Welcome everyone to Cathay Financial Holding Company's Third Quarter 2020 conference call. All lines have been placed on mute to prevent background noise, and 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 the question. Now I would like to introduce Ms. Sophia Cheng, the CIO of Cathay Financial Holding Company. Ms. Cheng, you may begin.
Thank you. Good afternoon, and good morning to those in Europe. Welcome to Cathay Financial Holding's 2020 third quarter analyst meeting. I am Sophia Cheng, the Chief Investment Officer for Cathay Financial Holding. Today, I will host the conference call. Thank you very much for joining us today. In the beginning, I would like to introduce the senior managers who are with us today. Today we have Mr. Daniel Teng, Senior EVP of Cathay Financial Holding; Ms. Grace Chen, Chief Financial Officer of Cathay Financial Holding; Mr. Abel Lin, Managing Senior EVP of Cathay Life; Ms. Joyce Tsai, Senior EVP of Cathay United Bank; Ms. Grace Hong, EVP of Cathay Life. For today's conference call, Yajou Chang, our head of IR team, will present the third quarter results. After the presentation, we are open for Q&A session, in which senior management will be happy to answer your questions.
Without further ado, let me pass the call over to Yajou for the briefing of our third quarter results.
Thank you, Sophia. Let's start with the business overview of third quarter 2020 on page four, which provides a quick highlight on each subsidiary. Cathay United Bank delivers steady loan and deposit growth with benign credit quality. Offshore earnings grew 21% year-on-year, accounted 48% of pre-tax earnings. Wealth management fee grew steadily, driven by mutual funds and securities products. Cathay Life continued its focus on value-driven strategy. Total premium grew steadily, driven by the growth of renewal premium. Both First-Year Premium, FYP, and Annualized Premium Equivalent, APE, ranked number one in the industry. After hedging investment yield reached 4.1%. Overall investment performance maintained stable. Cathay Century, the general insurance subsidiary, premium income grew steadily. Market share was 12%, maintain number two in the industry. Overseas premium continued to grow. Asset management subsidiary, Cathay SITE, has AUM of TWD 939 billion, ranked number one in the industry.
Cathay Securities' first nine months earnings grew significantly. Please look at page five, Cathay Financial Holding net income and EPS. Cathay Financial Holding reported after-tax net income of TWD 64.4 billion for the first nine months of 2020, which has already surpassed 2019 full year figure, driven by sound investment performance. The earnings per share was TWD 4.55. Page six shows the subsidiaries' net income and ROE. Cathay United Bank earnings slightly increased year-on-year. Cathay Life net income grew 47% due to better investment income. Other subsidiaries all delivered double digit earnings growth. On a consolidated basis, the holding company ROE was 10.7% for the first nine months of 2020. Please turn to page seven to see the book value of Cathay Financial Holding.
The holding company's book value as of the end of third quarter was TWD 825 billion, and book value per share was TWD 54.8. Page nine and 10 show our overseas expansion, which is on the right track. Cathay Financial Holding continues to expand its overseas business by deepening its overseas presence and reinforcing the relationship with local partners. Cathay Life Vietnam's total premium increased by 60% year-on-year, and Cathay Century performed steadily in Vietnam. As for the subsidiaries' operation in China, Cathay United Bank China invested CNY 800 million in Ant Consumer Finance Company in Chongqing. For Cathay Life's joint venture in China, the total premium grew 10% year-on-year. Please turn to page 12 for more details about the banking subsidiary.
With proper risk management, Cathay United Bank loan balance was up 3% year-on-year to TWD 1.6 trillion as of the end of third quarter, driven by both in consumer loans and mortgage. Deposit grew 9% year-on-year to TWD 2.5 trillion. The demand deposit ratio increased from 63%- 68%. Interest yield is shown on page 13. The net interest margin and interest spread for the first nine months was 1.18% and 1.76% respectively. The decline was due to continued adverse impact from the rate cuts. Page 14 shows the asset quality of Cathay United Bank. Due to the prudent lending policy, Cathay United Bank maintains low NPL ratio at 16 basis points and coverage ratio at 1061%. Gross provision was TWD 2.3 billion. Recovery was TWD 0.8 billion.
