over 18% growth. Many come from insurance, structure product and also fixed income bond. Our overall, AUM, also grow by about 8%.
In page 33, the overseas branches performance continue to be robust. We see the revenue growth and also net profit growth, both doubled year-over-year. In Fubon Insurance, the premium growth continues, while the COVID-related policy that we set aside, over TWD 2.3 billion of reserve. We, we expect that should be sufficient to cover the following related claims. For underwriting profit, actually grew by also double or more than doubled. That mainly come from the growth in the commercial lines, including the fire and engineering. The net combined ratio, if we exclude the COVID-related policy, shows a further improvement to down to 87.7% in Q1.
In page 37, in Fubon Securities, the net profit also shows very strong growth. While on a pro forma basis, if we combine Jih Sun's result, it actually up by 26%. If we exclude the one-time HR-related expenses, that will grow by 63%. Page 39. In Fubon Bank (China) we take a reduction strategy in balance sheet, and also adjust the lending strategy, mainly on back of current economic development. All the margin came down, that reflect the assets adjustments, reduction in the online loans and also the increase from the US dollar deposit costs. Here we also take advantage of the swap revenues contribution.
If we include this factor, the NIM will be 1.49%, which is flat YoY. The NPL ratio shows a slight upward tick, but overall speaking, we aim for a stable asset quality. Next, we'll have Grace Chiu from Fubon Life to brief regarding the embedded value. Thank you.
Thank you, Amanda. I will report the 2022 embedded value results. Same as past practice, the results have been reviewed by Deloitte Consulting on a full-scope basis. Please turn to page 41. Value creation summary for Fubon Life. For in-force value creation, the embedded value shows a negative growth on a year-on-year basis. It is much explained by the lower adjusted net worth due to the market turmoil at 2022 year end. The 2022 value of in-force after cost of capital stands at TWD 383.1 billion, around 1% higher than 2021. The result remains a steady growth as the value of new business continues to contribute value creation. New sales value creation. There is still headwind from the combined effect of COVID-19 pandemic and market fluctuation for the insurance industry in year 2022.
The first-year premium is decreased by 16% year-over-year for Fubon, while it was a 26% decrease for the overall industry compared to previous year. With the drive to sell more traditional regular pay products, both VNB margin and FYPE divided by FYP ratio improves. The 2022 VNB is TWD 16.6 billion with VNB margin of 15.6%. Fubon Life continues the momentum in 2023 and delivers the Q1 VNB year-over-year growth near 30%, and the VNB margin reached a record high at 25.5% as COVID-19 fades away. The embedded value per share and appraisal value per share of Fubon Financial Holdings are TWD 64.4 and TWD 77.8 respectively. Page 42. Movement analysis for adjusted net worth.
This page shows the net worth movement between 2021 and 2022 and how it is adjusted for embedded value calculation. The 2022 statutory net worth is TWD 270.9 billion, or a 54.8% decrease from the previous year. Mainly reflects a positive impact of TWD 65.5 billion earning contribution, a minus TWD 381.3 billion financial assets depreciation, and a negative TWD 12.5 billion for dividend remitted to Fubon Financial Holdings, and some reporting currency impact of NTD depreciation. The adjustment made to calculate adjusted net worth are similar to previous years. Firstly, add the special reserve that could be treated as available capital from the regulator's perspective.
Secondly, remove the unrealized capital loss, URCL of fixed income assets from the accounting book to align with the book year return assumptions used for this calculation. Lastly, add the unused real estate appreciation, which was not recognized in accounting book. Page 43. Movement analysis for value in force before cost of capital. The expected earning and required return explains how this grow over one year. TWD 35.1 billion earning is transferred to the net worth and the unwinding of 9% discount rate contributes TWD 49.5 billion. The data change is a negative impact due to policyholder behavior acts adversely to original expectation. This year impact is mainly from higher surrender, also widely observed in the industry. The economic assumption impact of TWD 24.5 billion consists of two parts.
The investment return assumptions are updated to reflect the rising interest rates, which accounts for a 2.3% impact. Another part is the US dollar appreciation contributes, for, from the US dollar policies converted to reporting currency, NT dollar. Negative impact of NTD 35.2 billion from non-economic assumption is due to the assumption changes made to reflect less favorable actual experience on lapses and morbidity. Higher morbidity resulted from customers back to hospital for medical treatments after COVID-19. Higher lapses observed during the economic downturn and Fed rates increased in 2022. The Value of New Business before cost of capital contribute additional NTD 18.6 billion. The 2022 VIF before COC reached NTD 571.0 billion, grew 1% compared to last year. Page 44. Movement analysis for Value of New Business.
