Thank you for standing by, welcome to Fubon Financial's first half 2022 financial results. At this time, all participants will be in listen-only mode. Now I will hand the call over to your host, Ms. Amanda Wang, the IR Officer of Fubon Financial Holdings. Ms. Wang, please speak. Participants, you may disconnect at this time.
Thank you. Welcome, everyone, for joining the call today. Please turn to page four of the presentation. In first half, Fubon Financial's EPS and net profits both led the holding company peers, assets reached over TWD 10 trillion. Net worth was about TWD 626 billion. The book value per share on common share basis is around TWD 44.98. In Fubon Life, net profit is the key driver of the holding company, which is a result top among the life insurance peers. The return from investment side in terms of its premium market position ranked top two, and after hedge places, reached 5.94%. That's on back of decent capital gains and also the strong hedging performance. While the capital market volatility continues, its equity-to-asset ratio maintained at over 6.5%, and RBC at over 300%. In Taipei Fubon Bank, the profit was up by 25%. That hit a record high.
That's mainly driven by its asset growth strategy, and also that bring up the asset growth by 14%. The critical expansion strategy continues while its asset quality remains stable. In Fubon Insurance, the net loss in the first half was reported at TWD 3.8 billion. That's mainly due to the impact from the COVID-19 related policies that come including the cumulative total direct loss that exceeds TWD 20 billion, and also the total retention loss at TWD 0.7 billion. It's around 12. More up-to-date data point we'll share with you in the presentation later on. Other than the COVID policies, the business momentum continues, with the market share of 26% that continue to grow. In page five, in Fubon Securities, the net profit was down.
That reflects a more volatile stock market in Taiwan, while we are expecting potential synergies with Jih Sun Securities going forward to enhance our market position by about 20%, mainly reflects security size performance. Vision of net profit is TWD 1.6 billion, while the banking separation is up by 27.5%. In ESG achievement, Fubon has been the advocate in the sustainability initiatives, including that we submitted the carbon reduction goals to SBTi. We are a supporter of the Race to Zero campaign and also Business Ambition for 1.5°C campaign in face of the climate change. A few highlights of the actions that we take in the decarbonization, including quite a few loan product offerings from Taipei Fubon Bank. In Fubon Insurance, we also obtained the carbon footprint label that demonstrates our process from the business solicitation to issuance during the underwriting process.
In page six, the profitability. The holding company's net profit and EPS, both led the holding company peers. In terms of the first seven months' earning that we announced earlier, the net profit was over TWD 83 billion. It translates into EPS of TWD 6.81. In page seven, the net profit from major subsidiaries. The banking sides all delivering net profit growth, while the life insurance and securities net profits came down. The contribution from Fubon Life is around 91%, while the three banking subsidiaries contributions. The combined, that is over 100%, mainly reflects loss-making in Fubon Insurance and also the tax expenses on the undistributed earnings. That is around TWD 4.1 billion. In page eight, in terms of the total asset, the holding company's total asset is near TWD 10.5 trillion, and that is up by 4.8%.
While the book value per share is around TWD 0.4498. In page eight, the ROA and ROE decrease. That mainly reflects the earnings fluctuation and expansion assets, while the absolute level of the two ratios remain well performed. Next, let's move on to page 11, in Fubon Life. The total premium came down by 22%. That reflects the FYP and also renewal premiums' decline. In page 12, the composition we can see, the investment-linked and traditional life policies grow, while overall FYP dropped due to the impact from the pandemic. Page 13, FYPE is largely stable, while the growth of the regular pay lifts up the FYPE to FYP ratio. While on your right-hand side, the VNBs are down, mainly reflects the product mix changes.
In page 14, the FYP contribution from the agent and bank insurance channel, the two are the internal channels that deliver YOY growth, and they also drive up the FYPE contribution. Page 15, on the investment side, the portfolio adjustment mainly comes from the addition into the bond position as capital gains, and two is because of impact from the market fluctuations. Page 16, overseas fixed income composition we continue to focus on investment grade corporate credit and financial bonds, while in terms of geography, exposure remains. In page 17, from the investment is from the North America region. Recurring investment income improved mainly reflects the increase in the interest income and also the cash dividend income. While the FX gain increased YOY, driven by the U.S. dollar appreciation, and therefore, we can see the after-hedge investment return performed well at 5.94%.