Now please turn to page five for SME and foreign currency loans. Cathay United Bank focused on developing SME and foreign currency loans with benign asset quality. SME loan balance reached TWD 212 billion. Foreign currency loan balance was TWD 244 billion, accounted for 16% of total loans. Our offshore earnings is shown on page 16. Offshore earnings was TWD 10.4 billion, up 21% year-on-year, accounted for 48% of bank's pre-tax earnings. Please turn to page 17 for fee income. Fee income was TWD 15.5 billion for the first nine months. Credit card fee declined year-on-year due to lower spending under pandemic. Page 18 shows the breakdown of wealth management fee. Wealth management fee income increased 3% year-on-year to TWD 8 billion. Strong growth in mutual funds more than offset the decline in bank assurance fee.
Please turn to page 20 and 21 for Cathay Life's premium performance. Total premiums increased 2% to TWD 481 billion, driven by the growth in renewal premium. On page 21, First Year Premium, FYP, was TWD 123 billion, down 16% year-on-year. The decline was due to the lower policy reserve rate. The annualized premium, APE, was also down due to lower sales volume and product mix change. Page 22 shows the value for new business. Based on the 2019 embedded value assumptions, value for new business for the first nine months of 2020 was TWD 26 billion, declined 27% year-on-year, as the regulator reduced the policy reserve rate, impacting the sales volume and product mix. Page 23 shows our cost of liability, which continued to improve.
The reserve-based liability cost was 3.86% at the end of the third quarter, improved 12 basis points year-on-year and 9 basis points year- to- date. Please look at page 24 for the investment portfolio. Cathay Life's total investments reached TWD 6.8 trillion at the end of the third quarter. Overseas investment accounted for 66%. The investment return of each asset class are as follows: cash and cash equivalents, 0.4%; domestic equity, 14.6%; international equity, 4.8% pre-hedge; domestic bonds, 5.4%; international bonds, 5.7% pre-hedge; mortgage and secured loans, 1.7%; policy loans, 5.5%; real estate, 3%. Overall investment yields are shown on page 25 and 26. After hedge investment yield was 4.1%. Cathay Life will maintain proper risk management and dynamic portfolio management in face of market volatility. On page 26, pre-hedging recurring yield was 3.29%.
The lower interest rate environments and enhanced credit rating mix in the bond portfolio has led to lower new money yields. Selling into strength, together with corporate conservative dividend policy this year, results in lower cash dividend income. Hence, the higher cash level, lower new money yield, and less cash dividend income affected the recurring yields. The annualized hedging cost was 1.83% for the first nine months. New Taiwan dollar appreciated 3.4% and was stronger than other currencies, which reducing the effectiveness of basket hedging. Cathay Life will continue its flexible and dynamic hedging strategy to ensure the effective control of the hedging cost. Please look at page 27 for cash dividend income and regional breakdown of overseas fixed income. Cathay Life has recognized dividend income of TWD 16.2 billion in the first nine months of 2020.
For overseas fixed income investments, Cathay Life allocated 46% in North America, 19% in Europe, and the rest are in Asia Pacific and other countries. Page 28, the consolidated book value and unrealized gains of financial assets reached TWD 648 billion and TWD 126 billion respectively. Next, please turn to page 32 to 34 for the performance of Cathay Century. Cathay Century's premium income was TWD 18 billion. Equity share was 12%. Page 33, the cross-selling synergy continued to perform well. Over 60% of total premium income was generated by group channels. Page 34, the growth combined ratio and retained combined ratio remains stable. This is the end of the presentation. Now let's open to Q&A.
Yes, thank you. Ladies and gentlemen, we will now begin our question and answer session. If you wish to ask a question, please press zero one on your telephone keypad and you will enter the queue. After you are announced, please ask your question. Should you wish to cancel your question, you may press zero two. Thank you. Please press zero one if you would like to ask the question. Thank you.
Our first question is coming from Yafei Tian of Citi. Go ahead, please.
Hi, Yafei.
