My dear friends, I'm the spokesperson, April Pan from CDF. Welcome all of you to join CDF 2023 Q1 investor conference call. We have four parts for today's conference call. First of all, we will invite Steve, the CEO of CDF, to talk about the performance review of CDF and update in ABCD strategies. Next, financial updates. The subsidiary's performances will be covered by the Senior Vice President, Mandy Chao. Lastly, the Q&A session. Before we invite Steve, we have the interpretation functions available on Webex. You can select the language you need. Now we'll invite our Chief Executive Officer, Steve.
Good afternoon, everyone. Today, I'll give you an update of our financial performance highlights. During the first quarter of 2023, our net income was TWD 3.5 billion, and earnings per share of TWD 0.21. CDF was ranked number four globally and number one in the Taiwan Dow Jones Sustainability Index for the life insurance financial sector.
We also announced the elevation of KGI SITE as a first-tier subsidiary of CDF in order to accelerate our growth in AUM. In terms of China Life, first quarter net income was TWD 321 million, which was impacted by higher hedging costs. We remain focused on high-value products and increasing our market share of regular pay policies. The VNB margin increased from 25.8% to 34.4% last year. We continue to maintain prudent investment management in a very volatile market.
Our pre-hedging recurring yield was up 25 basis points year-over-year to 3.4%. In the China Life section, we'll also give an update on embedded value. KGI Bank posted a 13% year-over-year increase during the first quarter to TWD 1.54 billion. We continue to optimize our asset mix, with SME and personal loans growing 26% and 20% respectively year-over-year.
Our consumer finance JV continues to do very well, with 86% year-over-year growth for RMB 83 million profit, and lending balance grew 71%. CDIB Capital benefited from the investment portfolio's appreciation, and we saw first quarter net income at TWD 0.9 billion. AUM also increased to TWD 51 billion, with the Kunshan Taiwan Business Fund completing its first closing during the first quarter.
CDIB also signed an MoU with Hon Hai to jointly establish the Kaihong Renewable Energy Fund, which is the first green energy investment platform across both technology and financials. In terms of KGI Securities, net income increased 31% during the first quarter to TWD 1.9 billion at a 13.9% ROE.
Overseas contribution grew 213%, and we also saw Singapore deliver very strong quarterly profit performance of record high. Our share of the SGX stock right now is at 12%, up from 6% in September of last year. Our customer AUM also grew 12% and 10% quarter-over-quarter to TWD 371 billion at the end of March.
If you turn to the ABCD strategy, today I'm going to focus primarily on the subsidiaries, but on page seven, I thought I would touch on just three of these, which I will now cover in the following section. The first one is under the employer of choice, a lot of work occurred during the first quarter to further cascade and align our KPIs and incentives across the group. We focused on both financial and non-financial elements in things such as NPS, employee survey, ROE, net income, digital risk, et cetera.
In terms of customer focus, a lot of work continues to happen on repositioning the brand, and we now have an aligned tagline for all our subsidiaries around Committed to Your Prosperity. You'll see more of that as we. Last but not least, under execution excellence, a lot of work has gone into optimizing our investment and risk appetite.
Given the turbulence in the market, we've taken a very prudent approach and continue to very tightly manage the business in order to mitigate volatility and maintain strong capital levels across all our subsidiaries. If I can then turn to China Life, I'm going to only highlight a few for each subsidiary. For China Life, under accelerated growth, we saw them being the first company to receive accessibility certification for both mobile applications and its official website.
Under C, there's a new webpage that was launched to make it easier for customers to understand insurance in a more user-friendly manner. Under D, we saw the sale of high-value products increase 22% year-on-year, which contributed to 36% of our sales compared to 20% last year. Last, but certainly not least, we saw our Q1 FYP market share increase to 9.4% from 8.2%.
Again, highlighting the focus on continuing to drive high value in the insurance business. For KGI Bank, the bank continues to expand its ecosystem cooperation with now partners in logistics, crypto exchange, and real estate. In terms of mobile, we expect to see a major upgrade of our mobile banking application, which was recently relaunched earlier this year with over 90 new features being added this year.
