Welcome everyone to Cathay Financial Holdings fourth quarter 2023 results webinar. 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 that time if you would like to ask a question. I would like to introduce Mr. CK Lee, President of Cathay Financial Holdings. Mr. Lee, you may begin.
Good afternoon and good morning to those in Europe. Welcome to Cathay Financial Holdings for the 2023 fourth quarter analyst meeting. I'm CK Lee, President of Cathay Financial Holdings. Today, I will host the meeting. Thank you for joining us today. In the beginning, I would like to introduce some senior managers on the line.
Today we have Miss Grace Chen, CFO of Cathay Financial Holdings. Mr. Abel Lin , Managing Senior EVP of Cathay Life. Mr. Kevin Hu, Senior EVP of Cathay United Bank. Before we begin the presentation, I'd like to make some comments. Cathay Financial Holdings earnings strongly picked up in 2023. The net income grew by 36% to TWD 51.5 billion. Our core business remained resilient. The bank delivered another record high earnings with robust growth in loans and fees.
Life's earnings quality continued to strengthen, with both recurrent income and the value of new business demonstrated steady growth. P&C Insurance underwriting profit steadily grew. Asset management and securities also performed very well, achieving their highest and second-highest earnings respectively. Our robust capital position continued to serve as a steady foundation for our business growth. We remain committed to sustainability and digitization. The group's digital user have exceeded 8.6 million. Now let me hand over the call to [Duke] from our IR team for the 2023 results presentation. Thank you.
Thank you. Let's start with a business overview on page three, which provides a quick highlight on each subsidiary. Cathay United Bank showed a robust growth in deposit and loans. Net interest income grew steadily year-on-year. Asset quality maintained benign. Net income grew 15% year-on-year, driven by solid growth in wealth management and credit card fees.
Cathay Life agent costs contained well. Recurring yield improved with interest income showing double-digit year-on-year growth, maintained a solid capital position with RBC ratio of 323% and equity to assets ratio above 80%. Cathay Century, the general insurance subsidiary, premium income rose 13% year-on-year with 13% market share. Asset management subsidiary, Cathay SITE, AUM reached TWD 1.6 trillion, ranking number one in the industry. Cathay Securities continued to gain market share in domestic brokerage business.
We would also like to share with you our progress in sustainability. Please turn to page four. Cathay has been selected in the DJSI Index for nine consecutive years, the longest among Taiwan financial institution in insurance industry. Cathay received MSCI ESG AA rating for four consecutive years, and appeared to be the highest-ranking in the CDP A List for two consecutive years. We actively participated in global natural initiatives in addition to climate actions.
Last December, we hosted important forums at COP28 in Dubai, showcasing our commitment to climate actions and stay connected with the latest trends of sustainability. Page five shows our progress in digital development. We continue to empower financial service with digital data and technology. Cathay United Bank's digital users increased to over 7 million. Cathay Life's FitBack health promotion program, its members exceeded 1 million, ranking number one in the industry. We continue to diversified financial innovations in five key areas: AI, blockchain, cloud, data, and ecosystem, and develop overseas business through digital platforms.
Next page, page six, shows our outlook for 2024. Cathay United Bank will grow loans steady while maintaining benign asset quality, expand wealth management business by offering diversified products and deepening relationship with high net worth clients, deepen overseas presence and expand cross-border financial services, develop retail banking business via digital platforms.
Cathay Life will continue the protection first and elderly-friendly strategy, and focus on protection type of products to accumulate contractual service margin. For investment, Cathay Life will seek opportunities for quality stocks and bonds to enhance recurring yield income, continue dynamic hedging strategy to maintain stable hedging costs. Cathay Century will grow business emphasizing on quality and quantity.
For overseas operation, Cathay Century will expand online business in China, strengthen digital capability in Vietnam, and further development opportunities for cross-industry cooperation. Cathay Life will focus on development and innovations in fintech applications and services, develop financial planning for retirement, and strengthen ESG investment process.
Cathay Securities will continue to utilize digital technology to increase customer base and enhance users' digital experience. Please look at page seven. Cathay Financial Holdings net income, EPS, and ROE. Cathay Financial Holdings net income was TWD 61.5 billion, up 36% year-on-year. EPS was 3.24 TWD. Subsidiary Cathay United Bank, Cathay Life, and Cathay Securities delivered double-digit year-on-year growth in net income. Cathay Life's earnings declined year-on-year, mainly reflecting increase in hedging costs.
Cathay Century's profits recovered as the impact of pandemic insurance subsided. Please turn to page eight to see the book value of Cathay Financial Holdings. The consolidated book value of holding company rebounded year-over-year to TWD 801 billion. Book value per share was TWD 47.5. Page 10 and 11 show our overseas expansion.
