Welcome everyone to Cathay Financial Holding Company's fourth quarter 2025 conference call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question and answer session. Please follow the instructions given at the time if you would like to ask the question. Now I would like to introduce Mr. C.K. Lee, CEO of Cathay Financial Holding Company. Mr. Lee, please begin.
Okay. Thank you. Good afternoon and good morning to those joining us from Europe. Welcome to Cathay Financial Holdings 2025 fourth quarter analyst meeting. I am C.K. Lee, CEO of Cathay Financial Holdings, and I will host today's meeting. Thank you for joining us. Let me begin by introducing the Senior Management team with us today. Ms. Grace Chen, CFO of Cathay Financial Holdings. Mr. Alfred Lin, President of Cathay Life. Mr. Robert Fuh, EVP of Cathay United Bank. Before we begin the presentation, let me share some key highlights. Cathay Financial Holdings delivered strong performance in 2025, achieving our third highest record with net income of TWD 108 billion, EPS of TWD 7.06 and an ROE of 11.7%. This performance reflects the resilience of our core businesses.
Cathay United Bank, Cathay Century Insurance, and Cathay Securities each deliver very high results. Cathay United Bank reported 13% year-over-year earning growth, driven by double-digit increases in both net interest income and fee income. At Cathay Life, earnings reached third highest level on record, with second highest excluding the one-off currency volatility reserve provision. Business fundamentals remain solid with a healthy growth across annualized premium, value of new business, and recurring yields. Cathay Century continued to deliver strong underwriting profits, with net income increasing by 46% year-over-year. Cathay SITE assets under management grew 7% year-over-year to a record high. Cathay Securities further strengthened its position in the domestic brokerage market and maintained its number one ranking in sub-brokerage business. Now I will hand over the call to Charlie from our IR team for the 2025 post quarter with presentation. Charlie, please.
Thank you. Let's start with the business overview on page four, which provides a quick highlight on each subsidiary. Cathay United Bank, net income increased by 13% year-on-year to TWD 43.5 billion, marking a record high for the fifth consecutive year. Loans and deposits maintain solid growth. Net interest income increased by 12% year-on-year. Asset quality stayed benign. Net fee income rose 22% year-on-year. Wealth management and credit card fees grew 28% and 12% respectively. Cathay Life continues value-driven product strategy to accumulate CSM. First-year premiums, annualized premiums, and value of new business continued to grow, fueled by strong sales of U.S. dollar-denominated and investment-linked policies. Recurring yield increased year-on-year, with dividend income rising by 11%. Capital position remained robust with an equity-to-asset ratio of 9.4%.
Cathay Century Insurance, the general insurance subsidiary, net income reached an all-time high, increasing by 42% year-on-year. Premium income grew 7% year-on-year, and market share reached 13.8%. Asset management subsidiary, Cathay SITE listed its flagship Taiwan Equity ETF on Tokyo Stock Exchange in September 2025, marking the first Japan-listed ETF directly tied to the Taiwan stock market. Cathay SITE assets under management reached TWD 2.4 trillion. Cathay Securities delivered TWD 4.5 billion in net income, continued to expand market share in the domestic brokerage business, and maintained its number one position in the brokerage market share. Next page. Page five shows our outlook for 2026. Cathay United Bank will deepen relationship with high net worth clients and optimize cross-asset wealth management to drive fee income growth.
Capitalize on supply chain realignment to expand cross-border financial services and accelerate business expansion in Asia. Leverage AI and technologies to accelerate product innovation and improve efficiency. Cathay Life will focus on product with high CSM and capital contribution to support policy holders to achieve healthy living and prosperous retirement. For investment, Cathay Life will seek opportunity in high quality equities and bonds to enhance recurring income while strengthening asset liability management and reducing currency mismatch risks. Cathay Century will grow business emphasizing on quality and scale. Deepen its digital application to enhance customer satisfaction and retention. Cathay SITE will continue to develop asset management business as the group third growth pillar. Cathay Securities will advance digital operations and leverage AI to enhance customer-centric experiences, aiming to become the investors' AI broker of choice. Please look at page six. Cathay Financial Holding net income, EPS, and ROE.