In terms of execution, we continue to invest heavily on RPAs. We have almost 100 of them now. We're going to continue to expand in order to further streamline and simplify our operations. If I can take you to CDIB on page ten. CDIB continues to explore new asset management products. You'll see in the CDIB section, we're going to talk a little bit today about private credit, just to give you a sense of how we've been developing that product.
We also launched our Tokyo Innovation Hub in Shinjuku in Tokyo, which is designed to help accelerate innovation, much like we do in our Nangang Center here in Taiwan. They also completed two co-investment deals, deploying TWD 3.3 billion. As I mentioned, they signed the MOU with Kaihong Energy, which will be a great first step to further accelerate our green energy industry investment.
On page 11, in terms of KGI Securities. KGI Securities have finally fixed our online service password recovery. As you are aware, we spend a lot of energy understanding customer needs and customer issues. When this problem was corrected, we saw a reduction in 26%. This is just one example of us continuing to improve our services based on customer feedback.
Also, we are doing much more tracking in terms of digital footprints to reduce drop-off rates, and we saw an increase in completion rates by focusing on this as well of 20%. KGI Securities has also trained over 500 China Life agents who have now passed the securities specialist exam as a way to further expand the products and services they can offer the customers.
On wealth management that we have discussed before, we continue to further expand the skills of our agents with now a 30% increase in people that have financial consultancy experience to provide broader products and services to our customers. I will now turn it over to Mandy, who is going to take you through the financials.
-profitability. If we move to page 13, will be the CDIB's performance. The net income closed at TWD 3.5 billion. The EPS is TWD 0.21. At the end of April, our total asset has amounted to TWD 3.6 trillion. If we look at the total equity, because of the valuation of both stock and bond market have recovered, so our total equity has recovered back to the level of TWD 233 billion.
Next is the profitability of our subsidiaries, and subject to the rate hike and the cost of hedging increased, the capital gain has decreased, and China Life posted TWD 0.3 billion net income. Next, because of the profit coming from the overseas market, we can see that CDIB Capital's net income grew by 12%.
We have also made a lot of investment in the healthcare industry and post a net income of TWD 0.9 billion. This is actually a great increase compared to last year, where we were subject to great market volatility. As for KGIB, we see TWD 1.5 billion of net income. The ROE of all of our subsidiary have also improved. Next page is our capitalization. As the capital market stabilizes, our Q1 double leverage ratio has lowered to 125%, and all our subsidiaries capital ratio are also maintaining at a good level. Next, I will move on to the subsidiaries. First is China Life.
Please go to slide 17. In terms of premium income, due to the federal rate hike, the increase of short-term rate, it still affected sales momentum as Q1 FYP weakened year-over-year. The overall industry declined 39%, while China Life dropped 30%. For product strategy, we still continue to focus on restructuring our product mix.
For regular pay, the volume increased by 13% year-over-year, and the percentage also moved up 50%. For high margin product is our focus, and for single pay, it is mainly USD policies. As you can see on this slide for our channels, China Life maintains a balanced development. For agency channel, the contribution has gone up to 29%, focusing on fixed pay product and A&H. These are high margin products. For FYPE, China Life continues to strengthen its overall product mix.
The regular pay has taken up nearly 90%, and we still outperform the industry average. The next slide, we can see our VNB. Because we continue to optimize our product mix, focusing on regular pay products. So despite FYP drop, our VNB is still roughly the same year-over-year. For VNB margin in Q1, it also increased year-over-year, now standing at 34.4%. For our spread, our cost of liability still maintained at a low level around 3%.
The ROI this quarter, due to increasing hedging cost, the ROI is slightly lower, 2.36. For the persistency ratio, it remains roughly the same. We have observed that starting from the end of last year, the lapse rate of policy has stabilized. Next slide. Investment portfolio. We continue to focus on ALM. We focus on long-term investment performance.