Cathay Financial Holdings continue to cultivate the local and cross-border customers. Singapore branch signed a Green Trade Loan with Apeiron Bioenergy to support the development of sustainable aviation fuel. Premium income for Cathay Life Vietnam and Cathay Century showed a steady growth. As for the subsidiaries in operation in China, Cathay United Bank, China subsidiary, carefully selected customers with growth potential, maintained growth momentum and zero NPL. For Cathay Lujiazui Life, the total premium grew 55% year-over-year.
Please turn to page 13 for more details about the banking subsidiary. Cathay United Bank delivered robust loan growth, with mortgage and consumer loans showing double-digit growth. The total loan balance increased 12% year-on-year to TWD 2.3 trillion. Deposits grew 9% year-on-year to TWD 3.5 trillion, maintaining the advantage of high demand deposit ratio over 60%. Interest yield is shown on page 14.
Accumulated net interest margin increased 2 basis points year-on-year to 1.38%, while quarterly net interest margin increased 4 basis points quarter-on-quarter. The increase was due to an increased position and a higher yield in foreign currency financial assets. Page 15 shows the asset quality. Cathay United Bank maintained low NPL ratio at 11 basis points and the coverage ratio at 1,453%. Gross provision was TWD 6.9 billion. Recovery was TWD 2.7 billion.
Page 24 shows the cost of liability and break-even asset yield. Page 16. For SME and foreign currency loans. SME loan balance grew 7% year-on-year to TWD 324 billion, accounting for 14% of the total loan. Foreign currency loan balance was TWD 215 billion as we aim to grow foreign currency loans while ensuring asset quality. Page 17 shows offshore earnings. The offshore earnings was down to TWD 3.2 billion due to lower year-on-year investment income resulting from the optimization of bond portfolio.
Please turn to page 18 for fee income. Net fee income was TWD 20.7 billion, growing 15% year-on-year due to robust growth in wealth management and credit card fees. Page 19 shows the breakdown of wealth management fee. Wealth management fee income was TWD 11.3 billion, climbing 7% year-on-year, driven by 18% year-on-year growth in securities fees and recovery in mutual fund fees with 10% year-on-year growth. Please move to page 21 and 22 for Cathay Life's premium performance.
Total premium was TWD 466 billion, showing a modest 3% year-on-year decline, while premium from high contractual service margin protection products continued to grow steadily. On page 22, first year premium FYP and the annualized premium APE was TWD 133 billion and TWD 47 billion respectively, both increased year-on-year attributable to an increase in sales volume of Investment-Linked Policy and the traditional long-term regular premium products. FYP for health and accident policies, the highest CSM contribution products, shows 30% year-on-year growth.
Page 23 shows the value of new business. Value of new business was TWD 27.6 billion. The increase of 5% year-on-year was due to higher sales volume from traditional long-term regular premium products. VNB margin remains stable. Page 24 shows the cost of liability and break-even asset yield. The cost of liability increased slightly due to the declared rate increase for interest-sensitive policies. Break-even asset yield improved. Please look at page 25 for the investment portfolio.
Cathay Life's total investment reached TWD 7.6 trillion. Overseas investment allocation is 70%. We continue to increase the overseas bonds allocation to enhance recurring income. Moreover, on the right-hand side, the investment yields on domestic equity and international equity were 7.4% and 5.5% respectively. Overall investment yields are shown on page 26. Pre-hedging recurring yield rose 8 basis points, reflecting double-digit year-on-year growth in interest income that was partially offset by the decline in cash dividend income.
After hedging investment yield declined year-on-year to 3.28% that year, mainly reflecting increased hedging costs in 2023, while our hedging costs remained well contained at 0.96%. The foreign currency reserve was still $20.8 billion, serving as buffer for fluctuation while offering greater flexibility for hedging. Please turn to page 27 for cash dividend and regional breakdown of overseas fixed income. Cathay Life recognized a cash dividend income of TWD 19.7 billion, lower than the amount in 2022 due to the dynamic adjustment to equity portfolio. The proportion of overseas fixed income in North America increased to 51%.
Page 28 shows the book value and unrealized gain of financial assets. Cathay Life's book value increased year-on-year to TWD 628 billion, benefiting from rebound in unrealized gains and losses and earnings contributions. Equity to assets ratio was above 8%. Unrealized gains and losses increased TWD 144 billion, owing to rebound in mark-to-market value of equity and fixed income assets. Next, please turn to page 32 and 33 for the performance of Cathay Century. Cathay Century's premium income grew 13% year-on-year to TWD 33.5 billion. Market share was 13%. Page 33, the gross combined ratio and the retention combined ratio each declined year-on-year as the impact of pandemic insurance subsided. This is the end of presentation. Now, let's open to Q&A.
