Thank you for standing by, welcome to Fubon Financial's third quarter 2022 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 now 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, the IR Officer of Fubon Financial Holdings. Ms. Wang, please begin.
Welcome everyone. Thank you for joining Fubon's third quarter result call today. There will be two sessions in this call, including Fubon's performance review followed by the Q and A, hosted by President Mr. Harn and the senior management team. Firstly, please turn to page four of the presentation. Fubon Financial's reported net profit and EPS earned a top position among our holding company peers in the third quarter. We have the asset level achieved over TWD 10.7 trillion, with a net worth that over TWD 550 billion. In November, we complete the merger between Fubon and Jih Sun. Therefore, the number of customers that reach slightly over 13 million, that is over 58% of the total population in Taiwan. We expect that will further create the synergies going forward.
In Fubon Life, the net profit and net worth both ranked top one among life insurance peers for the first nine months, in spite of the macro headwinds. In terms of the premium performance, we ranked top two. The investment front, the return reached 5.55% in face of the volatile capital market, we see our performance in the FX management. While the equity to asset ratio remain at about 5%, RBC well above 300%. In Taipei Fubon Bank, the net profit, that reached TWD 18.7 billion. That is up by 29% and ranked top three among our bank peers. We see our Wealth Management AUM continue to grow nicely. That is about 11% up including a stronger growth momentum from our overseas Wealth Management business. That's growth of over 30%. On the ESG front, our green investment financing outperform the overall portfolio. That's about 27% growth.
The high carbon investment, on the other hand, that we see a decrease of about 20%. In Fubon Insurance, the net profit continued to be impacted by the COVID-related policy. If we exclude that impact, the net profit will be around TWD 4.35 billion. The cumulative total retention loss was about TWD 30 billion, we'll update you on the October progress later on. Other underlying business in Fubon Insurance remains solid, with the premium growth of about 6.7%, the investment return that reach over 6%. In Fubon Securities, it also is impacted by a more volatile capital market, the market turnover is down by 36%, while we expect the potential synergies going forward will further enhance our market position.
On the ESG front, Fubon has been advocate for quite a few global sustainability initiatives, including we joined the RE100 in September, which we will committed to have a fully apply for renewable energy consumption in our operation by year 2040. Also, our SBTi grant its approval toward Fubon's carbon reduction goals, and the goals of a coverage of about 50% of our investment and financing portfolio. Such level is among the top among financial institutions in Asia. In decarbonization, by subsidiaries, as we listed here, including in Taipei Fubon Bank, we collaborate with the Taipei City Government for the electrical bus financing project. In asset management, we launch a ESG thematic ETF. In life and securities, we also make progress, and we listed here for your reference.
Next page pretty much echo what we just talked about regarding the net profit and EPS, and with the longer-term data point for your reference. Page seven, the profit by subsidiaries. As we can see, the banking side, including the three subs, they together deliver a net profit growth about 28%. On the other hand, is that life insurance and securities net profit fell year-over-year. In page eight, the total assets continue to grow decently at 5.6%, while the net worth decreased, and the book value per share as a result, came to TWD 36.8. In page nine, the ROA and ROE movement, that pretty much echoes the earnings of fluctuation and also growth in assets, while the absolute level remain well-performed. Let's move on to the Fubon Life's operation. Starting from page seven. The composition of the total premium, firstly, is the first year premium.
It came down by 9%, which if we compare to the industry average of about 20% decline, Fubon is pretty much well sustained. The second part of the total premium is the renewal premium. It came down mainly due to the paid up of the regular pay policies. In page 12, the breakdown of the first year premium, as you can see here, the investment-linked and traditional life products both continue to grow, while the overall level came down, mainly due to the interest-sensitive annuity and also the impact from the pandemic and more volatile capital market. In page 13, the FYPE progress is largely flattish compared to the industry-wide, is about 2.4% decline. The VNB slightly also can come down at 10%, which is at a similar path as the FYPE. VNB margins pretty much remain at a stable level.
