Welcome to CTBC Holding 2026 Q2 earnings call. Today's meeting will be chaired by Rachael Kao, President of CTBC Holding. Also present are Megan Hsu, CFO of CTBC Holding; Bohong Ye, CFO of Taiwan Life; and Justine Shen, Head of IR of CTBC Holding.
Good afternoon, dear investors and media guests. Thank you for taking the time to attend CTBC Holding 2026 Q2 earnings call. The format will be a bit different. I will first invite IR to present on Q2's financial performance. Then I will provide more explanations before we enter the Q&A session. This will be roughly the order. First, I'd like to invite the IR team to present the financial performance of H1.
Thank you. First, on the performance highlights on page four. For the first half of 2026, the Holding reported net profit of TWD 39.5 billion, up 10% YoY, and reaching the record high. Total comprehensive income reached TWD 250.5 billion in the first half, mainly driven by significant FVOCI gains at Taiwan Life. The Holding shareholders' equity continued to expand, increasing 57% YoY. ROE was 13.5%, and CTBC Bank's net profit was TWD 31.2 billion, up 12% YoY.
Once again reaching a record high and ranking number one among peers. Both NII and fee income delivered solid growth. Loan growth momentum remains strong while asset quality stayed stable. Taiwan Life reported net profit of TWD 10.3 billion, up 42% YoY, mainly driven by valuation gains from bonds and funds, steady contributions from CSM release, and the reverse measurement impact of investment-linked policies following IFRS 17 adoption.
In terms of business momentum, FYPs increased 139% YoY, supported by stronger sales of participating and investment-linked policies. Other subsidiaries, including CTBC Securities and CTBC Venture Capital, benefited from strong capital market performance, with total net profit growing 188% YoY. Next slide. Holding's aggregate PEC was 1.69 in the first half. Shareholders' equity increased 59% YoY, mainly driven by strong growth in OCI.
Group ROE was 13.5%, and ROA was 0.8%. Group remained well capitalized across the group. Bank CAR was 13.6%, and CET1 ratio was 10%, mainly reflecting dividends upstreaming to the holding company in the second quarter and strong loan growth year to date. Taiwan Life maintains a TIS ratio of 125%. Group CAR was 112.5% as of the end of March, mainly affected by Taiwan Life's transition to the TIS regime.
Group CAR as of the end of June remains subject to update in Taiwan Life's TIS parameters. A profit breakdown by entity. CTBC Bank maintained strong business momentum in the second quarter. Net interest income continued to grow. Fee income declined 9.4% QoQ, mainly due to the higher base of lottery release fee income in the first quarter. In addition, a sizable provision was set aside for individual case in the second quarter.
As a result, second quarter net profit declined 12% QoQ. Taiwan Life second quarter earning declined 67% QoQ. This was mainly due to the high base effect from the one-off IFRS 17 implementation impact recognized in the first quarter. In addition, total investment income in the second quarter was lower due to reduced valuation gains from bonds and funds. Other subsidiaries benefited from favorable market conditions in the second quarter.
First Securities and CTBC Securities double-digit earnings growth. However, CTBC Venture Capital earning declined as quality equity evaluation gains moderated from the elevated level recorded in the first quarter. Lottery release earning also declined due to a higher seasonal base in the first quarter. Overall, second quarter earning from other subsidiaries decreased 37% QoQ. Because IFRS measurements, for the first half, other subsidiaries benefited from a strong Taiwan equity market.
Securities, Venture Capital, and CTBC Securities all delivered solid performance. Overall earnings from other subsidiaries increased 188% YoY. Fair contribution to Holding earnings increased to 11%. The bank contributed 67% of Holding earnings, while Taiwan Life attributed 22%. Let's go to our banking business. CTBC Bank continued to deliver solid operating performance. ROE was 13.94%. A revenue breakdown. Revenues decreased slightly by 0.3% QoQ and increased 13.9% YoY.
Net interest income accounted for 57% of total revenue, growing 3.4% QoQ, mainly driven by loan growth, and increased 33.8% YoY, mainly due to loan growth and NIM expansion. Fee income represented 36% of total revenue, decreased 9.4% QoQ. This was mainly due to the higher base of lottery release fee income in the first quarter. Excluding lottery-related fees, fee income increased 5% QoQ.
Fee income increased 25.9% YoY, mainly driven by a 44% increase in wealth management fee. Meanwhile, trading income and other revenue increased 19.8% QoQ due to higher equity valuation gains. For the first half, trading income and other revenue declined 46.7% YoY. This was mainly due to lower derivatives and swap-related income. Their revenue contribution declined to 7%. Total loans increased 5.5% QoQ. Growth was mainly driven by TWD corporate loans, foreign currency loans, and mortgages. TWD corporate loans increased 8.3% QoQ.
This was mainly supported by AI infrastructure-related demand, as well as increasing funding needs from the manufacturing, financial services, and service sectors. Compared with the same period last year, total loans increased 17.5%. Mortgages, foreign currency loans, unsecured personal loans, and TWD corporate loans all delivered double-digit growth. New loan origination in the first half has already surpassed the total value recorded for the whole year of last year, demonstrating robust growth momentum. Next, on foreign currency loans.
Foreign currency loans increased 3.8% QoQ. Excluding FX impact, foreign currency loans increased 4.9% QoQ. Growth was mainly driven by OBU, DBU, and Southeast Asia. CTBC Bank has established a comprehensive overseas network across Southeast Asia, Japan, and the U.S. Amid geopolitical changes and supply chain restructuring, we continue to support our clients' financing needs. Foreign currency loans increased 18.2% YoY. Excluding FX impact, growth was 15.2%.