Hi, good afternoon. Thank you so much for taking the questions. I have a few. The first one is on dividend policy. Could you give us an update what the regulator stands when it comes to paying out dividends from the life business and, along with that, how is that going to impact the group dividend policy into next year? The second question is around the recurring yield. I understand this quarter or this year has been seeing a big decline. In the Mandarin call, you break down the reason for the decline. Just wondering, when do you expect to see the recurring yield to stabilize, and at which level in next year? Along with that, on the hedging cost, if New Taiwan dollar continue on the appreciation trajectory, how are you thinking of your hedging strategy to keep the hedging costs down? Thank you.
First of all, Yafei, thank you for your question on dividend payout policy. This relates back to who pays you dividend. It's the holding company, they will make the payouts. Okay. On and off, depending on regulators' thoughts on banking or insurance industry, they may have some suggestions to the companies, whether they pay to their parent, the holding company level. But to a shareholder like yourself, the most important is how our dividend policy is defined and whether we will pay you. At our company chapter, the company has a policy of dividend payout of a minimum 30% of retained earnings after reserve for legal reserve and special reserve. There will be a 30% payout for that minimum. Because 2020, the company has earned quite sufficient net profit, and year- to- date, we already make the earnings.
I think it's higher than whole year last year already. For 2021, I don't see a very big concern for minimum payout at all. This all needs to be approved by our Board meeting next year. I'll pass the two questions on recurring yields and hedging to Abel.
I think the first one maybe about the recurring yield. This year, I think maybe I give you some guidelines why this year we dropped by around 50 basis points. The first one is that our cash dividend this year is dropped by 34% in comparison to last year. It affects our recurring yield by 15 basis points. This is the first one affected by our cash dividend. Secondly, along with the market interest rate and our corporate yield, I think total all-in, the market all-in corporate yield is down around the 80 basis points. Because we adjust our credit portfolio, also we realize some fixed income to get some capital gain. This part for market interest rate and also our realize, it affect our recurring yield by 27 basis points. This is the second part.
The third part is that, I think we adjust our credit portfolio. For example, last year, our BBB + below is around 4.2%, but right now, this kind of category, BBB + below, is only 1.6%. Generally, right now, when we invest our new money, we prefer A, and some is BBB +. Right now, the market interest rate is quite low. We adjust our credit portfolio, and this part will affect by 6 basis points.
Awaiting 1.6% is percentage of fixed income, not total asset.
You mean that this is stabilized or not? It will depend on, for example, our cash dividend policy, that I think that last year we still were considering the total yield, not only cash dividend. This part also will affect our next year's recurring yield. It also will depend on the market interest rate. We don't know, but we expect the low interest environment will still longer. It also will affect our recurring yield. It will not drop that significantly, for example, next year. I don't know whether it can become higher than this year. It will depend on our cash dividend. The second one is about the hedging cost. I think that although Taiwan dollar appreciation, it's not like the first half, because Taiwan dollar is relatively stronger than the other major currency, especially Asian major currency.
For the second half, actually, although Taiwan dollar appreciation, on the other hand, the major currency is also appreciation by at least the same level of Taiwan dollar. In the second half, actually, our proxy hedge is effective. I think we still guidance that our hedging costs for the long term still maintain in 1%-1.5%. We think that we didn't need to change our hedging strategy. Our FX reserve is still the largest in the life insurance industry in Taiwan. We are above TWD 10 billion. We are confident right now in our hedging strategy.
Yafei, have we answered your questions?
Yes. Thank you very much.
Thank you.
Next we'll have Chung Hsu of Credit Suisse for questions. Go ahead, please.
Okay, thanks. I just have a few questions on the insurance business. First on the FX reserve. Can I just first confirm that year- to- date, Cathay Life have already taken TWD 6 billion FX reserve for the whole year? Secondly, just want to ask, what is your FX reserve policy? Meaning, is there any limitation for you to book a lot of FX reserve by year-end? Is there a certain level of FX reserve Cathay Life try to keep on a constant basis? We try to get a sense of how you're managing your FX hedging cost for the business. My second question is on a follow-up to the dividend policies. Just your big value for Cathay Life increased quite substantially. Is there any way for Cathay Life to upstream any capital to the holding company and for fiscal year 2020? Thank you.