In page 14, in terms of the contribution by channels, the internal ones is our key contributors, and we can see over 80% of FYPE including Taipei Fubon Bank, Tied Agent, and also our internal cross-sell effort that contribute to this internal channels contribution. The FYP growth is about 20.9% year-over-year. That is outperforming compared to industry's Tied Agent, is a decline of 11.6%. Taipei Fubon Bank's progress in FYP which is about 8.6% down year-over-year, while industry-wide from the banker's channel actually is a further bigger degree of a decline of 28% down. In page 15, on the investment side, the portfolio allocation we can see here is the cash position increased and the portfolio adjustment mainly reflect in the domestic equity position that came down, mainly reflect the position adjustment and also the impact of the mark-to-market.
In page 16, in the overseas fixed income portfolio, we continue to focus on investment-grade corporate and financial bonds, while by geography, North America remain our key focus. In the meantime, we decrease exposure in emerging market. In page 17, the investment income contribution, we pretty much focus on the recurring income, and we can see a 17% growth year-over-year that reflect a higher interest rate market, appreciation of the dollar, and also higher cash dividend contribution. While the FX gain increased, that may be driven by our operation management under the dollar appreciation environment. That also led us to investment return of 5.55% in the last basis in the first nine months.
In page 18, on your upper left-hand side, the hedging cost, we can see continue to be a very strong one, which is a 79 basis point that reflects a gradual increase of the recurring hedging cost and the result of the appreciation in dollar. On the right-hand side, unhedged position slightly increased to 18% back of the dollar's appreciation. On your lower left-hand side, the recurring return, both before and after hedge basis, that both shows improvement. In page 19, in terms of the spread, the positive spread continue to deliver, which we can see the cost of liability continue to improve year-over-year. The spread between breakeven point and recurring return spread widen from 50 basis points to 59 basis points in first nine months. Page 20, investment performance from unrealized balance is a very tough one.
We see it further come down, mainly due to the market volatility. In the meantime, we still keep our asset to equity ratio at 5%, well above the regulatory requirement, and also the RBC is also above 300%. In page 22, let's move on to Taipei Fubon Bank. The top-line revenue growth of 15.5%, mainly driven by the net interest income growth. Part of the income decrease by around 10%, come from one, is wealth management, and second is the higher marketing expenses for credit card. Treasury income growth and also other income growth that reflects our one-time gain recognition and also equity investments performance. The revenue and also the net profit in Taipei Fubon Bank first nine months both hit a historical record high. In page 23, loan composition. The retail portfolio grew at 11%, faster than the corporate credit of 3.9%.
Page 24, the corporate credit largely driven by the dollar loans. While the foreign currency loan book is a decline of 6%, that mainly reflects a lower exposure to mainland China and also clients are repayment. While the SME exposure, we continue to deliver growth. In page 25, on the retail side, the mortgage grows decently at over 12%, while the unsecured loan grows slower than before. That's mainly due to a slower customers funding demand. Page 26, from the deposit side, the overall deposit growth of 12.5%, largely driven by foreign currency deposit of 17%, and also NT dollar growth at 9%. The LDR in NT book, pretty much stable, while the foreign currency trend down mainly due to a faster growth in deposit than loans, while we adjust the lending strategy. In page 27, the loan and deposit rates separately.
If we look at the lower left-hand side, we can see its improvement, while the NIM and loan-to-deposit spread are constant year-over-year, while it's down quarter-over-quarter. That mainly reflects a decrease in the foreign currency's LDR. As we see in previous page, the foreign currency LDR 2.7% in Q3, compared to 26% in Q2. Going forward, we continue to focus on the portfolio adjustment, we aim to further expand the net interest margin by adjustment in the asset liability structure. In the following two pages, the asset quality performance is pretty stable. In page 30, the credit card performance. Here we can see the number of cards and also the spending both outperform the market, so the market share continue to enhance. We can see our numbers of active card growth actually is double-digit, compared to the market growth at a single-digit growth.
In page 31, the fee performance was down, as we just briefed. Specifically on wealth management, we see the sales of the mutual fund indeed drop, mainly due to capital markets conservativism. The insurance and also structured products, actually, we see some recovery of growth. On quarter-over-quarter basis, we see some growth of about 4%. The overall AUM from customer size continues to grow at about 11%. In page 32, the net profit increased by 66% in overseas branches. The rate hike and also a lower provision both help. Also, we can see the top line as a result of growth by over 26%. In page 33, the consolidation with Jih Sun banks aim to complete by Q2 next year. The potential synergies we hope to come from higher numbers of branch coverage island-wide and the SME and wealth management business.