In page 18, the composition of the hedging portfolio. The dollar position increased up to 16% of the total bond and cash position as the U.S. dollar appreciated. The overall hedging and FX is a net gain of 2 basis points. It is mainly due to a stable recurring hedging cost and also in first half of 50 FX gains. As the CS and NDF costs remain stable, we can see the recurring increase on both before and after-hedge basis. In page 19, the cost of liabilities continues to improve while the positive spread is maintained compared to the total investment return. Another spread, between the break-even point and the after-hedge recurring return, shows widening year-over-year. In page 20, the unrealized balance shows quite enhanced in July and year-to-date.
In terms of the year equity to asset ratio, it was over 6.5%, and the report earlier that there's only one life companies with equity to asset ratio of over 5% in June, and Fubon's level of 6.5% and trend up in July. That shows a more solid position in the market. In page 22, Taipei Fubon Bank's asset growth and also the market rate hike lets drive up the increase of its NII of 13% growth. On the other hand, the treasury and fee income decreased by 30% and 6% respectively. The other revenue go up, mainly driven by the recognition of the bargain purchase gain in the Hyundai Card that is about TWD 2.8 billion. If we exclude in this factor, this other revenue line still up by 20%. Loan growth, mainly driven by its retail loan, that's up by 14.5%.
Corporate loan growth by 11.9% year-over-year. Total credit up by 12%. Further breakdown in page 24, the growth of the NT dollar and foreign currency loan both contribute to the corporate loans growth at double digit, while the SMB credit also grows decently at 14.8%. In page 25, the mortgage grows steadily at 15%, and personal unsecured loan up by 10.4%. In page 26, the deposit growth up by 20%, that including from the NT dollars, both of 13%, and foreign currency book by 33% on back of the asset growth strategy. That lead to the LDRs ratio let go down year-over-year. While in page 27, we can see the spread and the margin continue to improve. By end of Q2, NIM reach 1.08%, and loan to deposit ratio at 1.35%.
In page 28 and 29, they both show you the asset quality remains stable, while the provisioning cost mainly driven by the general provision as the loan growth. In page 30, the credit card performance that we can see the active cards and also card spending both grow and outperform the market that lead us to gain the market share. In page 31, the fee income was down by 6.4%, mainly due to the wealth management fees and also higher credit card marketing expenses, while the syndication fee was up, and therefore the magnitude of the decline on net fees narrowed quarter-over-quarter. In wealth management fees, the insurance and trust fees delivered growth that partially offsets the decline in the mutual fund and structured product. While the AUM for the overall wealth management was up by 8%.
In page 32, the market rate hike that contribute to the revenue growth in the overseas branches, while the provisioning decreased and both led to stronger earnings growth of 46% in first half. In page 34, regarding Fubon Insurance, the written premium was up by 13.6%. Both commercial and personal lines outperformed the market growth. The overall market share continued to grow and reach 26%. That shows the leading position in the market for over 41 years. The combined ratio up, that mainly reflects the impact from the COVID-related policies. Here, we also like to update with you regarding the COVID-related status in Fubon Insurance. The numbers of the total effective policy was about 1.6 million as of July.
Compared to our earlier communication with the market, that shows a meaningful decrease, which is about TWD 2.31 million in April, as we shared with you in our previous analyst meeting. Regarding the losses, the cumulative total direct loss, including claims and reserve from the pre-billion NT dollar. While the retention COVID-related insurance is about third loss, is around TWD 15 billion year to July. We have TWD 3 billion released under the liability. Regarding the release of the special reserve to offset the impact from the P&L. Additionally is another TWD 3.72 billion of special reserve to supplement our book value and RBC.
Going forward, as we see the daily infection cases gradually decrease recently, we expect the peak of these claim payments for the recent COVID situation probably is behind us, and we will continue to monitor the pandemic development and also reflects the provisioning on a monthly basis. Regarding the capital position, the Fubon Insurance RBC ratio actually is well above 200% as of July. After reconsidering a few factors, including the infections development, the financial, and also its capital position projection in 2022, the board passed a capital injection plan of TWD 15 billion on 16th this week. The RBC ratio is expected to increase by over 100% upon this capital injection and the proposed complete by end of Q3. In page 36, regarding the Fubon Securities.
The first half net profit down, that mainly reflect the TAIEX trend down and also market turnover. As we expect the merger with Jih Sun Financial Holding to be completed, the mergers between the subsidiaries will be completed by mid of next year. We expect the potential synergies with Jih Sun Securities to further enhance our market position. In page 38, in Fubon Bank Hong Kong, the loans and the deposits both grow at a double-digit. The loan mainly driven by the corporate and mortgage business, while the deposit mainly driven by the time deposit. Net interest margin slightly down by 3 basis points. While the asset growth is stable and about 2.3% growth in net profit. In page 39 is Fubon Bank China.