We continue to focus on foreign bonds with better yields. For the respective returns, it is listed on this slide. For foreign investments, the figures are pre-hedged figures. Page 20, our investment performance. This is pre-hedging. Benefit from yield from new money, we increased 25 basis points year-on-year. On the other hand, because the hedging cost, because of the widening of Taiwan-U.S. spread, hedging costs have increased to 2.21%.
The hedging structure, we still remain stable. Around 70% of hedging. On the other side is the FX reserve balance. Now it is at NTD 9.53 billion. Now, I would like to talk about our embedded value in 2022. As you can see on the slide for economic assumption, we consider U.S. rate hike, how it affects ROI and for NTD policies.
The short-term impact is hedging cost, so you can see the year one ROI, we decreased it. We decreased the assumption and for USD policy, it benefited from U.S. rate hike. We have adjusted the return upward. For risk discount rate, it maintains the same as last year, 9.5%. For non-economic assumptions, it is listed on the slide for your reference.
This year, we continue to commission EY and independent agency to review these assumptions. Next slide. The yield curve for NTD policies. It reflected the increasing hedging costs. We can see year one yield is at 2.98%, a decrease of 77 basis points. For USD policies, year one yield is 4.45%, decrease one basis point from rolling over assumption of last year. The long-term yield has increased by 22 basis points.
The overall equivalent yield remains at 4.22%, the same as last year. Slide. This is the comparison table of EV. For adjusted net worth, mainly due to market volatility, leading to investment asset valuation loss, which has decreased by 27.3%. Mainly due to VNB contribution, the cost of tax bill has increased by 8.8%.
The overall embedded value is at TWD 371.8 billion, a decline of 7.6%. If converted into China Life share, EV per share is at TWD 75.6, and if converted into CDF shares, the EV per share is TWD 22.2. Next slide, the detail of adjusted net worth. It is calculated by adding equity at end of 2022, appraisal gain, FX reserve balance, and also market value of fixed income asset.
The total amount is TWD 129.1 billion. As for value of in-force, this is factoring the release of interest and expected profits that have changed, and overall, the figure is TWD 304.1 billion. Next slide, VNB movements. The main two factors is FYP decrease, and also the optimization of bond mix. This is a positive impact, and the overall VNB is TWD 21.3 billion.
Next slide, this is sensitivity analysis for your reference. Overall speaking, every 0.25% change in investment yield affects the value of in-force by 13%. Now I'd like to move on to KGI Bank. As you can see on this slide, in the first quarter. It is mainly benefited from financial investment income. It grew 8% YoY. On the other hand, fee income in wealth management is listed here. As you can see, that includes bond FX.
YoY, it increased 32%. For our spread and NIM, mainly due to rate hike and increasing funding cost, NIM decreased to 1.33%. However, benefited from FX-based business and loan structure adjustment, interest spread increased by 31 basis points YoY. To optimizing loan mix, we maintain a good asset quality. The Q1 NPL is at 0.18%. Next slide. This is loan and deposit mix. This is the YoY changes.
KGI Bank continues to optimize its loan mix, focusing on growing SME and customer loan. For SME loans, it grew 26%, and customer loan grew 14%, which is mainly driven by 20% annual growth from personal loan. On the other side, for deposits, because of rate hike, the increase in USD rates has made time deposit more attractive to customers. The deposit balance slightly decreased in Q1, but has returned to the level of Q4 last year by April. Next, CDIB.
Please go to slide number 22. CDIB continued to focus on asset management. This quarter, Kunshan Taiwan Business Fund completed its first round of fundraising. The total AUM reached TWD 51.1 billion. In terms of principal investment, as you can see in the first quarter, China and global markets has continued to increase, mainly driven by investment drop down and valuation growth.
Next slide. As you can see, in terms of asset management, it has driven up fee income, which is growing steadily. On the upper right corner shows the ROI of principal investment, which is better in response to market fluctuation when compared to MSCI World Index. In terms of business expansion, starting from 2020, CDIB has started private credit business, which has been growing steadily year by year.