Southeast Asia remained a strong contributor. The India branch recorded loan growth of 107% YoY. Excluding FX impact, Thailand, Singapore, and Vietnam also delivered double-digit growth. In North America, loan growth excluding FX impact was 8.8%. Growth was mainly driven by cross-border lending to Taiwanese corporations and syndicated loan opportunities through the New York branch. Tokyo branch has delivered double-digit growth.
OBU and DBU loans increased 41.8% YoY. Excluding FX impact, Greater China recorded growth of 5.4%. Bank deposit mix. As of the end of the second quarter, total deposits reached TWD 6.2 trillion, growing 6.6% QoQ and 14.8% YoY. The proportion of CASA deposits declined slightly in both NTD and foreign currency deposits compared with the previous quarter. Loan-to-deposit LDR ratio. NTD LDR was 87.4%. Foreign currency LDR was 63%. Overall, LDR was 77.1%, continuing to improve. NIM and spread.
NIM was 1.65% in the second quarter of 2026, down 3 basis points QoQ, mainly due to higher funding costs amid strong demand for liquidity in the market. In addition, loan pricing came under competitive pressure, leading to a narrower loan-to-deposit spread and lower NIM. For the first half, NIM was 1.67%, up 17 basis points YoY. The improvement was mainly driven by lower foreign currency funding costs following rate cuts, as well as reduced swap positions.
Including swap income, NIM was 1.7%. Fee breakdown. Total fee declined 9.4% QoQ in the second quarter. This was mainly due to the higher base effect from the lottery release fee income in the first quarter, as well as lower syndicated loan fees from the corporate banking business. Excluding lottery release fees, total fee income increased 5% QoQ. This was mainly supported by strong wealth management momentum amid active capital markets.
Wealth management fee income increased 44% YoY. Corporate banking fee income increased 19% YoY, mainly driven by loan-related fees, structured finance, and insurance commissions from our offshore private banking. Other businesses, including overseas subsidiaries, credit cards, and lottery operations, also delivered steady growth. For wealth management, strong markets activity continued to support product sales.
Because of the capital markets, we actually see the sales of structured products growth. For the cost, we actually see an improvement of 1.2% of YoY, reflecting solid core business growth and well-contained OpEx. Next, on asset quality. The bank's NPL ratio was 0.54% as of the end of the second quarter. The NPL coverage ratio was 281%. Credit costs increased by 20 basis points QoQ. This was mainly due to higher general provisions associated with loan growth, as well as the specific provision recognized at The Tokyo Star Bank.
Compared with the same period last year, credit costs increased by 9 basis points. This was mainly driven by higher general provisions resulting from loan growth. Overall, asset quality and risk management remain sound. Moving to life business. Taiwan Life reported net profits of TWD 10.3 billion for the first half. Profit was mainly supported by valuation gains from bonds and funds, CSM release, and the measurement impact resulting from IFRS 17 adoption for investment-linked policies. Total comprehensive income reached TWD 189 billion.
ROE was 8.01%. Following IFRS 17 adoption and the phase-out of the overlay approach, Taiwan Life reclassified most of its equity holdings to FVOCI. As a result, equity capital gains now have a smaller impact on current earnings and ROE. CSM movement. As of the end of June, CSM balance stood at TWD 177 billion. New business contributed approximately about TWD 7.4 billion of CSM.
In addition, CSM Interest [Accretion . Foreign exchange movements and assumption changes contributed a combined TWD 11.9 billion. Meanwhile, TWD 6.7 billion of CSM was released into current earnings. Taiwan Life continues to focus on value-driven products, foreign currency policies, and investment-linked products, supported by strong growth in participating and investment-linked policies. Total premium increased to 50% YoY.
FYPs grow by 139% YoY, reflecting strong business momentum. Looking at product mix, the proportion of traditional products increased, benefiting from strong sales of participating policies. In terms of currency mix, foreign currency policies accounted for 50% of the FYPs, while NTD policies represented 23%. Looking at premium pay type, regular pay product accounted for 40%, while single pay premium product represented 32%. This was mainly driven by strong sales of participating products. Turning to channel mix.
Distribution channel recorded FYP growth, supported by strong sales of foreign currency and investment-linked products. CTBC Bank contribution increased to 49%. External bank channels also increased to 30%, mainly driven by participating policy sales. As of the end of the second quarter, investment assets remained around TWD 2 trillion as Taiwan Life continued to diversify asset allocation, optimize its portfolio, and enhance investment yields.
At the end of the second quarter, AFS had accounted for 45% of investment portfolio. OCI assets represented 46%. For the first half, total investment yield was 2.96%. The yield from realized gains on OCI assets was 2.78%. Pre-hedge recurring yields were 3.39%. Cost of liabilities were 2.47%. As a result, pre-hedge recurring spread was 92 basis points. Overall, Taiwan Life maintained a positive investment spread.
On the left, 38% of overseas investment assets were foreign currency policies, 20% were fully hedged, 36% were hedged, and the rest was OCI position. On the right, Taiwan Life continued to strengthen FX reserve. As of the end of Q2, FX reserve amounted to TWD 43 billion.
Following the adoption of FX amortization mechanism for AC bonds, Taiwan Life gradually reduced its hedging ratio to lower hedging expenses. As a result, hedging cost was 1.19% for the first half. Turning now to ESG. Slide 30 to 32 is the CTBC sustainability efforts for your reference. Our latest 2026 sustainability report has been published and is available on CTBC Holding's investor relations website. Thank you very much.