Sure. I think the first one is the FX reserve. Right now is around TWD 10.7 billion. This year till now, we have additional put TWD 7 billion to our FX reserve. This is the FX reserve. I think that we did not have any target to follow. It will depend on the market condition. Also, I think that we did not follow any guidance. We think, the more FX reserve, the more we can make our hedging strategy more stabilized. This is the first one for FX reserve. Next is the, I think the, yes, our book value is increased quite a lot, but this is due to the first one is the interest rate in such low level.
We have a lot of unrealized capital gain, especially in fixed income, obviously fixed income. For example, in the third quarter, before tax, we have around TWD 145 billion of the whole financial unrealized gain. Fixed income accounts for 70% is from the fixed income. I think this year we also make a very big net income to Cathay Life. I think that still we have a lot need to put on the special reserve in Cathay Life. I think that, as I mentioned before, we adopt IFRS 17. It is not easy for our company to get. I think the regulator still concerned we need to put more capital in Cathay Life to adopt International Accounting Standard or International Capital Scheme for the new ICS. We expect, in the short term, it is not easy to upstream our capital to Cathay Financial Holding. This is the right now condition.
Okay.
Does that answer your question?
Yes. Thank you, Abel. Can I just follow up on the FX reserve?
Okay.
By end of the year, Cathay Life basically has full discretion basically to take any extra FX reserve if needed, and therefore to manage a potentially lower FX hedging cost for next year?
I think the regulator didn't have any upper limit for our FX reserve. It means that if we want, we still can put more FX reserve. Till now, I still need to depend on the market condition, I didn't have any guidance on what FX reserve we need to put. Till now, as I mentioned, that still although the Taiwan dollar appreciation, but still effect for our proxy hedge. At this moment, I don't think we have need to put more FX reserves. It depends on market conditions, as I said.
Okay. Understood. Thank you.
Yeah. Thank you.
If you would like to ask the question, please press zero one on your telephone keypad. Thank you. The next question is coming from Yafei Tian of Citi. Go ahead, please.
Thank you. I have another question regarding the realized gains this year. Overall, very strong realized gains. Would it be possible to give us a breakdown of how much gains are coming from FX side, how much coming from equities side. Right? Also for the FVTPL and FVOCI unrealized portion, similarly, what will be the split? Just trying to understand how much further scope do you have to realize gains into next year to support the earnings. That's the first part. The second part is, so far, what is investor feedback when it comes to this connect between very strong earnings relative to relatively softer share price performance? Investors don't seem to give enough credit for those realized gains and focusing more on recurring yields. How is this going to change management's view when it comes to asset liability management? Thank you.
Yafei, thank you for your question. First one, regarding the amount of realized gain for equity and for fixed income, it is on page 40 of the presentation material, which has the financial highlights for holding company and every subsidiary. The amount of realized gain from equity for the first nine months was TWD 58 billion, where from fixed income is TWD 54 billion. That's the first question to you. The second question is for the unrealized gain from FVOCI, which you can see on page 28 of the slides. You can see at the end of September, the amount was TWD 126 billion, which Abel just mentioned, it's about 70% from fixed income. Correct? Yeah.
About 70% fixed income, 30% in equity. This excludes even sizable unrealized gain from AC books because they tend to be held to maturity to match liability. If you think about future earnings source, assuming nothing change, assuming there's no additional gain, unrealized gain, we can make this TWD 126 billion there can be a buffer for going forward. I'd like to highlight the philosophy behind Cathay Life investment decision. We highlight many times before, Cathay Life naturally very negative spread. Our effort is combined both can, how can I balance the asset yields and also do some work on my liability side? On page 23 of the cost of liability that you can see over the years, we maintain very steady improvement in my new policy guarantee rate in my product mix, so we can reduce the cost of liability over time.
We don't want to overly depend on just asset yield enhancement. The second is through the economic cycle, there are some times where we think we are not super comfortable with lower credit rating fixed income and some instruments. It's all about the risk appetite selection for insurer, which you are required to take several risks. They were including liquidity risk, credit risk, duration risk, FX risk, and one-off gain risk. Even affect current low rates, very low credit spread, Cathay Life has on purpose been reducing the exposure to high yield area. That's why you can see back couple years ago, we had roughly 5% above fixed income in non-investment grade. Today, it's only 1.6%, as Abel has just mentioned.