As you can see on this slide, the income distribution, relatively high interest income and fee income have brought continuous and stable business income to CDIB. Next, KGIS. Page 35. The ROE is 13.9%, which is better than the industry average. On the right-hand side, overseas operation is also KGIS focus. The first quarter, the contribution has reached 18%, which is a big increase compared to last year's 11%.
On the lower left side, for customer AUM, it has continued to grow, mainly coming from the growth of wealth management. On the other side, for the revenue in Q1, compared to last year, it has increased 17%. Wealth management is also the focus of KGIS. Next slide. The net revenue. First quarter net revenue, it is still benefited from the stabilization of capital market and proper strategy, which is at TWD 3.4 billion.
As you can see, in terms of the market share for various business, KGIS is still number one and number two. These are the summary of the four subs. Now I would like to open the floor for Q&A. Now let's welcome institutional investors and analysts to raise your question. Please use the function of Raise Your Hand on Webex so that we know you want to ask a question.
First of all, Jamie Wong from JP Morgan, please.
[Non-English content]Jamie, you can unmute now.
Can you hear me? Can you hear me?
Yes.
[Non-English content]
Thank you. KGI Bank, we will invite Chief Financial Officer from KGI Bank.
Good afternoon. As for the NIM for KGI Bank. The 1.33 in this slide, we already reflected the swap impact. This year, we expect the NIM to gradually recover. However, the tech funding cost, especially under the interest rate hike, the funding cost is growing faster than we expected. Therefore, the NIM recovery pace is slightly slower than we expected.
From the year last year to now, our NIM is maintained at 1.33%. Since the funding cost is maintained at a high level, we believe this might be the end of the funding cost hike. In the future, we believe the NIM will recover. That's all from me.
Okay, next, China Life. We will invite the chief actuary from China Life to reply.
I will explain our return assumption for NTD because it reflected the increase of hedging cost and due to fluctuation. Therefore, for NTD policies, at some sense, we adjust it downwards. For USD policies, because the increase of foreign yield for USD of the return, we adjusted upward, and the equivalent yield is 4.22% this year.
Last year, it is still the same figure, but rolling after one year is 4.3%. Now, compared to 4.22, it dropped around eight basis points. For VNB, because there is a rolling effect. In recent years, we continue to focus on USD policies. For VNB, it takes up around 70%. The impact is positive. For RBC, Q1 is mainly affected by C3. The impact is quite big. But after a valuation recently, the recent months, the figure is at 275. After issuing bond of [Inaudible] .
[Non-English content] Morgan Stanley Peggy.
Okay. Peggy from Morgan Stanley. Peggy, you can speak now.
[Non-English content]
You hear me?
Yes.
Okay. Thank you. I have three questions. First, about what VNB target and the overall premium for this year. The second question, the hedging cost Q1 increased more than the peer average. Your open positions have dropped. You didn't proxy. I would like to know in Q1, your peers increased their open positions. What is the consideration that you have different strategy than the peers? The third one is the China Life portfolio allocation. In Q1, you increased TAIEX investment
The dividend income this year, what is your expectation? Is it going to be better than last year? That's all from me.
Thank you, Peggy. I will invite the [Inaudible] from China Life to answer the questions.
Remains high, there is still a lot of uncertainty for policy sales. We are still conservative in the Q1 FYP drop, 30% year-on-year. However, industry average is 39%, so we outperformed the industry. In terms of product strategy, we continue to focus on high margin, high CSM products in Q1. For protection type policies, our market share is nearly 12%, number two in the market. For USD policies, the percentage is 60%, which is higher than industry average as well. The FYP expectation this year, which is the same as last year, but for product mix, our VNB will grow by 5%-10%.
Now for investment for hedging ratio. Our hedging strategy is stable. Different peers might have different strategies. For us, we want to maintain a stable approach in terms of hedging and for equities. For Taiwan stock holding, we also remain stable. We did not increase a lot. The dividend will remain the same compared to last year. Thank you.