Thank you for the presentation. Now I would like to give some explanations before going further. This year, IFRS 17 has been applied to accounting standards, and the overlay approach has been abolished. Therefore, insurance assets must be reclassified, and the asset segments that were originally covered by the overlay approach are reclassified and adjusted according to the purpose of asset holding.
If we only look at the after-tax net profit, it will not be able to fully reflect the company's performance during this period. But for shareholders, this is because for shareholders, the ability to create shareholder value comes from two different parts. The first part is current profit or loss or GCI, and the second part is FVOCI. These are the two parts, and in the past, most gains and losses were reflected in P&L.
However, under the new current system, the proportion of FVOCI and current P&L varies greatly among holding companies. This is why we'd like to provide such explanation. It depends on each company's purpose of holding financial assets and different risk preferences. For example, Taiwan Life, at the beginning of this year, only classified less than TWD 3 billion of stock positions into PL, while more than TWD 270 billion of stocks are classified into OCI.
As a result, the same stock disposal, such as TSMC, is sometimes reflected in current P&L and sometimes recognized in retained earnings. It will not appear in after-tax net profit, and it will affect related indicators such as EPS and ROE. For example, when OCI profit is high and its net worth increases, the numerator R, meaning return of ROE, only reflects the current P&L.
But the denominator, which is equity net worth, already includes OCI's realized profit. This results in an increase in net worth, but a decline in ROE. On page seven of our presentation just now, CTBC Holding's ROE in the same period last year was 16.29%, but this year it has declined to 13.52%, which is a very obvious example. In this regard, in H1, CTBC Holding's net worth has exceeded TWD 700 billion. Even with more cash dividends this year, our net worth has still grown by nearly 60% YoY.
As net worth goes up rapidly, the growing denominator may make ROE appear to be diluted, but this does not mean that the shareholder value creation ability has declined. Rather, it reflects that the company keeps accumulating capital and enhancing future profit and dividend payout capabilities in the future. In addition, we have simulated a figure for your reference.
If we exclude the influence of OCI for both the numerator and denominator, the figure was 15.73% in the same period last year, and 16.56% in H1 this year, which also shows growth. This is quite a challenge for people to see.
This is why we made this simulation for your reference. So when we analyze CTBC or comparing it with other financial institutions, this is quite a challenge. Internally, we also need to pay attention to the consistency of such basic comparisons. Therefore, in the future, we will place greater emphasis on the increase of overall shareholder value, which includes changes in current P&L and OCI, not just EPS or ROE. So we will pay more attention to shareholder value increase, including current P&L and OCI, as these are real shareholder value.
In addition to current P&L, future dividend payouts will also take into account not only current P&L, but also realized gains from financial products in OCI. Our presentation this time includes page six, which is shareholders' equity and OCI for your reference. Shareholders' equity has increased by nearly 60% YoY, and BVPS has also increased from TWD 24.8 at the end of last year to 34.4, up 38.7% within six months, so almost 40%.
Well, as P&L can no longer reflect the full picture of financial performance now, this is why I just took some time to provide a more complete explanation for the H1 performance of CTBC Holding. I hope that this can be helpful for future interpretations. Next, I will explain the key points of the major subsidiaries. In H1, CTBC Bank achieved steady growth across core businesses.
After-tax net profit TWD 31.2 billion, up 12% YoY, which is a new record again YoY. As for NII, the biggest momentum in H1 came from demand from the five trusted industries, including AI industries. In H1, total loans went up by about TWD 500 billion, which is a record high, so already exceeding the increase of about TWD 400 billion for the entire last year.
The YoY growth is 17.5%, and driven by loan growth, NII went up by 24% YoY. As for fee income, the biggest highlight this year comes from wealth management. The reason is because with active capital market and growing demand for wealth management from high-net-worth clients, wealth management fee income grew by nearly 44% YoY. This is a remarkable growth, which boosted overall fee income by 26% YoY.
As for trading, due to the different financial market environment this year, swap-related income contribution was not as high as last year. In addition, the rise in bond yields in H1 caused valuation losses in some bond positions, which leads to a decline in trading income YoY of -47%. The results of our overseas deployment are gradually emerging, and thanks to Taiwanese investment in the U.S., Japan, and South Korea, and supply chain relocation, we have been able to seize such business opportunities.
We believe that CTBC Bank grasps not only AI opportunities in private wealth, but also the long-term growth trend from global supply chain restructuring and cross-border capital flows. In H1, Taiwan Life's after-tax net profit was TWD 10.3 billion, and thanks to a strong stock market, OCI stock valuation already largely went up, making the total comprehensive income TWD 189 billion.
Last year, due to factors such as tariffs and FX rates, total comprehensive income or total P&L was -TWD 16.3 billion. Taiwan Life's outstanding financial performance is mainly due to two main areas in H1. In addition to investment business, which I just explained, the insurance business also shows strong growth momentum.
In H1, FYP was TWD 64.1 billion, up about 139% YoY, which is better than the industry growth rate, which is 52% roughly. Taiwan Life starts from customer needs and responds to the aging trend in Taiwan. We have paid attention to these issues. Our new products and our new services all surround this theme. As a result, our policies have grown rapidly, and foreign currency policies have also grown by more than 100%, especially they can help us strengthen our assets and liabilities and reduce ethics risks.
We have strong new sales which have driven CSM balance growth. In H1, the balance reached TWD 177 billion, up from TWD 164.4 billion on January 1st, 2026, up about 8%. Sustainability, we continue to integrate that into business strategy. Our core business is finance. We will continue to deepen sustainable finance to unleash our influence.