Good afternoon. This is Grace Chen. Before the Q&A session, I would like to give a summary from the Chinese session. In this afternoon, there were many questions asked by the audience surrounding our outlook guidance for major key drivers and dividend policy. Bank side, we expect high single-digit growth in loans, driven by all sectors, including corporate mortgage and consumer loans. Credit cost is likely to remain at a regular level of low 20 basis points.
In full years, the net interest margin is likely to sustain at similar level of 1.38% as we increased position with better yield in foreign currency assets last year, providing support to NIM. This is based on the assumption of Fed rate cut of 75 basis points in the second half of the year. For fee, we expect the mid-to-high single-digit growth, as well as for wealth management and credit card fees. On life side, continuing to build the CSM remains our top priority. We expect the first year premium for traditional products, including highest CSM product, health and accident policy, will have solid growth.
The renewal premium is likely to halt its downward trend and stabilize. We will continue to enhance our recurring income to achieve 3.5% recurring yield by 2025. Annual long-term expectation for hedging costs is 1%-1.5%. Regarding dividend policy, our earnings strongly pick up last year. Additionally, there was a substantial rebound in balance of unrealized gain and loss, which, including both other equity and the impact of AC reclassification, and which, especially the other equity as of the 2023 year-end, was improved to TWD -78.5 billion.
Compared to the special reserve of TWD 226.8 billion already set aside at this year's AGM, the shareholder meetings allows for a reversal of TWD 148.4 billion, and which significantly boosted our unappropriated earnings. Above, the aforementioned are highly encouraging our dividend distribution capability and key financial metrics.
Given these factors, we are quite optimistic about our dividend policy in terms of the dividend yield and the payout ratio. Compared with, for example, the average payout ratio for the past 10 years for Cathay Financial Holdings, which was approximately 14.6%. We will prepare a competitive and optimistic proposal for the board for their decision. These are some key highlights.
We will now begin our question- and- answer session. If you wish to ask a question, please click on the Raise Hand button and wait for your name to be announced. After you are announced, please press the unmute button shown on your screen and ask your question. If you wish to cancel your question, please unclick the Raise Hand button. [Non-English content]. The third question is from Jimmy Huang , JP Morgan. Please press the unmute button shown on your screen and ask your question.
Hello.
Jimmy, please go ahead.
I have two questions. First one is for Cathay United Bank. If we look at OpEx growth was 19% year-on-year. Understand there was some effect due to higher business tax. If we excluding that, what is the underlying trend for OpEx growth last year, and how should we expect the trend for this year? The second question is back to the dividend policy. I think you do mention there was some release of the special surplus of over TWD 140 billion from under the shareholder equity. If we take into account like the unrealized losses for the reclassified portion, and I believe some of the losses you didn't really fully cover in 2022. Out of the TWD 140 billion, how much is that really we can freely use, either for business growth or for dividend payout distribution? Thank you.
Jimmy, for the dividend policy issue, sure, there was still a negative balance of our AC impact of AC reclassification at the year-end. However, for the 2024 AGM, the reversal of the TWD 148 billion improvement of the other equity can be treated as our appropriate earnings. Going to next year for the 2025, this will be the beginning an appropriate profit. Those, according to the accounting standard, this will be put to the AC impact of AC reclassification still have a negative balance. We should use these figures and appropriate profit CSM to cover the negative balance of the AC reclassification impact.
That's for sure. As we are entering into the rate cut cycle, we take an optimistic view on the AC revaluation. Probably we can wait, you know, now it's still on the first quarter. I think, you know, your question, we may just wait for the coming quarters to see the reversal, the revaluation change of the AC reclassification.
Okay, thank you. How about the OpEx question?
Jimmy, we don't have the information on hand. Can we provide to you offline?
Yeah, sure. No, no problem. Thank you.
[Non-English content]. Please press the unmute button shown on your screen at...
I have quick question, follow up on the NIM. I think we guided that this year's NIM will be around 1.38%. How should we think about the swap income this year? If we include swap income, how should we think about like adjusted NIM for 2024? Thank you.
We don't have a specific target for the swap income, as we treated the swap as an investment opportunity. When there is opportunity, we will catch it. When there is none, we won't. We will pursue other investment opportunities. We don't have a specific swap income target in our plan.
Okay. Thank you.
As a reminder, please click the raise hand button if you would like to ask a question. There appears to be no further questions at that point. Okay. There appears to be no further questions at this point. Mr. Lee, can we conclude this meeting?
Okay. Well, thank you for your participation in Cathay Financial Holdings conference call. If you have any further questions, please feel free to contact our IR team. Thank you.
Thank you for your participation in Cathay Financial Holdings conference call. You may now disconnect. Goodbye.