On the same basis, VNB reduced by 13.8% with the negative impact for sales volume reduction and positive impact from improved product mix. The economic assumption change impact is TWD 1.4 billion, reflect a higher new money rate and a minor negative impact on non-economic assumption. Page 45. The economic assumptions are summarized here for your easy reference. Page 46. VIF return, portfolio return. This page shows the portfolio return applied in the value of in-force. The ultimate assumption remains at the same level as long-term view is not changed. Rising interest rate environment has 2 implication on return, higher new money rate and higher hedge cost. The higher new money rate would lift the overall return in early years. For NT dollar policies, the initial return is lower due to the higher hedge cost. Page 47. VNB portfolio return.
Overall speaking, the VNB return is slightly higher for both NT dollar and US dollar policies with rising interest rates environment. For NTD policies, the set up return trend with the impact from hedge costs is similar to the return for value in force. Page 48. Discount rate. The methodology is the same as previous practice. The parameters shown here resulted the equivalent RDR is less than 9%. It is decided to use the discount rate of 9% same as last year for better calculation. Page 49. Cost of capital. We follow the latest RBC regulation and determine the cost of capital at 200% RBC level. Page 50 and 51. The sensitivity summary for portfolio return and RDR are shown here to for the assumption drive changes to different value metrics.
Now, I pass the call over to Fiona from Deloitte Consulting. Thank you.
Thank you, Grace. Good afternoon, everyone. We are honored to have been engaged by Fubon Life again for the review of this year's value, VNB. Similar to previous years, the scope of the VIF review includes a reasonable review for the assumptions applied by Fubon Life in this valuation, as well as the overall EV and VNB results. A high-level review of the actual model and the policy data used by Fubon Life in this valuation. A review of the calculation methodology for the cost of capital, adjusted net worth and the value of in-force movement analysis. With respect to the risk discount rate assumption applied by Fubon Life, the assumption revision methodology has been kept consistent using the CAPM approach.
Similar to the previous years, Fubon Life have derived 4 data points, including a risk discount rate based on the current risk-free rate, long-term risk-free rate, as well as the in-force and new business equivalent RDR. These 4 RDRs lie between 7.61% and 9.53%. Based on these results, Fubon Life has maintained a consistent discount rate of 9% for both in-force and new business. With respect to the investment return assumption, Fubon Life has adopt a consistent duration methodology. The initial for both NTD and US dollar has been updated based on market information, while it's keeping the long-term level at the same as last year's. The investment return assumption for all asset classes has been appropriately updated to reflect the company's latest asset mix and investment strategy.
Based on our review, we found the overall investment return assumption lies within a reasonable range. Deloitte Consulting has also reviewed all non-economic assumptions applied by Fubon Life. All assumptions have been updated to reflect the company's latest experience and lie within a reasonable range. Through a review of the movement analysis for the value of in-force and VNB, we found the overall EV and VNB results for this year to lie within a reasonable range. This is Deloitte Consulting's briefing on our review of Fubon Life's EV results. Detailed findings can be found in the opinion letter issued by Deloitte Consulting. Thank you.
Okay. Okay. Amanda, good afternoon to everyone. Shall we start the Q&A session?
Yes, thank you, President Harn. Ladies and gentlemen, we're now in Q&A session. If you would like to ask a question, please press star one on your telephone keypad, and you will enter the queue. After you are announced, please ask your question. If you would like to cancel your question, please press star two. Thank you. Now, please press star one on your telephone keypad to ask a question. Thank you. Our first question is coming from Jamie Wong of JP Morgan. Go ahead, please.
Yeah, hi. Thanks for the presentation. I have three questions. First one is on hedging costs. You do show in the presentation that currency swap and NDF has risen to around 141 basis points in the Q1, and you guided it might go further up in the coming quarters. How high do you think it could be? Should we assume it might reach like 180 basis points or 200 basis points in Q2 or Q3? The second question is on RBC ratios. It drops below 300% in the Q1. Is that due to the higher interest rate risks under the RBC calculation or any other reasons?
If that's due to the interest rate risks, what's the impact in percentage point in the Q1? Final question is on the COVID reinsurance claims. I think you mentioned in the Chinese session that you have reinsurance contracts with four reinsurers. Could we check whether all the four reinsurers all have issues regarding the home care and also hospitalization issues or just hand over? When you mentioned less than 10% of the claims have issues, should we assume the maximum losses will therefore be the worst case scenario is roughly around TWD 25 billion reinsurance claims times, let's say high single digit or mid-single digit, of that will be the potential losses in the worst case scenario? Thanks.
Okay. I'll comment on the reinsurance part. Okay. I mean, as we said previously, we're still conducting the discussion and examination process with the four insurers. Some of them actually has completed their examination, so we have been repaid on the portions that we should receive. Others are still under, you know, opinion exchange periods. Our claim on the reinsurer is close to NTD 20 billion now. Okay? Less than 20, but close to. We are not, you know, each insurer has different topics with us to discuss. Okay? Not all of them are focusing on the same issues and questions. Okay? What we said is those issue may be under further, you know, discussions are below 10% of the claim.
We are not saying that cover all the issue we are in discussion. Okay? That's the estimate from our part. Okay? Honestly, I don't know what is the worst scenario.