In H1, we cooperated with TSMC on school tree governance sustainability trust, and yesterday we completed the hosting of syndicated loan for SPIL, TWD 50 billion sustainability-linked SLL, and we will continue to pay attention to climate governance and nature-related risk management. The new version of our sustainability report went online already, and the English version will go online at the end of August. In different aspects of ESG, you can have a clearer picture of what we do. As for the future outlook, I've covered a lot already. We will maintain the same tone.
We remain cautiously optimistic about the environment. The AI industry is driving business growth, including corporate investment, supply chain restructuring, and cross-border capital flows and private banking financial management. This is not just a short-term economic cycle, we believe. We think that this is a structural trend for the next few years to come. With its comprehensive network and deployment of CTBC Bank, we believe that we will be able to help customers meet their diverse financial needs overseas and seize relevant growth opportunities.
As for insurance, Taiwan Life will continue to develop towards high profit and high CSM products. We will focus on the aging trend in Taiwan in order to have more comprehensive programs and services. The overall goal of CTBC Holding is to continue its efforts in enhancing shareholder value. This concludes my brief presentation on H1 performance. Next, I would like to first answer the questions submitted by the media and by analysts in advance.
First, with regard to microeconomy, when it comes to the interest policy trends in both Taiwan and United States, we actually see many questions in that line. In the States, in the market, when it comes to FED, whether they are going to hike interest rates, people still have concerns. According to recent numbers, the overall estimation is that there may be a downward correction.
We are expecting on November 3, a midterm election in the United States. Maybe the interest rates will maintain at a stable level, but there are uncertainties because Iran and the United States are taking moves today, so maybe they are going to fight as the negotiation is ongoing. We are going to see whether that is to continue to affect interest rates.
For the second half of 2026, we are expecting the policy of interest rates will maintain the same. That is more likely development. With this uncertainty of geopolitics, we actually see higher demand for USD. Because of the spread and also the fiscal policies in the United States, they are actually showing more red. We do have these concerns. We can actually expect that in July and June, we actually see the impact of FX risks. We actually see that it is putting strain on TWD, but in the recent two days, we are seeing TWD moving toward to TWD 31. We actually saw TWD 30.18 this morning.
In the second half, we may see a trend going toward to TWD 31.5. We actually see that in the second half of 2026, we actually see that in the first half of GDP, we actually see a 14.15% YoY. We are benefiting from that. According to the DGBAS, we are actually expecting exceeding performance of over 10%, considering on CPI. In the recent few months, we can see the CPI YoY exceeded 2%.
This is something we probably need to stay lookout for in the future. Tomorrow, we actually are going to see the market capital funding demand is actually very high. In recent years, we actually see all the banks are offering high interest rates deposit benefits. We actually see a lot of these kind of advertisements.
We actually see de facto interest rates has already been risen. Whether the central bank is going to raise their policy, it actually is one possibility, but we will still stay on the lookout for the future. Maybe there will be more concrete indicator for us to actually to expect and anticipate central banks policy moves.
In terms of the overall operation, for the second half of our earning prospect, with regard to deposit, I would like to give a report in terms of the bank, in terms of the loan, that we are going to maintain the same tone. We are going to show double-digit growth because we actually see a momentum of over 10%. I think that the momentum will continue to the second half of 2026. Also, that we are maintaining at this level of 1.7%- 1.73% of level.
Because we see the funding goes into the market, the funding cost is actually raising, but we still maintain at the same tone. In terms of the fee, that we actually expect double-digit growth, but as we mentioned before, because there is a contribution from wealth management, 44%, and the overall first half, we actually see a 26%.
We are continuing to see a very strong double-digit growth, and that is going to also help and contribute and benefit our overall earning and income. In terms of asset quality, our guidance was 28 points-33 points. But we can actually see from our presentation, that we can actually see this spread is 38 points. But we can actually remind you that we actually see for the first half the loan, we actually show a TWD 500 billion of growth. That is 1% of zero provision.
That will give you a TWD 5,000. Sorry, the TWD 50 billion. So we are actually maintaining at the guidance range for this year. For our cost-income ratio, the original guidance was between 52%-54%. We are going to see a downward stretch between 52%-50%, because we continue to maintain this income. So we are actually controlling our expense quite well.
That is about the bank. With regard to the life insurance, one big guidance adjustment, reflecting our FYP, our guidance was to TWD 82 billion. The first half, we have already reached around TWD 64 billion. So we are expecting that outward AFYP revision of over TWD 100 billion. For the margin, we are expecting 15%-20% of margin growth. So above is about our prospect of some of our prospect guidance revisions, and also quite many questions.
Chris' question about our overseas allocation employment. About the overseas profit, about our profit and earning performance, the overall net profit is around TWD 13 billion. So we actually see a YoY growth of 44%. We actually see a slower growth compared to the same period of last year. But the overall contribution is still around 13% to our total bank profit income. So it is still a very important profit source.
The slow growth in the first half of this year has to do with the trading income reduced from both Hong Kong and China. Also we have this individual case provision, so in Tokyo. So we actually see only 4% of growth for the overall deployment. By region, we actually see Southeast Asia shows the most promising and excellent 46% of YoY growth.
When it comes to supply chain restructuring or geopolitics, our branches in both India and Southeast Asia, they actually have received opportunities for derivatives. In North America, we actually see a 37% of growth for the first half of this year because, in the United States, we have both the branches and subsidiaries, so we can actually tap into the growth opportunities from Taiwan.