The realized gain occur because of the investment decision that we look at total return, and we will compare where I can do better capital gain vs liquidity risk vs credit risk. A different macro environment, the realized gain come out from a decision. Partially, yes, we do need accounting gain so that we don't run into negative number given the negative spread. A more important part is over the past year, especially from last year, Life has been running a de-risk model that we are improving the credit rating of the fixed income. Today, you can see that the credit rating mix for the whole fixed income portfolio under Cathay Life is better, stronger than before. That's why Abel mentioned the most of the new money we put in, we will focus on BBB+ and A and above. Okay?
This is more a combination view asset allocation responding to macro. If we need a good accounting numbers, I don't think today, this year- to- date, we need to make so much. It's really also considering the macro environment where we see. You also asked a question about investor perception or whether investors appreciate realized gain or recurring yield. I don't think we should speak for investors. The IR team's responsibility is to be transparent and try to express the business decision as much as we can to you, and investors should have the full discretion on their decision. You can see Taiwan Life Insurance Company, they tend to perform quite in line regardless. It's coming from a coming yield, one-off yield or recurring yield.
I personally believe it's a low rate depressing the life insurance sub-sector in general, despite you have seen the stabilization. There is also a special case for Taiwan, where the high-tech and some companies, they benefit from the high-tech trend, the e-commerce, the cyber, the video conference, a lot of the new technology that offer you the opportunity for now the manufacturing companies. Taking just on the one-off or recurring, I cannot just that's the only reason. Okay. I do think that Cathay, if you can see from 2013 onwards, both Cathay Life and Cathay United Bank have shown a proven record that we will try our best. We don't want to overtake the risk. Yes, we do have the pressure. We need some accounting earnings to cover the negative spread.
You can see the cost of liability is improving, and we are very happy that we can show the discipline in correct direction in fixed income. That does create year-to-date the suffering in recurring yield, given that we also have higher cash position. We do hope this will be temporary as the market, if the interest rate eventually more normal. We still put a lot of effort in improving my cost of liability policy. I don't think I answer you very well on investors, whether they appreciate recurring or one-off, because for me, they are all the same. We are all taking a few forms of risk, and if we can focus on the core competence, you invest and you are good in exit, any risk is fine. It's hard for us to compare Cathay with other peers.
The biggest difference is some companies with legacy book vs companies without. The headaches they face are all quite different.
Thank you, Sophia. I appreciate that.
Thank you.
I have a question along similar lines is, from next year onwards, some of the Korean insurance companies will started to report their earnings, in a similar accounting methodology to IFRS 17, right? Under that, you will have the insurance earnings, and then you will have the investment part of the earnings, that will be able to help investors looking at the underlying profitability of the business, particularly from the insurance perspective. Understand in Taiwan, IFRS 17 won't be implemented until beginning of 2026, most probably. Would it be possible that sometime in the imminent future, we'll be able to have the accounting P&L according to IFRS 17 available to investors so that we can have an idea of the performance under the new accounting methodology?
I think it's still early to say that, but I think I put it in mind and also because it's not only Cathay Life can do, I think it should be comparison to the whole industry. I think it will depends on regulator, their opinion. I think Taiwan is very clear, make our schedule is that we need to adopt IFRS 17 and ICS on 2026. Before that, we also need to communicate with the investor and also our policyholder and the other stakeholders. I think before that, you will see that maybe have some different presentation to investor and also some reporter to get acquainted with this new IFRS 17 and ICS. At this moment, I should ask that to make very clear that at what timeline that we can do that, because still have some very detailed techniques that is not still-
Under discussion.
under discussion. I cannot give you the specific term to do that. I think that we will put in mind, and also we think it's a good direction to communicate with the investor.
Are there any, as it stands, any stress test on capital? What is the RBC ratio or the new international capital requirement under that new requirement, what is the capital level? Are there any further updates since last time we spoke?