Its net interest margin was up by 5 basis points on the back of the funding improvement and also the structure enhancement in deposit and loans. Also on back of the NIM expansion and asset growth, its profit go up by 14.8%, while its asset quality remains stable. Okay. I will stop my briefing here and hand over to Mr. Jerry Harn, the President of Fubon Financial Holdings. Thank you.
Thanks for your presentation. In the very beginning, we would like to introduce management team in this call today. Mr. Jerry Harn, President of Fubon Financial Holdings, will host the meeting. We also have Ms. Sophia Wang, Head of Accounting and Finance, and Dr. Rick Lo from Internal Audit Research in Fubon Financial. Mr. Roman Cheng, President of Taipei Fubon Bank, Ms. Tsai- Ling Chao and Ms. Grace Shu from Finance and Actuarial Division, and Ms. Cather Pao from Investment Planning in Fubon Life. Mr. Victor Chen and Mr. Rafael Lin from Fubon Insurance, and we also have Ms. Iwa Hu from Fubon Bank China. Now we open for the Q and A session. Operator, please take questions from the audience. Thank you.
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. Now, our first question is coming from Chung Hsu of Credit Suisse. Go ahead, please.
Okay. Thank you. Thank you for taking my questions and thank you for the presentation. Let me start with the bank slide. I want to follow up on the fee income. Maybe I missed it in the Chinese session. The fee income is down 6.4% year-over-year in the first half. I think most of the drop is in the second quarter. And if you look at the credit card fee, for example, it's almost zero. Just wondering if there's something more particular in the first half on the credit card fees or other fee income, and what we expect on fee income for the full year. I think previously, I believe management was guiding for 5%-10% fee income growth for the year. Second question on the bank side is net interest margin. It's on Fubon Bank Hong Kong.
Just curious, why is the net interest margin down despite higher rates in the U.S. dollar denominated assets? My third question for the bank is the asset growth for Taipei Fubon Bank has been low to mid-teens. I think Amanda Wang mentioned in the presentation that it's due to the bank's success growth strategy. It sounds like Fubon Bank intends to keep a high pace. In terms of capital management for bank, when we do the model for Fubon Bank, should we start to model for higher retained earnings on Fubon? One is on cost liability. I think in the Chinese session, you meant upstream, capital upstream to the holding company in the coming years. I have two quick questions on the Fubon Life. Management elaborated that the current yield this year will increase and probably will continue to increase next year. Just wondering on FX hedging.
On slide 18, the blue bar, the currency swap and NDF cost is still only 29 basis points. I think if I hear correct in the Chinese session that you mentioned, you have locked in a lot of longer swap contracts. Just wondering when do most of tenure swap and this contract expire, meaning most of it expire in Q3 or they will last till end of the year? Thank you.
Okay. I will start first. This is Jerry Harn. I will answer the question regarding the Fubon Bank Hong Kong. Why under the circumstances of rising and the NIM interest rate has come down. I think it is mainly because the bank adopted a conservative deposit-taking strategy. That means they increased the time deposit. Actually, the time deposit has increased the deposit rate to increase substantially. The overall, the deposit 20%, if I don't remember wrong, the liability cost increased. On the loan side, on the other hand, it has not fully reflected the rising interest rate trend because the deposit, the liability means the loans adjust to the market faster than the asset rate adjustment. We are expecting the loan rate adjustment will pick up in the third quarter.
In the third and fourth quarter, you will see an improvement on the net interest rate margin. Okay. Also, maybe I missed the question a little bit. We are expecting or hoping all subsidiaries should upstream their distributable income as much as possible. We would have sufficient capability or liquidity to distribute or maintain our dividend policy as we declare.
Growth. The new car insurance increased by 36%, the consumption spending increased by 10%. Also contribute the cross-sale unsecured lending balance 3%, the net interest margin increased by 20% on the unsecured lending from the credit card holders increased by 11%. Insurance cross-sale revenue increased by 11%. We still remain comfortable to provide this benefit to our cardholders. Nevertheless, our gross fee income from the credit card.