In terms of the bank branches, we'll become the top among private banks and top five among all banks. Okay. Next on Fubon Insurance, let's move on to page 35. The return premium grew decently at 6.7% first nine months, and the market share that we reached, over 25%, with a top one market position. The business is going on smoothly. Excluding the loss from the COVID-related policy, the underwriting profit grew by over 20%. Some update on the COVID-related policies. The total numbers of policy cases is about 1.67 million as of October. That is a decrease compared to September at 1.69 million. We see the infection rate in Taiwan increased quite meaningfully in September as the BA.5 outbreak.
As a result, we see the claim cases during September and October actually account for about half of the total claim cases for the first 10 months. Going forward, we aim to reflect the P&L impact from the COVID policy in year 2022 as much as we can. We aim to have a minimal impact from this product line in 2023. Regarding the capital position, it's above the regulatory requirement as RBC is around 280% as of September. In light of this pandemic, we review our business and made a few initiatives, specifically in risk control. Firstly, we established real-time risk control mechanism to monitor different risk factors across all product lines. Secondly, we view online platform is actually more important than ever and will be the primary channel for our new product launch going forward for better management and control.
Meanwhile, we review the risk profile of all product offerings, we also gradually to adjust product structures as well as some reinsurance arrangements. In page 37, in securities business update, it's pretty much impacted by slower market turnover that is down by 36%, and the net profit or the revenue both trend down in Fubon and Jih Sun. Going forward, we expect potential synergies to further enhance our market position, which we can see in the following page. Our combined basis, the brokerage, margin loan, sub-brokerage business will be all rank solid top three positions. Next in page 40. Fubon Bank (China)'s balance sheet in loans are pretty much stable, while the NIM came down by about 3 basis points, mainly because of a rate cut impact for RMB assets.
We continue to deliver the asset liability structure adjustment that lead to the NII's growth of over 8%, while the net profit is slightly up by 1%, mainly due to the provisioning cost increase. Overall speaking, we aim to maintain a stable asset quality, as we can see as of September, the indicator NPL ratio and coverage remain at a decent level. Before we move on to the Q and A session, we would like to also invite you to provide your feedback on Fubon's analyst meeting through the QR code in page 41, to share with us your comment will be much appreciated. Next, we would like to open for Q and A and host by the President of Fubon Financial Holding, Mr. Jerry Harn. Thank you for your attention.
Thank you. Good afternoon. Okay, any questions?
Thank you. Ladies and gentlemen, we are now in question and answer session. If you would like to ask the question, please press zero one on your telephone keypad and you will enter the queue. After you are announced, please ask your question. If you find that your question has been answered before it is your turn to speak, please press zero two to cancel the question. Thank you. Our first question is coming from Yafei Tian of Citigroup. Go ahead, please.
Thank you for taking my questions. I have some bank-related questions to start with. First is that we saw that the FX currency loan dropped quite a bit Q- on- Q, so just wanted to check what's driven that, which region is behind that decline, and is this also one of the reason behind the net interest margin decline in the quarter? Second question is that if you could offer more updated net interest margin guidance for Q4 as well as for next year, that would be super helpful. The next question on bank again, is the credit card business. I understand there's quite a lot of credit card expenses that reduce the credit card fee income.
Can you give us a little bit of flavor of what the competitive dynamic is like in Taiwan in the card business? Does Fubon intend to keep that rebate to customers, and hence the credit card fee income line, would it remain at low level? On the P&C business side, I have one question. In the Mandarin call, you mentioned as of October, the infection rate is about 35%, so you are assuming maybe 45%-50% of infection rate by April next year. Is it, according to the sensitivity, possibly there would be another TWD 10 billion or so of losses to come in the next quarter or two? Thank you.
I think Amanda will answer the COVID-19 question first.
Okay.
Followed by Taipei Fubon Bank.
Okay.
Thanks, Yafei. I think we did share with the market about the infection rate assessment of 45%-50% by mid of next year, and whether the loss will come up to TWD 10 billion or so. I think it's still subject to internal assessment. We share with you, I think, 1% increase that led to TWD 1 billion loss led indeed is our current estimate. I think that we'll leave that to the market estimate, because I think other than infection rate, there are also other factors we need to take into consideration. It's a dynamic progress, but I think we respect the market estimate.