Cathay Financial Holding net income reached TWD 108 billion. EPS of TWD 7.06. Core business momentum across subsidiaries remains solid. The income at subsidiaries, Cathay United Bank, Cathay Century, and Cathay Securities all reached record highs. The decline in Cathay Life net income was mainly due to the one-off additional provision of TWD 21.7 billion to the foreign currency volatility reserve. If excluding this one-off impact, the group achieved its second highest net income on record. On a consolidated basis, the holding company's ROE reached 11.7%. Please turn to page seven to see the book value of Cathay Financial Holding. The consolidated book value of holding company was TWD 934 billion. Book value per share was TWD 57. Page eight shows our overseas expansion.
For the banking business, Cathay United Bank continued to strengthen its operations through localization, digital transformation, and green finance. The Hong Kong branch was relocated to One Causeway Bay building, further scaling up operations and enhanced both the depth and breadth of services. For the insurance business, Cathay Life's joint venture in China achieved 49% year-on-year growth in total premium, driven by the stock selling effect ahead of the reduction in guarantee rate. Please turn to page 10 for more detail about the banking subsidiaries. Cathay United Bank's total loan balance growth 8% year-on-year to TWD 2.8 trillion, with growth across all segments. Deposit growth 15% year-on-year to TWD 4.3 trillion, maintaining the advantage of high demand deposit ratio of about 60%. Interest yield is shown on page 11. The full year net interest margin reached 1.55%, remaining flat year-on-year.
Net interest margin and interest spread in the fourth quarter both increased quarter-over-quarter, supported by lower funding costs amid U.S. rate cuts. Page 12 shows the asset quality. Cathay United Bank maintains low NPL ratio at 15 basis points and coverage ratio at 1,060%. Gross provision was TWD 8.5 billion and recovery was TWD 1.6 billion, with credit cost of 25 basis points. Please turn to page 13 for SME and foreign currency loans. SME loan balance grew 8% year-on-year to TWD 362 billion. Foreign currency loans increased to TWD 315 billion, up 12% year-on-year, or 16% if excluding the impact of Taiwan dollar appreciation. Page 14 shows offshore earnings. The offshore earnings reached TWD 7.6 billion, up 19% year-on-year, driven by the recovery in deposits, loans, and investment income.
Please turn to page 15 for net fee income. Net fee income reached TWD 34 billion, up 22% year-on-year. Wealth management fees grew 28% year-on-year, while credit card fee increased 12%, supported by increased card spending. Page 16 shows the breakdown of wealth management fees. Wealth management fees rose 28% year-on-year to TWD 20 billion, with mutual funds and bancassurance fees up 21% and 44% year-on-year respectively. Both wealth management customer numbers and assets under management continued to show steady growth. Please move to page 18 and 19 for Cathay Life premium performance. Cathay Life's total premium income reached TWD 519 billion, up 6% year-on-year, driven by strong sales investment-linked policy. Total premiums on high CSM protection products also show steady growth, up 5% year-on-year.
On page 19, first-year premium reached TWD 191 billion, up 24% year-on-year, supported by strong momentum in investment-linked and U.S. denominated traditional products. Annualized premiums grew 5% year-on-year to TWD 61 billion. Page 20 shows the book value of new business, the value of new business. Value of new business was TWD 35 billion, up 5% year-on-year. This growth aligns with the same drivers seen in the APE performance. Page 21 shows the cost of liability and break-even as a yield. The cost of liability remained flat quarter-on-quarter at 3.84%. Break-even as a yield was 2.99%. Please look at page 22 for the investment portfolio. Cathay Life's total investment was TWD 8 trillion, with overseas investment accounting for 69%. Please refer to the right-hand side of the table for the investment yield by asset class.
Overall investment yield is shown on page 23. After hedging, investment yield was 3.94%, supported by the realized gains on the favorable financial market. On the right-hand side, the pre-hedging recurring yield was 3.46%, up 3 basis points, driven by higher dividend income. The hedging cost was 1.57%. Following the adoption of the new foreign currency volatility reserve mechanism, along with the regulatory forbearance measure in the second quarter, the impact of the foreign currency fluctuation on earnings is fully absorbed by the foreign currency volatility reserve. The annualized compulsory provision ratio was raised to 1.5%. In addition, effective January 2026, foreign currency gain or loss on overseas bonds classified as amortized cost will be amortized over the remaining life of the bonds, which is expected to significantly reduce foreign currency volatility.