Second half, we actually kept the reward. Net is a healthy growth. For the first. Program to our card. Year, we think we can remain at the same profit, and for the overall, the fee income revenue for the whole year. Pace compared to last year. Regarding to the NIM, as you mentioned that increased our NIM thanks to the rate hikes for the first half. For the whole year, if we consider the US dollar and NT dollar rate hikes, our total NIM will increase by 9 basis points to 1.13 for the whole year. Regarding our loan growth, we have a high growth rate for all segments front. We don't think that's a hint. Even though our cost still remain healthy at 15% concern on our for the whole year. Even we consider there is a reasonable car for cash dividend to the holding.
That is basically our answers. Right. Cost of liability.
Okay. We expect the cost of liability will stay flat next year and this year.
Okay.
About the cash hedging cost, as we mentioned earlier or maybe last year, or last half of the thing, and I just mentioned earlier, last year. Actually, you will gradually retire this year. Because we can manage our total hedge cost within 50 basis points this year, that means we still have lot of longer duration of our foreign currency contract. I think we still will keep moving to roll over. It will suggest to the market, because if the treasury or income, have some cost disparity between Taiwan and U.S. dollar, if it get narrower, we suggest to market. That's all. Thank you.
Thank you. If I may just follow one question on the bank asset growth pace. After this year, is management intention to maintain a low NIM asset growth of Taipei Fubon Bank?
Low to middle- teens.
Middle- teen. Okay. Thank you.
Thank you. Next question.
Yeah. Thanks for taking my questions.
It's coming from Jemmy Huang of JPMorgan. Go ahead, please.
Two questions from me. The first one is also on net interest margin. Compared to your previous guidance, I think the margin outlook is kind of being revised down. Could we understand the rationale behind, is that mainly due to the June rate hike? The cost of deposit up more, or any other reasons? For the spread, I think the lending spread up 11 basis point quarter-on-quarter in second quarter. Could we get some idea about how the Taiwan dollar lending and also the U.S. dollar lending spread migration during the quarter separately? The second question is on COVID. I think that you kind of guided every one percentage point increase in the infection rates will cause P&C to incur losses, incur claims by about TWD 1 billion.
If we take into account the average claim per policy still on the rising trend, should we expect this TWD 1 billion to be up still in the foreseeable future? How should we look at it over the past couple of quarters till now, how this TWD 1 billion has been migrated? Thanks. Each point increase in the infection is actually pretty consistent yesterday.
It's pretty consistent, yeah.
From a couple of hundred million to TWD 1 billion.
Over.
I see. Thank you.
It's a roughly straight line relationship. Okay. Regarding your question about our indication at this time. Last time we indicated that our total NIM will increase by 11 basis points with the assumption that both of the U.S. dollar and NT dollar rate hikes can give us a much better net interest margin. NIMs reduced to 9 basis points from the 11 basis points, mainly because previously, Taiwan Central Bank, when they increased the NT dollar rate by 12.5 basis points, they also required all the banks should increase the deposit rate equivalent. Actually, they contribute almost the NIM increases. Basically that revised down is because of that. Regarding our net interest margin for the second quarter, increased by 1.24%-1.35% in the second quarter.
NT dollar net interest margin increased by 16 basis points, while the U.S. dollar net interest margin increased by 13 basis points. Okay. Not sure everyone of you will understand the background. In the past, when the Central Bank increased the NT dollars interest rate, we would normally reflect fully on the fixed rate deposit. We only reflect partial increase on the saving rates. This time, the Central Bank expect all the banks or financial institutions to fully reflect the increase on both the fixed interest rate and the saving rate. Therefore, that erode our expectation of the margin increase. I'm sorry, I interrupt your question?
Just try to confirm on, you mentioned the spread for NT dollar actually up 16 basis points quarter-on-quarter, while U.S. Dollar spread only up 13 basis points quarter-on-quarter in the second quarter. Which means the NT dollar spread actually still up more than U.S. dollar spread. Is that correct? When you mention about the NIM outlook for the whole year, for the rest of the year, do you assume there will still be any NIM benefit from the Central Bank rate hike? Or will you basically assume the CASA deposit rates will increase at the same amount of time deposit rate?
Yes, we do expect there might be another 25 basis point rate hike for the NT dollar. However, due to what we explained earlier, they won't contribute the net NIM increase, the incremental NIM to us. That is our projection.
I see. Thank you.
Thank you. We are now in question and answer session. If you would like to ask the question, please press zero one on your telephone keypad. Thank you. Next we'll have Steven Lam of Bloomberg Intelligence for questions. Go ahead, please.
Hi, thank you for allowing me to ask questions. Can you guys hear me okay?
Okay. Yep. We can hear you.