About overseas deployment and footprint, we are continuing to enhance AI supply chain services in both the States and Japan. In Texas, our offices in Q2 will be inaugurated, if all goes well. A Los Angeles branch, it's expecting to open in the first quarter of 2027. So these two offices are branches or offices. In the States, we have around 20 spots in the States.
In Phoenix, we're expecting to open up a new branch, and the time will be around the fourth quarter, the following quarter in this year. As for Asia Pacific and in Tokyo branch, we are going to obtain approval this July from the local authorities at Fukuoka. So in Q2, we're expecting an opportunity to open up a new branch. For our branch in Kumamoto, we actually change it into the branch of Tokyo, and also they are relocated to the Kumamoto Station.
For Taiwanese businesses, we hope these branches can also benefit from the convenience supported by the location to better serve their customers. About the capital liquidity, and also an equity earnings related question. Because in Q4 that authorities have already gave us approvals for AI introduction and IRB in regime, so how would that affect our BIS?
If we use our BIS to give a test calculation in June, then we can actually see the foundation of. We can actually release around TWD 100 billion of capital, amortize that into five years. Then that year, a year will be around TWD 220 billion. Of course, this is just estimation, because over time, our risk capital positions will change their sizes, and the risk factor will change because you actually give loan to different applicants.
So we use the number of 2026 June to give the model testing, and that gives around a balance saving of TWD 100 billion, and that will give you an amortized impact of TWD 20 billion per year. Of course, that is based on our number in June this year. Of course, the tested results indicate a very important factor that can support our business growth.
Like I said about our loan volume grow in six months, TWD 500 billion. Of course, that requires certain capital to support this kind of business size. Of course, the self-owned capital will be very important, critical to our future business growth. Moving on to our dividends. Like we said before, because the IRB of a bank allow us to release more capital, so in one way, that can support our growth.
On the other investors, and also some of corporate clients are asking about the changes to our cash dividends. So previously, like I mentioned, that when it come to the dividends payment, in addition to the current income, we also have these OCI capital gain. Of course, we will factor into business needs of our different subsidiaries to make appropriate dividend payout. Of course, we would factor in the investor's expectation in that arrangement.
Also one corporate shareholder assets, if these equity. Maybe we can give more upstreaming to the group. If we have the good level of the bank over our equity capital, then maybe we can actually raise that cap of TWD 1.5, because in the past, the statutory capital return. Now we can only upstream to the group TWD 1.5, but now we are not doing that right now, but we do have the opportunity to do that at the end of this year.
According to the regulation, if it fits, of course, we can upstream more of our equity earnings to our earning group. The next question about LCR, because we actually see a tightening of market capital. Therefore, CTBC in Q2, the June LCR is around 111% this year. In the past five to six quarters, we have been maintaining around 100%-120%.
Internal control, we want to maintain that level at over 110%. We have been hitting that goal because of the tightening of market capital and funding, we are going to pay close focus on the total deposit structure and also our top 20 deposit account holders, about the intensity of that. We are going to leverage different tool sets for management so we can actually have a robust liquidity management. So our LCR maintain within the range of 100%-120%.
We would like to continue to enhance that liquidity management. With regard to interest rate rise and its impact. With regard to our asset and liability at the banks and how sensitive we are with interest rise or cut. Based on our June number, if we actually see these one bips interest rate hike of foreign currencies, the mean impact is actually quite small.
It would be less than 0.01 basis points per year. So that is about TWD 3 million. If TWD shows a little bit of interest rise, the mean impact will be between 0 basis points - 0.07 basis points, and the mean impact will be around TWD 47 million. So these are numbers for your reference. About the mortgage, the reporters and journalists asked about our current credit loan and mortgage loan policies and strategies.
We actually still focus on the self-help client segment, and we are going to first prioritize our own clients, and then we actually see a 26% of mortgage rates. So it is under the regulator's requirement 30%. So we actually see a room about more than TWD 200 billion.
About CTBC, we actually should see, we are going to use the syndicated credit centers disclosure of information, including these mortgage derivatives and mortgages and car mortgages, these products. We are going to run that against our own client database to evaluate and gauge our risk exposure size. So we actually identify only about 50 headcounts. So the total exposure amount is actually quite low, as low as TWD 700 million.
So for us, this is not yet posing a big risk to us. For the mortgage, our current LTV is around 42%. So that is another information for your reference. Other questions regard to the investment target and also investment market change and also investment allocation. A lot of information has been provided, and then maybe the allocation probably is not the right place to share with you right now.
And now with regard to Taiwan Life, some of the real estate investments. For the first half of 2026, as of June, the overall real estate scale has already reached TWD 126 billion. And for the first half, we actually have these new two sites investments.
That investment reached around TWD 19 billion. Of course, that will be recognized to our income statement after the completion of the two sites. But that will be amortized into our real estate statement, and then the return is around 4%-5%. We have these internal hold rates. In the future, we will continue to expand our real estate investment to improve our ROE of real estate investment.
The last question is about whether or not Taiwan Life is going to issue debt. This is a question from an institutional analyst. On June 30, we had important announcement saying that Taiwan Life will issue less than TWD 20 billion or equivalent in foreign currency bonds. We will look at the market situation, and it can be through domestic or overseas investment entities. We have one in Singapore. We will look at the market situation to raise funds.
The last question is a question that is asked the whole time, which is about M&A, because on the market, there have been some relevant issues. I think for a long time, CTBC has been consistent under the strategies of holding. We review our strengths and weaknesses in both banking, insurance, securities, and investments.
