Welcome to CTBC Holding 2025 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, Pai-Hung Yeh, CSO of Taiwan Life, and Justine Shen, Head of IR of CTBC Holding. Your calls will be muted. After the presentation, we will open the floor for question and answers. You can enter your questions in the webcast chat box. We will answer the English questions after the Mandarin questions are over. Thank you for your cooperation. I would like to invite President Kao to give her opening remarks.
Good afternoon, investors and analysts. Thank you for attending CTBC Holding 2025 Q2 earnings call. I would like to explain to you the overall profit of CTBC Holding.
CTBC Holding's pre-tax net profit in the first half of this year reached NTD 41.4 billion and after-tax net profit, NTD 35.8 billion, down 3.7% year-over-year, which is roughly the same year-over-year. In the first half, affected by Trump's policies, global stock, bond, and ESG markets fluctuated more than last year. The overall after-tax profit of the industry declined by 35% year-over-year, but CTBC Holding performed better than the industry average. After-tax EPS NTD 1.78 and ROE 16.3%, ranking the first among all the holding peers. Our core subsidiary, CTBC Bank, achieved outstanding performance in its core businesses in the first half of this year, with after-tax net profit reaching NTD 27.8 billion, up 20% year-over-year, setting a new record in history for the same period and ranking first among bank peers.
Thanks to a 13% year-over-year increase in loan volume and a decrease in foreign currency funding costs, the NIM widened, driving the company's NII in H1 up nearly 20% year-over-year. Wealth management and credit card performance remained stable, with fee income in the first half of this year growing by nearly double digits year-over-year, about 9%. The overseas business performance was also impressive, with pre-tax profit reaching NTD 12.4 billion in H1 of this year, up 10% year-over-year, accounting for 36% of the bank's pre-tax profit. Our second-largest engine, Taiwan Life, had an after-tax net profit of NTD 7.2 billion in H1, down 45% year-over-year. The company continues to deepen its channel operations and launch diversified products. FYP income in H1 was up 5% year-over-year, and FYP-7 up 17% year-over-year.
The sharp appreciation of the NTD in H1 of this year resulted in significant FX losses. To strengthen its ability to cope with FX fluctuations, Taiwan Life has obtained approval from the regulator to apply the new FX reserve scheme starting in June. In July, NTD 15.1 billion was set aside from its liability reserve to replenish the FX reserve. In H1 this year, Trump's tariffs and policy fluctuations led to rising global trade tensions and financial market volatility. With high uncertainty, companies rushed to stock up in advance, leading to strong exports in Taiwan in H1. In mid-August, the government announced that economic growth in H1 was as high as 6.75%, with growth in the second half predicted to be 2.3%, forming a high to low trend. The whole year's growth is 4.45%, which is higher than the initial forecast.
Powell hinted at a rate cut at Jackson Hole, the Fed's meeting in September is a focus of attention as well. The tariff situation is going to be confirmed. Overall, the economic situation in the second half of this year will require attention. A caution still. We will give you more details later. In terms of the impact on our clients, I'll talk about that later. Sustainable development, we continue to promote that. We continue to be selected by MSCI ESG leaders, also FTSE4Good, among others, the scores given by rating agencies improve year by year, we will continue to unleash the influence and the power of sustainable investment. This concludes this quarter's highlights. I would like to invite our IR colleagues to give you a detailed report on our Q2 performance. Thank you.
Holding reported net profit of NTD 35.8 billion in the first half, down 4% year-over-year on lower profits at Taiwan Life, despite resilient profitability at CTBC Bank. EPS was NTD 1.78. Holding's ROE was 16.3%, leading peers. CTBC Bank's net profit was NTD 27.8 billion in the first half, up 20% year-over-year, marking a record high. Bank's capitalization was solid, asset quality remains stable. Taiwan Life net profit was NTD 7.2 billion in the first half, declined year-over-year due to higher hedging costs amid sharp depreciation of US dollar in 2Q. Taiwan Life adopted new FX reserve scheme, took additional FX reserves of NTD 13.1 billion to better withstand currency volatility. It issued sub-debt of NTD 23.8 billion in total in August and September to further boost its financial strength.
Other subsidiaries, including securities, Taiwan Lottery, investments, saw weaker performance both quarter-over-quarter and year-over-year due to weaker capital market performance and base effect. Page five, profitability. Holding's EPS was NTD 1.78 in the first half. Group ROE was 16.3%, ROA was 0.8%. Page seven, capital ratio. We remain well capitalized with group CAR at 116%, Life RBC ratio at 323%. Bank's CAR was 13.8%, CET1 ratio was 10.9%, as they typically upstream earnings in June. Page eight, profit breakdown by entities. In 2Q, bank net profit reached NTD 14.3 billion, up 7% quarter-over-quarter, driven by increased net interest income and lower provisions. Life reported net profit of NTD 1.6 billion, down 71% quarter-over-quarter, mainly due to elevated hedging costs caused by the sharp depreciation of US dollar. Holding's net profit was NTD 15.9 billion, down 20% quarter-over-quarter.