[Non-English content] You have further question, because I saw that your hand is still raised? Sorry, none from my side. Is there any other institutional investor or analyst who would like to raise a question? Qian Hua from Bloomberg, please. The floor is yours.
[Non-English content] What is the amount of hedging cost?
Okay. We will turn to Lauren for the question.
For fund source, for USD policies, we have more of that. Therefore, we will use it for foreign bonds. The benefit is there is no hedging cost. It's beneficial for our income and for other assets allocation. If we look at NTD assets, the hedging cost is quite high, therefore we will not turn it into foreign investment. We will focus on domestic investment, for example, on ETF. This is in terms of asset allocation.
Second question regarding the new scheme of FX reserve, how beneficial it is for us in the first quarter? The hedging cost is high. With the new scheme, with the benefit. Thank you. For NTD bond ETF, there is no quota. Even if there is, we still have a long way to it. For bond ETF percentage, we will maintain at a neutral level.
This kind of product in the market, we know that for single ETF, there is concentration risk to our total assets. It will maintain at around 5%-6%, but it's not certain. It depends on the market condition.
We'll invite Tina from Capital Investment.
I'd like to clarify with you that in the Q1 swap for KGI, what is the income generated from swap? Since now the swap market is still very harsh, do you have any clear guidance for what you will be doing or what will be the contribution from swap to the business? If the spread, excluding the income from swap, is your spread going to be in decline or not? This is my first question addressed to KGI Bank.
Second question is also to the bank. I noticed that your loan in the first quarter has slowed. What will be your momentum to drive this business? What will be your guidance for the year 2023? My next question is to China Life. In Q1, you have about TWD 40 billion of unrealized loss due to valuation decrease. What is the percentage of bond and shares in between?
Okay, thank you for your question. For the question to the banks, we will have Chris to answer.
Thank you for the question. I think, the first quarter swap amounts is at about TWD 400 million-TWD 500 million. The P&L from swap is actually a kind of fortune from us, especially when the spread in US dollar and Taiwanese dollar has widened and there are more and more U.S. deposits in Taiwan. In our bank as well as other peers, we believe that in the following quarters, we expect the swap market to cool down. If we reflect back the NIM without calculating swap, indeed, the spread has decreased. Without swap, our NIM is at about 1.2%. Next, on your question to our loan strategy.
Previously, we focused more on the large corporation loan with higher spread and our growth. We have seen double-digit growth in the previous years. The reason why this year we have seen a slowdown is that large corporation listed companies, their spread has marginalized and resulting in the decrease in the loan amount. We believe that we will see an increase of 5% in our position. In terms of our different type of loans, we do have different targets, meaning that in personal loan or a new loan, we want to see a growth of about 10%. Next, we will hand over to the Chief Financial Officer of China Life to answer the question.
About 2/3 is fixed income and one-third is equity. Thank you.
[Non-English content] Next, we'll invite Hsin Lin from Commercial Times.
I can hear you now. I heard that for China Life this year you will be issuing the coupon bond. Are there any plan for CDF to also issue bond? That's my first question. Next is for international market and also domestic market. In terms of the operation of securities company or other companies, are there any plans for further merger and M&A from the Chief Executive Officer?
Okay. We'll have Steve to answer the question.
As I think you're aware, we recently obtained a renewal of the capacity to issue further debt if required. We've been consistent in our view that we will only raise it when it's appropriate and it makes sense in the markets. As you heard a little bit earlier, we've managed to maintain very strong capital ratios, and our double leverage ratio has improved. We'll continue to monitor that closely, but there's no immediate plans at this stage. In terms of M&A, we have been very active in terms of pursuing several opportunities, both domestic and overseas, but we're not in a stage that we can communicate anything about those.
Any more question from the media? If there is no further question, I would like to thank you for your participation as well as the questions from the investor, as well as the media, this ends the investor call today. Later, you will be able to find the slide and the recording on our investor relation on the official website in CDF. If you have any further questions, you are welcome to call or email us. Lastly, thank you again. I wish you all good health and good life. Thank you