If there are opportunities, we will review them very carefully. These are the pre-submitted questions from you. I was reminded that I had a slip of tongue. Loan, 1% was not TWD 50 billion, but TWD 5 billion. I had a slip of tongue. Sorry about that. Now I'd like to invite foreign and online analysts to raise questions.
Thank you, Miss President. Now we'd like to invite institutional analysts to pose questions. If you want to ask a question, please raise your hand and introduce yourself first before asking a question. Thank you.
Hello. I have a few questions. First, you talked about 1.7% - 1.73% for NIM. How does the company going to achieve this goal? In terms of Taiwan Life, you mentioned that future dividend payout would depend on the current P&L and OCI. In Q2, including Taiwan Life, CTBC Bank and CTBC Holding, what was the stock gains under the OCI?
Because we couldn't see that on page eight of the presentation. My third question, in Q2, and latest, your PG equity and bond levels at your CG, has it returned to the same level at Q2 or not? And also, this year, the fair value liability level has gone down significantly. Could you tell us the TWD and USD numbers? And in Q2 for Taiwan Life, you mentioned there was a positive TWD 2.8 billion in Q1, because at first, what's the reason behind the loss in Q2? Could you explain that? Thank you.
First, how does the bank achieve the NIM goal? We mentioned that deposit interest rates are going up and capital is tight on the market. We will likely raise our loan pricing in order to guide the loan interest rates to go up so that the spread can be widened slightly.
This is basically our method. The second question was about Q2 OCI stock gains. In Q2, the number was TWD 26.6 billion, and in H1 it was TWD 32.2 billion. In terms of unrealized gains and losses in Taiwan Life, as of the end of June, our fund is mainly bond fund, so I put it together. So unrealized number was TWD 38 billion, and equity investment unrealized gains was roughly TWD 140 billion. You also asked about fair value liability value. It was roughly TWD 36 billion, and 80% of it is in NTD.
The other 20% is US dollars. You also asked about other operating profit. In Q2, it went down largely because the number was operating expense, OpEx. So if it is a direct expense, then it is reflected. Then if it is indirect, then it is reflected on this very item. So normally speaking, it is the concept of expenditure. That is it.
Are there any other questions from institutional investors? Please introduce yourself first.
Hello, this is Tina from Tong Yi. I want to ask you about a question on page 46. Newly added loans, they have gone up over the past two quarters and there were specific provisions. So are you worried about a specific industry? This is the first question. The second question, I see the P&L of Taiwan Life in Q2, the insurance service result is lower than in Q1. I want to ask you what is the main reason for that, and will that reason last until the second half of this year? My last question is also for Taiwan Life. The cash dividend income, how much is that according to your forecast?
First, in terms of NPL in Q2. The NPL increase in Q2, the number was generated from subsidiaries. Tokyo Star, as we mentioned, has a larger NPL amount. Also in terms of LH in Thailand, there are some cases there as well. There is one bigger one related to construction, and the projects are mostly public construction projects, and because account receivables have been delayed. So in the second half of this year, we will continue to observe the situation.
I would like to talk about CSM in Q1. Participating policies performed pretty well on the market. So there was an increase, which is reflected here. When the market is good, the reflected amount is more visible. When the market is just okay, then we do not see that reflected that much. So that is about the difference in Q1.
As for dividends, according to our forecast for the full year, including ETFs and domestic and overseas stocks, dividends will amount to TWD 11.9 billion, which is lower than last year by TWD 3 billion. Our stock management is that we pursue overall value growth rather than just sticking with dividend income. We want to focus more on the creation of total return, which is more important for us. So in H1, we made some adjustments in terms of stocks.
We try to find bigger equity stocks as our targets. So dividends will go down for this year. But overall, the total return of stocks, as we said, will enjoy a higher growth. We open the floor now for questions on the phone line.
Mr. Operator, please help us collect questions.
Yes. Please enter your questions in the webcast chat box. Questions in Mandarin will be asked first. Please enter your questions in the webcast chat box. JPMorgan, Jemmy Huang, please.
Hello, I have a few questions. First, credit cost guidance remains unchanged, which is still 28 basis points-33 basis points. Does it mean that in the second half of this year, the loan growth momentum will be slower than in H1, so the number will go down? Or do you think that in the second half of this year, there won't be such specific cases happening?
This is the first question. The second question is for Taiwan Life. Someone has asked about the insurance service result QoQ, and your answer was that participating policies sold better. I don't know how that impacts insurance service results. When they sell well, does it mean that CSM should be better? Then why is it directly reflected on the current insurance service results? Can you also tell us a little bit about financial results in Q1? If we look at page 47.
Sorry, could you repeat the second question? There were some disconnections.
The second question was someone else asked about QoQ insurance service results fluctuations, and Mr. Shen's answer was participating policies implications. If that's the case, if they sell well, then doesn't it directly impact CSM? So my question is, why does it impact the insurance service results of the quarter? My third question is also from page 47, financial results.
The H1 number is TWD 4 billion, roughly. So FVTPL to market impact, how much is that impact roughly? My fourth question is from page 24. Could you explain to us CSM changes? So in that changes in H1, in that TWD 12 billion, what's that impact amount in others? I think in Q1, it was mostly due to BSA.
I don't know if for Q2 it was also due to BSA. The last question is about dividend policy. You said that in the future, your dividend policy will consider OCI's realized gains. So do investors expect to see 60% payout ratio more or less? Or does the payout ratio in the future change, and if so, to how much as a reference? Taiwan Life in the future will upstream how much earnings to Holdings. Will that influence the Holdings policy?