Yeah, okay. On banks?
Okay. On the NIM issue, the bank NIM decreased by 4 basis points in the third quarter. I think you are right that it's highly connected with foreign currency loan growth did not happen in the third quarter. This dragged down our NIM on the third quarter by 4 basis points. We see that the NT dollar loan- to- deposit spread improved 2 basis points in the third quarter. Foreign currency, 47 basis points on the third quarter. Our U.S. dollar loans did not grow in the third quarter, but U.S. dollar deposits have a lot of growth. This damaged our NIM improvement. Yes, our loan- to- deposit ratio on U.S. dollar is the key. You see our U.S. dollar loan growth did not happen in the third quarter, it's mainly driven by the area of what it means the Taiwanese.
In Taiwanese client, they have the choice to draw down loan on NT dollar versus U.S. dollar. Now they tend to draw down on NT dollar due to a more cheaper cost of interest. The growth is mainly from our offshore branches, especially in Singapore and Hong Kong. Going forward on the NIM improvement, we will make more focus on loan growth in our offshore branches.
I think we'll try to realign our asset liability currency match.
The NIM guidance, because we are in the process of adjusting the loan-to-deposit structure on the balance sheet. I think the guidance for the fourth quarter, it should be about remain the same as the third quarter. We are seeing improvement on the first half of next year, while we are adjusting the loan-to-deposit structure in the foreign currency and U.S. dollar. On the credit card fee, yes. The current dynamic is each bank's credit card is competing on the rebate scheme. Taipei Fubon is one of them. We are issuing the J Card, momo Card in these two years, which offer very advantage benefits ranges terms on the rebate structure. That's the cost of gaining more new customer base. Somehow we think the rebate structure will be adjusted from next year. We will adjust our rebate scheme versus the cost of customer gaming.
I think from next year, our credit card fee structure will have some adjustments to enforce our fee income from the credit card spending. That's the plan for next year's credit card strategy.
We're still in the process of revisiting our credit card business strategies now. I think we can provide you with more detailed guidance in our next analyst meeting. We're in the process of reviewing that, focusing on the efficiency of all these expenditure and potential cross-sell opportunities.
Thank you for the answer. Can I follow up on that P&C question, just to really pick management's brain about the bookings, the timing of the potential losses? Would you take a relatively conservative view for this year, and hence, MTD book the P&C losses for this year, so that next year there will be quite limited P&C-related claims and losses?
Correct.
That's the way we will handle.
Okay. Thank you.
Thank you. If you would like to ask the question, please press zero one on your telephone keypad. Thank you. Next, we'll have Jemmy Huang with JP Morgan for questions. Go ahead, please.
Hi. Thanks for taking my questions. I have two questions. First one is on your loan growth. I think Amanda mentioned it's because of partially the customer repayment and also you are de-risking the China exposure. Therefore, we see your loan growth momentum also trend down. Up to second quarter, you are still guiding for 12% year-on-year loan growth. Just try to understand, what is the sudden change on this loan growth strategy, given I think the underlying credit risk in China is not something new. What really happened in the third quarter to drive the changes? That's the first question. Second one is, post your consolidation of Fubon Financial, try to understand, at the group-wide level, how much excess capital you could leverage from this consolidation.
Is there a plan to leave the excess capital at both the banking and also the securities operation? Potentially, you could actually leverage such capital to enhance the insurance operations. Thanks.
Okay. I will answer on the optimization of capital structures. As you probably know, Fubon Financial Holdings, although in terms of size, it's one of the smallest holding company in Taiwan, but they have among the highest capital adequacy ratios for all the financial holding company in Taiwan. Therefore, according to our estimate, there are certain rule for capital relocations from financial holdings perspective. Therefore, in the process of consolidation, we'll optimize the assets capitals from the holdings perspective. In more specifics, due to the size difference, there's probably not much capital optimization that we can leverage from the banking operations consolidation. Whereas we will probably have more capital adjustment during the consolidation of the two security companies. We're still in the process how we can use the capital.