Okay, thank you. Thank you. A couple of follow-up. I guess I'll start with the COVID claim situation. Thank you for talking about the retention rate. If I heard you correctly, right now as of today, your total claims cost will be about TWD 15 billion. That is after reinsurance, right?
Yes.
That's already including IBNR and every other reserves that you have booked so far.
Yes.
Can I just ask what is the infection rate assumption you used for that TWD 15 billion? Just a quick follow on the TWD 1 billion NT sensitivity for every 1 percentage point increase in infection rate. Is that TWD 1 billion also after reinsurance? As in retained, not just the growth? I am sorry, one more for the COVID. You mentioned that right now you still had about 1.6 million policies in force. Do you have a projection in terms of how many of those policies will be expired by end of the year? Of course, it is hard to forecast how many were paid out because of infection. Assuming no one's got infected anymore, how many of that 1.6 million policies will lapse? I guess that's my question. On the life insurance side, if I remember, I think the earnings session you mentioned about-
Let's start. Let me answer the question on VNB in full IBNR. That is correct. We can follow by the question on life insurance. Okay?
Sure.
The TWD 15 billion claim, that is based on infection rate of around 19%, which is the current situation in Taiwan. Okay?
Okay.
Okay. Every 1% increase in infection rate will translate into roughly TWD 1 billion additional claim to us. That is on the retention basis.
Got it.
Effective policy forecast by end of the year. Actually, we have now roughly 60 new policies that we acquired, 1.6 million, and these are mostly in the last couple of months. Therefore, by the end of this year, it will decrease roughly, I think 50,000 policies. It will remain roughly the same. Okay?
Okay. That's what I think. Yeah.
For the claim, one policy is only affected for one claim only.
Yeah.
Okay? That is our policy provisions. Okay?
Okay. Yeah, thank you for explaining that. Just one to double check.
No repeat claim.
Clients that were infected, you don't pay again. That the policy will be terminated-
Yes.
After the first claim. Yeah. Okay.
One policy only effective for one claim only. No repeated claim is allowed for the same policy.
These are 1.6 million. All of these are the pandemic, right? Not the vaccine policies. Is that correct?
No.
Okay.
That's correct. Okay. Your question on life insurance?
Yeah. For life, I think I heard that you're still guiding 10% growth for VNB. Could you elaborate a little bit more in terms of what gave you the confidence for a recovery in the second half, on both, say, is it the product or pent-up demand or that it's a function of, because infection rates calming down, so agents can get more active? If we can just get more color on that'd be great. Thank you.
Okay. For the second half year, we try to sell more interest-sensitive product. Mainly through our agent and bank insurance channel. We also try to switch from our single premium to regular premium. That will increase the VNB margin. I think the first half year, because the pandemic, the COVID-19, and the activity dropped a lot. The second half year, we try to push the agency activity level and push them to sell more life insurance policy. We expect the growth will go back to normal standard.
I think in the second quarter, actually, it's difficult for us to approach the customer directly. In the second half, all this quarantine has either removed or relaxed. We don't expect these quarantine procedures or measures will be restored again. It will facilitate the face-to-face contact for our channel.
I see. Thank you. Could I just have one quick one on investment? There's a lot of discussion about the hedge costs, and you provided a guidance for 50 basis points. The 50 basis points, I think that's including the FX gain. What is the number just for the CS and NDF costs? I guess in relation to that, obviously you've been adding more foreign bonds, right? Could you give us some color in terms of, let's say if you buy a foreign bond right now, it's 45% yield. What is the after-hedge return that you can lock in at the moment? Thanks.
Okay. About the hedge costs, I just mentioned the 50 basis points actually just only count the regular hedge swap cost that may use very less or even no more will contract include. NDF is not effective right now at current stage. That means, FX gain, actually, we did not count into that. It's purely regular hedge costs. About another question about the new money rate. I just mentioned earlier, it's 4.5 basis points, sorry, 4.5%-
4.5%
New money rate. Actually, most likely a high-grade investment fund. Most recently, we invest in the American area, and so it was higher rating. If you like to calculate very strict, then we say, okay, 4.5 minus 0.5 is less than four. The hedge, I'm not quite sure because we also need to consider the other sales of FX gains and it all depends on the NT dollar trend. That's my answer.
Okay. Thanks for your help. Thank you.
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. Thank you. If you would like to ask the question, please press zero one on your telephone keypad. Thank you.
Thank you, ladies and gentlemen, for your participation in this call today. Welcome to contact our team if you have further questions.