Could you also repeat the question, what did you say about Taiwan Life? Taiwan Life Holdings dividend policy, if it's also going to look at OCI realized gains, then the payout ratio will still be about 60%, or will it change? And Taiwan Life will be able to submit more earnings to Holding, and will that affect Holdings dividend policy? Or regardless of 10%, 20%, or 30% submitted from Taiwan Life, Holdings payout ratio would not be affected. Thank you.
To answer your first question about these credit cost guidance, we still maintain at around 28 basis points - 33 basis points, remain unchanged. For the second half a year, we will be slowed down our loan operation, or we are going to see less individual provisions. To answer your question that overall in Taiwan, in Taiwan, because we actually see the market tightening its funding, therefore, we need to actually raise our deposit interest rate to attract more deposits for the second half.
In order to maintain a certain level or need, we are going to appropriately adjust our interest rates loan and to raise it, so we are expecting a less fast rate of loan growth in the second half. That is credit cost asset quality expectation. It will maintain at a 28 basis points- 30 basis points.
About dividend policy, to answer your question, we mentioned about in the future, about the dividend payouts, about the FVOCI, all the disposal of stock gains will be factored in. In the past, every year at earnings call, when we actually present these dividends of earning charts, the FVOCI is already part of the item that can be payout as part of the earning items.
Are we going to maintain at a 60% of payout ratio? That depends on in the future, the business growth of our subsidiaries under our group, because the business growth require enough capital to support. Also about Taiwan Life, the upstreaming earning of these cash stock earnings that will there be a logic or a certain required percentage. I think for Taiwan Life, all life insurance companies are the same across Taiwan.
How much of the cash stock gains to be upstreamed into the Holding company that will be approved by Insurance Bureau, and then, depending on the health and how robust life insurance company is, then the Insurance Bureau will give a number.
Then when the Holding is actually paying out the dividends, there is also a limitation, including the Holding's own CAR and also the double leverage ratio. So these are the factors we need to consider in the future about the cash dividend payouts we make in the future. About the life insurance, about the CSM, I would like to illustrate this better. So if you do have some policies at the very start, they were under that the last item, the last contract.
Then because if we are seeing a good investment market and these kind of contracts turn into profit-making policies and these earning profit-making policies, these kind of conversion will be recognized into the current income statement. That is why in Q1, we are seeing a higher number than second quarter.
To answer your question that for page 24, about the CSM, other items, what are the exact contents of these other items? These TWD 11.9 billion under that number, because CSM, we have one rolling period, some of the interests lead to CSM increase, and that quarter interest is about TWD 2 billion. When we calculate CSM for each quarter, we would use that current FX rate of that current quarter.
For example, for my foreign dollar denominated policies, we would actually calculate the CSM first and then convert that into TWD, and then that will give you a spread of FX. For each quarter and then for each period and for the first half of 2026, that number is TWD 0.6 billion. The third part is the one comes with bigger impact.
When it comes to participating policies, we do have a calculated estimated ROE, and then for the shareholder dividends that can be put inside CSM and then can be released over time. Because for the first half of 2026, the market is very strong, therefore, our participating CSM increased dramatically. Reflected here, we actually see a number of TWD 9.4 billion. That is the breakdown of the numbers. Thank you.
You also ask about the NII mean impact. That number is TWD 4 billion. That impact is TWD 4 billion. Thank you. Do we have any other questions from online analysts?
We do not have any other questions from our online analysts. We do not have any other questions, so we are now giving the time back to the floor.
Thank you very much. We can open up a Q&A on-site. Do we have any questions from on-site journalists or institutional investors?
Good afternoon. We actually, at the very start, we heard about the FVOCI are not reflected in the current statement income. It is actually quite interesting. I can actually share with you at the very start, Fubon and Taishin Financial Holding actually give you beautiful statements. Cathay actually stood the ground at the very start, but because in second quarter that this is actually foolish. Naturally, Cathay did the same thing. They made these monthly announcements.
In the first seven months of 2026, we actually see that financial holding EPS is TWD 2.19. If we can have these OCI disposed gains, we factor in how much will be your EPS, and then also how about your net profit, how much will be that? That is my first question. Please give me these three simple numbers. The second question, on monthly basis, in your press release of your profits press release, would you actually consider to make this public?
What is your thought on that? Because there are different philosophy behind it. Because at the first you decided not to make that announcement because Taiwan Life Insurance want to veer away from the past investments to make profit from investments. While you are doing that, people cannot actually see your profit-making momentum because you also have different considerations for dividends payout.
Would you maintain the same policy? The third and also the last question about Jemmy's question. I think that is quite interesting because when it comes to the dividend payout policies for financial holding companies, we have ones like Fubon Financial Holding Company.
They are releasing these very specific message to the market that we are going to show a 50%-40% of dividend payout rate. For the Cathay Financial Holding, like E.SUN Financial Holding, they would tell you that we are going to maintain a quite competitive dividend payout policies. In Taiwan, that will be around 4% and 5% in Taiwan market. When it comes to the Fubon Financial Holding Company, they are releasing a very specific message.
You can actually calculate back from how much earning the financial holding is making, and that can actually tell you how much the investor can get, because at the end of the day, it is about the actual cash dividend payout. However, for CTBC, over the years, is not very specific about your strategies. For example, Jemmy Huang asked a question, you said that you need to factor in different subsidiaries, business growth needs, the funding needs, et cetera.
But the question is that, do you want to maintain a competitive yield rate like Cathay or E.SUN Financial Holding, or you want to communicate this clearly to the market that, for example, I am showing a good profit-making capability, but actually in Fubon Financial Holding in July, they are making a very bad profit. However, their stock only dip to a limited range. For Cathay, that momentum is very specific. So what exactly the kind of strategy you want to take for investors?