It's not fair for me to comment something that I'm not aware of, okay? We think the portions that will be under, I would say, more or extensive discussion is below 10% of our claim. That is our best estimate. Okay? I don't know whether that answer your question, but I just want to be clear on this topic and to avoid any misunderstanding.
Yep, that's very clear. Thank you.
Okay. Hedging and RBC.
Okay. I will answer the RBC questions. The RBC, slightly less than 300% as at the end of Q1. This is due to the short-term market movement. The RBC is now well above 300% recently. After reflecting the interest rate raise, the new percentage, the new parameters has already been reflected.
What's the impact on RBC ratios in terms of the increase in the interest rate risk?
It's less than 10%.
Yeah. Thank you.
Hedging cost. How high?
It's really hard to say how high it will be right now. However, as we just mentioned in the early session, that higher currency costs should be, you know, persist. Whether it will be improvement will be subject to when will the Fed speak to or cut its say, rate policy. As you know that, for what country actually they just are all very quite short-term, and basically it will roll over on a monthly basis. That means that once Fed start to cut interest rates, then our hedge costs should be, you know, just decrease or maybe just reflect immediately. That's my answer.
Okay. Thank you.
Thank you.
We're now in Q&A session. If you would like to ask a question, please press star one on your telephone keypad. Thank you. Next question is from Alex Ye of UBS. Go ahead, please.
Hi, Benjamin. Just, can I ask a question on the NIM outlook? In the Chinese section, it is mentioned that the expectation is for the adjusted NIM to see some 10 to 15 basis point of ex-expansion. Can you confirm that on what basis is that referring to? Is it referring to a full year or 10 to 3 or just a quarterly basis? Also given that include the swap revenue and you also comment that the swap revenue for the full year would probably range from TWD 3 billion-TWD 4 billion, compared to TWD 1.7 billion in Q1. That sort of implied it run rate, quarterly run rate of swap revenue is going to decline in the coming quarters. How does these two comments add up?
For example, your adjusted NIM will continue to expand, but your swap revenue is going to soften. Just wondering what the driver for a further expansion to the adjusted NIM? Okay.
Yeah. The 10-15 basis points increase on the full-year adjusted NIM is on a full-year basis, not on a quarter-on-quarter basis. That you mentioned that the Q1 swap revenue is $1.7 billion. That will reflect the 6 basis points increase on the adjusted NIM on a quarter-on-quarter basis. If it compared to the Q1 last year, the swap revenue is really very small. On, when I said the full-year swap revenue forecast is $3 billion-$4 billion, that will translate to about 10-15, maybe on the higher side of 15 basis points. We make it more conservative, saying that 10-15 basis points.
Okay. Maybe I can add a little bit. It all comes down to how we use our US dollar deposit. Okay? If we can use our deposit further on our lending and investment, there will be less excessive US dollar that we can use for swap. That is a balancing point in between the interest rate revenue vis-a-vis the swap revenue. Okay? A lower yearly forecast doesn't mean that we were expecting an overall revenue decrease.
Instead, it would increase the NIM, okay, on the other side of the business. That mean maybe we have better usage of our US dollar deposit for lending and investment rather than for swap transactions.
Okay. Thank you. Can I just follow up a bit? Firstly, if we just look at on a quarterly basis, your Q1 adjusted NIM is 1.229%. Do you expect this to be sort of approaching the peak for this rate cycle? Second, the deposit cost is probably going to continue to go up in the coming quarters. How much longer sort of this making impact of the deposit cost do we expect it to last? How much lower the cover ratio do we expect that to turn down to? Thank you.
On the loan portfolio-wise, we will continue to build up the foreign currency loan asset. On that part we will increase the NIM automatically. On the financial market transaction, we are expecting the Taiwan versus US dollar interest rate gap will not be as high as the Q1, but it won't be narrowed down. We expect some more income on the swap transactions. All in all, they will translate to what I say about a 10-15 basis point increase on an adjusted NIM, both from the swap side and also on the commercial banking loan business. We don't expect the foreign currency cost, cover ratio would trend down further.
It will probably remain at this level for a while if the U.S. dollar interest rate does not hike further.
Okay. Thank you very much.
Thank you. If you would like to ask the question, please press star one on your telephone keypad. Thank you. We are now in Q&A session. If you would like to ask the question, please press star one on your keypad. Thank you.
Okay. If there's no further question received, I think we'll call this meeting off for the day. Last call.
Okay. Now, ladies and gentlemen, we're now in Q&A session. If you would like to ask the question, please press star one on your telephone keypad. Thank you.
Okay. Operator, I don't think we are receiving new question now. Shall we just call the day off?
Yes, of course. Thank you, President Harn.
Yeah. Okay. Thank you very much for all your participation again. Once again, if you have any further questions that you would like to ask, please feel free to contact our investor relations colleagues. Thank you. Good day.