I think this test, this calculation, all the different scenario and also different I think that Taiwan, we do a lot, but still on the discussion level, it's not proper to disclose to the other stakeholder. Our regulator very, I think on schedule. I think our schedule is that, for the next three years, we need to have a lot of scenario to field test in Taiwan. We call the Taiwan field test on the ICS. This is only for regulator purpose to make their Taiwan ICS. It's not we can disclose these kind of numbers to investors. As I say, when the new scheme decided, I think the regulator will announce public in the future. This time, I think that we did a lot of stress test. We did a lot of calculation.
Actually, I think that because our company joined the field test for ICS in IAIS, it's already for five years. We've done a lot of work on this ICS standard, and also we communicate with the IAIS regulator to set up some standard that may be fit for Taiwan market. I think that we did a very good job on this project. This is only for our internal and also for our regulator purpose. At this moment, it's still not easy to have public information to investors. I'm so sorry, but we did a lot of work on this part.
We are quite early in the ICS test. As Abel mentioned, there were a lot of technical details. There are a few items that need to be confirmed by regulator and industry, and we think it's not right that before there is a clear definition on those eight single items for us to provide a Cathay version of simulation to public. The regulator will consider the inference to all the players. They will have various consideration. The test has been going on for a couple of years, and that's why our policy strategy for our insurance product, we also have been including the consideration for future ICS into the product launch decision-making process.
Okay. Appreciate the colors. Thank you so much.
Thank you.
The next question is coming from Jemmy Huang of JP Morgan. Go ahead, please.
Yeah. Hi. Just two quick question from me. I think the first one, can I confirm that the FX reserve mechanism will continue to exist when we're moving into IFRS 17, compared to the overlay mechanism that will be terminated? Also out of curiosity is, between RBC and ICS, whether the proxy hedge will have higher capital charge under ICS? That's the first one. The second thing is, in terms I think that you briefly mentioned earlier. I think in terms of the FYP strategy, is it fair to say that we focus more on CSM rather than on VNB margin nowadays? The reason why I'm asking is because, apparently, a much higher proportion of investment-linked products, even though the VNB margin is low, but they can continue to build on the CSM.
Just try to understand, in terms of the profitability measures, is it fair to say CSM is more important nowadays compared to VNB margin?
Yeah. I think the second one is the easy part. I need to speak first. The CSM margin and VNB margin, I think, yes. Right now, we're more focused on CSM margin than VNB margin. Actually, this kind of measurement didn't make too much difference. For example, the unit-linked product, their CSM margin, I think is also low. Actually, our product strategy right now, we considering it's not only CSM margin. Actually, if you only consider CSM margin, it will not proper. At this moment, we will consider is the CSM margin after cost of capital adjustment by ICS proxy. It means that our measurement will consider the cost of capital considering ICS.
In this measurement, this unit-linked product actually is above than the long-term guarantee product, no matter is the protection death benefit or this health insurance because the capital charge is very low and very large if we guarantee the whole life. I think the product strategy will shift when we considering the cost of capital of especially the ICS standard, not RBC standard. You will see will change very significantly to our product strategy. This is the first one. I need to say yes, we're more focused on CSM margin, but it's not the whole story. Not only CSM margin, but we need at the same time to considering the cost of capital, consider the ICS standard. This is the first one.
The second one, after we consider IFRS 17, in Taiwan, as the regulator said, we need to meet some Taiwan-based IFRS 17 and ICS. The first one, for example, FX reserve, because Taiwan, this is for our legacy book to have the overseas investment. This is not decided yet, but we think the direction we suggest to keep our FX reserve or still have that. Although, after the adoption of IFRS 17, this is the first one. This is not final decision yet. This is for our whole industry. We have the same suggestion. The second one, the other one is the?
Proxy hedge.
The proxy hedge for the ICS. This is still not decided yet to whatever. The proxy hedge, under the ICS standard, Taiwan maybe have some adjustment. I didn't know the final yet. The principle is that the proxy hedge will have more capital charge on ICS standard. Taiwan maybe have some adjustment. It's not decided yet.
Thank you.
Thank you.
The next question is coming from Chung Hsu of Credit Suisse. Go ahead, please.