First, to answer your question about January to July, our EPS was TWD 2.19. If we include realized stock gains in it, then roughly it is going to be TWD 3.97 our EPS. You asked about the absolute number from January to July, it was TWD 34.7 billion. For the other two questions, the first is our future monthly news release, potentially.
Well, today we took a lot of time to explain so that you do not just look at the current income statement or P&L, you can also consider FVOCI. The reason why in the past few months we have not announced adjusted profit. Well, it is not an accounting term, actually. So what is to be adjusted? People tend to be selective in that. So this is why in H1, we maintained our disclosed content.
When we prepared for this earnings call, I told our CFO that in the future, if we keep emphasizing that we want to highlight our net worth growth, then we have to disclose relevant numbers. But I do not think that we will disclose realized stock gains OCI. Every quarter, of course, we can provide more detailed presentations.
As for dividends, you said that we are unclear. I am a bit surprised. Maybe I have not done my job well enough. If you look at page five, starting from 2022 to 2025, our payout ratio has been around 60%. I have been consistent in saying that it is between 60% and 65%. Over the past four years, it has been roughly this way. Of course, we more comprehensively explain the factors to consider, but of course, we have to consider the business development needs.
For example, the TWD 500 billion in the first half of this year. If the AI investment in the U.S. will continue for many quarters, then bank has to prepare that capital, TWD 500 billion BIS, 10%, then we have to prepare TWD 50 billion, for example. We have to keep a large amount of capital. Of course, we will take into consideration the support for our business growth.
Another thing is that we have to consider how much Taiwan Life and the bank can submit to holding. Of course, holding can also borrow by itself, DLR, et cetera. We have to consider our different capacities. As I mentioned, the statutory amount, of course, the amount that can be submitted by bank can be enlarged by the statutory requirement. But in the end, if we look at the past four years, it has been between 60% and 65%. I do not know if I have answered your question. Thank you.
Are there any other questions on site?
Hello, An Zilo from Bloomberg. I just want to confirm a few things, which I did not hear clearly enough. I just want to check if I heard them correctly. In terms of tight capital on the market right now, did you mention that in order to increase, you are going to increase loan interest rates? In H2, loan growth will not be as fast as in H1 of this year. Is that what you said?
Second, in terms of NT dollars, did you forecast that by the end of this year, NTD will go towards 31.5 NT dollars against one US dollar? My last question, I saw on the presentation that the hedge ratio of NT dollar policies, the presentation shows 32%. What is the hedge ratio in Taiwan Life? Is it 32%? Are there any guidances regarding the hedging ratio in Taiwan Life? Thank you.
For LCR. Sorry, for NIM, I think what the CFO wanted to say is that capital is tight on the market, so we see that cost of capital is expected to go up, which can be partially reflected on customers. Their benchmarks can also go up.
We hope that we can more directly reflect that. Second, with LCR, when there are such capital limitations, we prioritize our customers' needs. Of course, we start to look at high interest rates and good risk profiles. If there is a prioritization, then we will rank the priorities that way. Of course, we value our relations with customers, and LCR 110%, we think that we will be able to maintain that level.
As for interest rates, that is our expectation, but I think our positions are quite large, so it will depend on our positions as well. Our guidance aims to show that we maintain our current view that the cost of capital is slightly stressful, but we will continue to make efforts. That is the first question. The second question, we think that there will be an appreciation of NT dollars, so NTD, it seems stronger, so it may move towards 31.5 or 31.6 NT dollars against one US dollar.
As for Taiwan Life hedge ratio, as the slide shows, it is currently 32%. The guidance is that when NDF matures, and if we do not continue that, then by the end of this year, the hedge ratio will be between 25% and 30%. But the overall hedge ratio will depend on the market changes. When the cost of hedging instruments and also the 1.5% of reserve, we will look at these factors. If we need to increase the hedge percentage, then that number may change. That is it.
I have two questions here to the President. The first question is about the FED and Taiwan Central Bank policies in September, the possible interest rates policy trends, in central banks. You actually mentioned about market interest rate has already de facto risen, so there is a possibility that at central bank, there is a possibility of rate rise.
What is your estimation about that rate rise range? Also the second question, when it comes to the dividends payout, like you mentioned, CTBC does have a very stable over time of a payout policy between 60%-65%, over the years. You also actually mentioned about this loan growth of TWD 500 billion, and because of the general provision required that BIS 10%, you have to put aside TWD 150 billion. These are all things we need to consider.
For the first half, CTBC profit, we actually see around at least 40% of growth. Can we put it this way, that next year in 2027, for these dividends payout level, it would definitely be better than 2026? As to how good that would be, of course, you are going to take overall consideration. Thank you.
I know you are very interested in dividends payout, but for me, it is really difficult to commit in that promise that definitely next year, that dividend payout will be better than 2027. This is not something that is not my call. It would need to be approved by the board. This is the number that we are going to work toward to, but to actual payout level, we need to wait till 2027 at the start, after we make a whole year plan, and then after we factor in capacity considerations.
When time comes, we are going to give you more information and details. The first question about central bank interest rate rise. We are gauging. There is some pressure for rate rise. As to whether central bank will really make that move, of course, the central bank needs to take a lot into consideration, much more than what we have on board. I made a wrong guess last quarter, so I think this is direction, general direction I am going to give, but I would just give that for your reference. Thank you.
In the interest of time, this concludes our Q&A session. Thank you very much for your participation towards Q2 earnings call.
Thank you very much.