Supported by the strong foreign currency volatility reserve buffer, Cathay Life has greater capacity to absorb foreign currency fluctuations and a reduced need for hedging, leading to a lower hedging ratio. The foreign currency volatility reserve balance reached TWD 114 billion as of last year-end. Please turn to page 24 for cash dividend income and regional breakdown of overseas fixed income. Cathay Life recognized cash dividend income of TWD 18.7 billion in 2025, up 11% year-on-year. On the right-hand side, Cathay Life continued to diversify fixed income investment across regions to mitigate risk, allocating 53% in North America, 17% in Europe, and the rest in Asia, Pacific, and other countries. Page 25 shows the book value and unrealized gain of financial assets.
Cathay Life's book value reached TWD 750 billion, up TWD 32.6 billion year-on-year, supported by profit contribution while partially offset by mark-to-market loss on financial assets amid Taiwan dollar appreciation. The equity-to-asset ratio reached 9.4%, reflecting strong capital adequacy. Next, please turn to page 29 and 30 for the performance of Cathay Century. Cathay Century's premium income grew 7% year-on-year to TWD 40.6 billion, ranking number two by market share. Page 30, the gross combined ratio increased year-on-year due to higher natural catastrophe claims, while the retained combined ratio declined year-on-year, supported by effective reinsurance and higher retained premiums from expanded underwriting capacity. This is the end of presentation.
Good afternoon. This is Grace Chen. There were many discussions and questions raised during our Chinese session. Before we move into the Q&A, let me briefly recap some of the key topics and the highlights that may be helpful for our international investors. Overall, the audience showed particular interest in our 2026 outlook, including key growth drivers and dividend policy. Starting with banking, we are targeting double-digit loan growth, supported by broad-based momentum across corporate, mortgage, and consumer loans. Asset quality remains stable, and we expect credit costs stay at a benign level similar to last year, around 25 basis points. For net interest margin, we expect full year NIM to remain relatively stable broadly around this year's level. Net fee income has been strong over the past two years, creating a higher base.
Therefore, we expect fee income to continue growing from a higher base with wealth management remaining the primary driver. Meanwhile, we expect the cost-to-income ratio at around 51% this year, reflecting continued investment in digital and overseas expansion. For Cathay Life, continuing to build CSM remains our top priority. We expect FYP growth in high CSM contribution, health, and accident products. The U.S. dollar denominated interest sensitive life products should also see continued growth while investment linked products will remain more sensitive to capital market conditions. On the investment side, we are focused on enhancing our recurring yield with the full year target at 3.5%. On the hedging side, following the FX accounting change effective from January this year, gains and losses on foreign bonds measured at amortized cost will be amortized over the remaining life of the bonds.
This will significantly reduce FX volatility and lower hedging needs. As a result, we will be able to reallocate the savings to strengthening our FX volatility reserve and the overall capital buffer. In addition, part of these savings can be redeployed into fixed income investments to further enhance our recurring income. Looking ahead, we expect the hedging costs to be stable at around 1.2%-1.3%. With the liability interest costs largely down to 2.2%-2.3% following the IFRS 17 transition, together with the recurring yield around 3.5% and the stable hedging costs, we expect to maintain a positive spread. In addition, we expect annual CSM release to grow at 10% going forward. We were also asked about the source of earnings volatility.
The main sources would be, firstly, mark-to-market movement from bonds classified under Fair Value TPL, which cannot be designated under Fair Value OCI. Second, variances between actual and expected claims within the insurance service result. Overall, under IFRS 17, our earnings should be more stable and predictable going forward. Finally, on dividend policy, this year's dividend payment will still be determined based on IFRS 4 accounting. Our payout capacity remains solid. We will reflect our third highest earnings level while taking into account, including peers' dividend yield, investors' expectations and our future growth needs. While maintaining healthy financial metrics and capital levels, our goal remain to deliver a competitive dividend yield, and we will submit our proposal to the board for their consideration and approval. These are the key highlights.
Okay. Thank you
Thank you. Ladies and gentlemen we will now begin the question-and-answer session. If you wish to ask a question please press star key and number one in your telephone keypad and [you enter] the queue. After you are announced just ask your question. Should you wish to cancel your question press star key and number two. Thank you. Please press star one on your keypad if you would like to ask a question. Thank you.
First we'll have Jaime Huang, JPMorgan, for questions. Go ahead please, Jamie.
Thanks for the presentation. Just couple of question for life insurance for our own forecast. The first thing is, I think you mentioned that for other operating expense, the indirect expense, it could be only 50% of the normal level in the past. Can I confirm that is referring to roughly around TWD 8.6 billion in 2025? That will be probably only around 50% of the level going forward. The second question for life is, if we look at the first two months, I think the effective tax rate for life also become relatively stable, roughly around 18%- 19%. Compared to in the past, it was very volatile.