Thank you for taking my question again. I have a sort of broader question for Sophia and Abel. I think for many years, I think for long-term investors, they have tried to look at Cathay Life business by comparing the cost of liability and recurring yield, hoping that at some point that these two points will cross, so that you will see a positive investment spread on a sustainable going-forward basis. From today's call, this quarter's earnings, it seems that there's quite a bit of a shift in your investment strategy, right? Your dividend, your equity investment is practically at least trying to focus on capital gains than dividend income. Your bond portfolio, you try to de-risk, obviously in such an uncertain and volatile market environment.
My question is, how do we look at, or will you suggest the investor to focus on for Cathay Life on longer term? At least try to help us to think, how is Cathay management trying to manage its long-term shareholders, how to look at this company on a more longer-term basis? Because covering your company is becoming increasingly difficult now that a bigger and bigger part of your profit and book value even is coming from capital gains? Thank you.
Chung, thank you for your question. Let me explain a little bit. This lower recurring yield, if you consider low interest rate, that is structural. If you look at the lowest cash dividend income, I think that's temporary. This year has been strength in equity market. We had a concern that maybe after the dividend payout, the share price may not be as strong, because there was such strong demand for dividend payout stocks that people need to invest for the sake of recurring yield. We have decided if company, they already are quite fully priced, we were comparing locking in the total return or should I take a share price correction because I want that few percent dividend yield. So far, this year you can see after the dividend payout, not every single stock has really covered the dividend gap, the yields gap.
Some company are still share price remain quite flat compared with the payout time. To answer your question, this lower cash dividend income is temporary, and it's very sure. Moving to IFRS 17, we will be investing into more and more dividend payout company at a reasonable valuation. In fact, such weak share price today does offer us some buying opportunity. It should be temporary. If you consider on the cash dividend income part, Cathay has not really changed much.
Chung, I think I need to apologize to make that so clear to this quarter. The first one I just mentioned, the total return is just temporary for this year, maybe the first quarter of next year. This is because the market condition we didn't comfortable and also, we temporarily do not focus on cash dividend. I need to say, because we very detail and very At the beginning, we prepared the IFRS 17 and ICS require a long time. We have internally, we have a schedule to maintain and increase our recurring yield. This is a long-term project, but this is short-term, maybe drop. In the long run, we're getting up to meet our long-term target. I need to say, internally, we have a core cash dividend position. This core dividend, it will combine some several pick up rules.
This core cash dividend, actually this year increased quite significantly. If you consider the total cash dividend, maybe some part we reduced, but the core cash dividend position increased quite a lot, and actually, we have a five-year plan to increase this core cash dividend. This is the first one I need to explain. This is only for the cash dividend. This year drop is just temporary. Secondly, also, I just mentioned we reduced our credit to increase our credit quality. This de-risk is also temporary. We need to adjust the credit quality. As I mentioned, actually, we need to increase our fixed income portfolio and also lengthen our duration. You can see this asset duration is still on the right track, and also our fixed income, we need to want to increase. This is for the IFRS 17.
I think that this is the adjust. The credit is temporary. We need still on the right track to increase our recurring year. In the short term, maybe you will see some drop. In the long run, we think we will meet our target. Some point is that affect by the market interest rate. On the other hand, we need to adjust to reduce our funding cost further. This is the other part we need to do. You will see, for example, the Taiwan dollar new policy or import policy. We gradually reduce our credit rate gradually from, I think one year ago to now. You will see the trend. I think that I just need to put very serious. We didn't change the recurring year.
In the long run, we need to get it up because in the IFRS 17, it's a very important target we need to meet. This is I need to explain it first.
Sorry if it confused you.
No. Okay. It's okay. I understand. Thank you. Thank you for the color.
Thank you, Chung.
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. We thank you for all your questions. There appears to be no further questions at this point. Ms. Cheng, can we close the conference call now?
Thank you. Thank you all for the good questions today. I just want to reiterate, in such a turbulent market and there are a lot of uncertainty in the world, we will continue to be very focused on this and liability and asset management. If there are more question that you are interested in learning, just please feel free to contact our IR team. Thank you for your participation in Cathay Financial Holding Company's conference call today. Thank you and bye.
Thank you, Ms. Cheng. Ladies and gentlemen, we thank you for your participation in Cathay Financial Holding Company's conference call. You may now disconnect. Goodbye.