We are still in the discussion with the regulators on the amounts of optimizations and the usage of those assets capital. Once we have a more clear answer from the regulator, we will advise then. Okay? Okay, on the loan growth forecast adjustment.
Yeah. On the bank's loan growth in the third quarter, there's two parts. On the foreign currency loan, this decrease on third quarter, the increase is on the NT dollar loan. The situation is coming from, as I mentioned earlier, the major local corporations in Taiwan, they have the luxury to choose the borrowing currency between NT dollar and foreign currency. In third quarter, because of U.S. interest rate hike, they tend to draw down the NT dollar and repay the US dollar loan portion. As I said, it's coming in second quarter. However, on the offshore branches side, there's still an increase of foreign currency loan. It's mainly coming from the OB and DBU local corporates. Just, China exposure is not something new, the uncertainty is getting higher. This also happened in Hong Kong, getting slowing now.
We're also trying to take a much closer look on our China exposure. We're trying to manage the growth until we have clear picture on the prospect of the China economy.
I see. Can I say for the whole year of this year, we probably will see loan growth stay at somewhere around high single digits for 2022.
Correct.
Yeah. Thank you.
Thank you. As a reminder, please press zero one on your telephone keypad if you would like to ask the question. Thank you. Next question, Yafei Tian of Citigroup. Go ahead, please. Yafei, we cannot hear you.
Sorry. I was on mute. I'm sorry. I have another question around capital, if I may. In the Mandarin call, you also mentioned that at the financial holding company level, there's probably around TWD 110 billion of capital that can be used for dividend distribution. If we were to also look at other capital metrics, whether that's double leverage or the bank level or insurance company capital metrics, it seems that Fubon is quite comfortable at the moment compared to many other financial holding companies. I just wanted to understand, under what circumstance would Fubon consider to further strengthen that capital position, which admittedly is already strong? Just what are the thinking process involved? What are the capital requirements going ahead if, for instance, we capitalize the P&C business? Are those some of the considerations? Thank you.
Not at the moment. I think at the moment, we are reasonably comfortable about our capital adequacy level. As I said just now, at the moment, we don't have any capital increase plan. As to how we would consider to increase our capital further, well, if we have another attractive investment opportunity which is big enough, like Jih Sun Financial Holding. Unfortunately, the financial market keep tumbling. Unfortunately, if that so happen, certainly we will be affected, and we have to consider at that time. I'm hoping that the market will stabilize.
Thank you very much.
Did I answer your question?
Yeah. I think that's super helpful. If I may push you a little bit more on another question. On page 11 of your slide, it show the FYP as well as the renewal premium. It's been a number of years that we have seen that sequential decline in this line item, right? Clearly, it has been quite challenging in recent years to sell new policies in the interest rate environment. It seems that into next year, it might still be quite challenging given that the yield curve is actually inverted, right? How do you think about the implications to liquidity as well as to your new available cash for investments given that downward trend in renewal premium?
Actually, the renewal premium will keep current level next year. The reducing are mainly because past few years, we sold many two-pay and three-pay product, and they are mature, it make the renewal premium drop a lot this year. Next year, will slow down and the renewal premium will keep at the current level.
Got it.
As we said, we don't expect the renewable premium will further decline next year. Obviously, we will probably be affected by this surrender of insurance policy. At the moment, it's still at a manageable level. As to the liquidity issues, as you know, that you may notice we have increased our cash positions either for handling the surrender of insurance policy or for further investment opportunity. No matter what, we have increased our position to keep us safe in that regard.
Okay. Thank you.
Thank you. Ladies and gentlemen, we are now in question and answer session. Please press zero one on your telephone keypad if you would like to ask a question. Thank you. If you would like to ask a question. Yep. Go ahead please, Mr. Harn. Thank you.
If we don't have any further question, shall we just close the meeting or?
Yes. Thank you.
Please review again if there is any question on the line. Thank you.
Thank you. Okay, there appears to be no further questions at this point, We thank you for all your questions. That will be the end of the Q and A session. I'll hand the call over to President Harn. Thank you.
Okay. Thank you very much for your participation during this very difficult timing of the year. Still, we welcome all your question. You may direct the questions to our IR head, Amanda, We will answer as much as we can. Thank you very much for your participation again. Thank you. Have a nice weekend.