Should we also assume that will be a more normalized effective tax rate going forward for Cathay Life? I think the third question is, in the Chinese session, you do mention the rising U.S. yield. The impact on equity-to-asset ratio is actually positive. If we assume 100 basis points and 30 basis points move on the U.S. dollar and Taiwan dollar rates. But if only the U.S. dollar move, is there any sensitivity that we can use for reference? If just assuming Taiwan dollar yields doesn't move, but only U.S. dollar move by 100 basis points, what would be the sensitivity for the equity-to-asset ratio?
Just one question on the banking side that you do mention the fee expenses in January, you made some assumption changes for the rebate program. You say it's one time, but should we assume for the rest of the year the fee expenses will also be higher, or it's just in January? Because if you assume the usage rate going up, then as long as you have more like credit card consumption, then the fee expenses should also be higher compared to in the past. Thanks.
Hello. This is Robert Fuh from Cathay United Bank. I think that I will answer the question first for about the credit card fee income related to the January accounting estimate about, you know, the reward point expense ratio. I think this would be one of the accounting estimation because in the past, we just estimate that those reward point will not be fully utilized by the consumer. You know that the reward point for the credit card is a time limited. So most of them, probably 30% of them would be expired without using. Now that the program is so successful that most of our clients came to use this kind of reward point.
On average, in the beginning of every year, especially in January, we were trying to estimate whether that we should increase this kind of expense ratio estimation. In January, we find out that because the popularity of this kind of reward points usage, we increasing the estimation for the going forward basis. This would be a one-time, one-off reversion from the fee income number. As I mentioned that that means this is would be an estimation if the reward point will not be used as we expected. For example, like if that would be lower exchange rate or exchange reward point in going forward, probably that we will reverse that as well. That would be a one-off.
Even though that, in the remaining months of this year, I think that if the credit card consumption increases, then our fee income will also increase as well. That will be minimized and smooth out the whole year of this kind of fee income contributions.
Hi, Jaime. I think the following three questions about life. The first one is our expense. Actually, I didn't say any kind of that information. You just mentioned the 50% actually they come from, I think it's Taiwan Life, the disclosure, but we didn't disclose here. But if on the same basis, actually our advertising to that kind is less than 50%. Actually, for our company is around like 40%-45%. So we are below. We didn't have that kind of 50%. But secondly, our tax, I think this, yes. It's right. This is because from last year, this is because the capital gain especially from domestic capital gain, they didn't have tax.
They come to income statement, so the effective tax rate actually is below. Right now, actually, mainly the capital gain from domestic market, actually they come to retained earnings, so they didn't have that kind of effect. You will see the first two months, actually the tax rate stable. The tax is that we still have a lot of issue like the minimum AMT and et cetera. I still have a little bit some factor will affect. I cannot guarantee you that the 16%-18% is the normal cases. In most of cases, yes, they will comparatively stable in the IFRS 4 cases. This is second question.
Third, about the rising interest rate, we didn't have this kind of U.S. dollar up 100 basis point, but Taiwan dollar didn't change it. Because if in that case you would, we don't want to disclose this kind of sensitive because that you just take this year that this month situation you tell you want to send us this situation. I don't think it's, this is just one month. We think in the long run, we're thinking the Taiwan dollar interest volatility is just one third of the U.S. dollar volatility. We tell you it's the long-term case, not just for one month. This is what I can tell you. Sorry I cannot disclose this kind of sensitive.
I tell you, yes, I think you want to ask like, in March, yes, the interest rate especially U.S. dollar going up high, I think they're huge. The Taiwan dollar almost keep the stable cases. This is just one month. I don't think this in the one year cases that they have, because, maybe next month, the U.S. dollar will become much lower. I don't want to tell you that so sensitive situation. This is my answer. Okay. Thank you.
Thank you, Jaime. If you would like to ask the question, please press star, then number one on your keypad. Thank you.
Any questions?
Ladies and gentlemen, we are now in question and answer session. If you would like to ask the question, please press star key and number one on your keypad. Thank you. Okay, then there appears to be no further questions at this point. Mr. Lee, can we close the conference call now?
Okay. Thank you.
Yes. Thank you. Ladies and gentlemen, we thank you for your participation in Cathay Financial Holding Co., Ltd.'s conference call. You may now disconnect. Have a nice weekend. Thank you and goodbye.
Thank you. Goodbye.