In the first half, bank net profit reached NTD 27.8 billion, up 20% year-over-year, driven by robust net interest income growth and sustained fee income. Life profit was NTD 7.2 billion, down 45% year-over-year, mostly due to higher hedging costs. Holding's net profit was NTD 35.48 billion, down 4% year-over-year. Go to our banking business. Bank's net profit reached NTD 27.8 billion, up 20% year-over-year, outperforming peers. ROE was 14.2%, up 1.4 percentage point year-over-year. Page 11, revenue breakdown. Total revenue was down 1% quarter-over-quarter, up 12% year-over-year. Net interest income was up 3% quarter-over-quarter, 19% year-over-year. Fee income was down 19% quarter-over-quarter, up 10% year-over-year.
Trading income and others increased 33% quarter-over-quarter, driven by equities and derivatives related gains, and down 3% year-over-year due to lower swap income and weaker capital markets performance. On loan growth. Total lending with credit card revolving was down 1% quarter-over-quarter and up 13% year-over-year. NT dollar corporate loan was down 2% quarter-over-quarter, mainly due to the decrease in government loans, and was up 16% year-over-year, driven by growth in government, services, and real estate sectors. Mortgage was up 4% quarter-over-quarter and 12% year-over-year as business momentum remained stable. Unsecured and other loans increased 3% quarter-over-quarter and 14% year-over-year. Foreign currency loan was down 4% quarter-over-quarter and up 10% year-over-year. On foreign currency loan breakdown.
Overseas subsidiaries accounted for 57% of foreign currency loans, with TSB and LH being two larger subsidiaries. Overseas branches accounted for 32%. Overseas subsidiary loan was up 9% year-over-year. Business momentum of most subsidiaries remains resilient, reporting high single to double-digit growth. Overseas branch loan was up 7%. Growth was especially strong in Singapore, Tokyo, and India branches, all reporting double-digit growth. OBU plus DBU loan was up 33%, driven by inventory stockpiling ahead of tariffs, which led to higher loan demand for working capitals. Page 14, bank deposit mix. Total deposit reached NTD 5.4 trillion, flat quarter-over-quarter and up 6% year-over-year. On the right, CASA accounted for 58% of NT dollar deposits. Time deposit mix of foreign currency deposits was lower, accounting for 62%. Page 15, Loan-to-Deposit Ratio. Overall LDR increased to 76.1% as both NT dollar and foreign currency loans grew faster than deposits.
NT dollar LDR was 85.1%. Foreign currency LDR was 63.4%. Page 16, NIM and spread. In Q2, NIM went up to 1.5% as Fed rate cuts led to lower funding costs, including swap income. NIM was 1.63% in the first half. Page 17, fee breakdown. Total fees were down 19% quarter-over-quarter due to a seasonal base effect at Lottery and up 9% year-over-year. Wealth management fee was down 7% quarter-over-quarter impacted by market volatility and NTD appreciation and was up 7% year-over-year as sales momentum was stronger compared to the same period last year, driving sales of bancassurance and structured products to increase. Credit card fees were up 3% quarter-over-quarter and 8% year-over-year, supported by continued growth of credit card consumption. Corporate business fees were down 9% quarter-over-quarter, mostly due to higher syndicated loan fees in Q1 and up 18% year-over-year, driven by loan-related and private banking fees.
Page 18, wealth management fee. For wealth management fee breakdown in Q2, the proportion of mutual funds decreased due to capital market volatility, and the proportion of bancassurance increased. Page 19, Cost-to-Income Ratio. Cost-to-Income Ratio was 51.8% in Q2, improved quarter-over-quarter. In the first half, Cost-to-Income Ratio was 51.9%, improved year-over-year, driven by faster growth in operating income and contained OpEx growth. On asset quality. Asset quality remains stable with NPL ratio at 0.48%. NPL coverage ratio was 324%. Q2 Credit Cost was 26 basis points, down seven basis points quarter-over-quarter as declines in loans led to lower general provisions. Credit Cost in the first half was 29 basis points, down three basis points year-over-year, mainly due to decreases in provisions for the retail segment. Moving to life business.
Taiwan Life reported net profit of NTD 7.2 billion in the first half, down 45% year-over-year due to FX volatility. ROE was 9.4%. Total premiums in the first half were up 7% year-over-year and FYPs grew 5% year-over-year, driven by increased sales of investment-linked policies. On the upper right-hand side is the FYP product breakdown. We can see the proportion of investment-linked policies increased to 24%. On the lower left-hand side, regular pay products accounted for 45% and single pay products 31% of FYPs. Foreign currency policy accounted for 50% and NT dollar policy 27% of FYPs. On the lower right-hand side, in terms of channels, the proportion of CTBC Bank increased to 40%, reflecting increased sales of investment-linked policies.
Page 24, investment asset mix. Total investment assets reached NTD 2 trillion. Taiwan Life seized market opportunities to realize gains from equities and bonds, resulting in an increase in cash holdings.
In addition, Taiwan Life continued to adjust currency matching and lower the proportion of foreign bonds. The allocation of other asset classes remained relatively steady. Page 25. In the first half, total investment yield after hedge was 3.5%. Recurring yield before hedge was 3.63%. Despite the cost of liability increase, Taiwan Life continues to maintain positive investment spreads.
Page 26, hedging mix. On the left, 42% of overseas investment assets were foreign currency policies, 33% were fully hedged, 16% were unhedged, and the rest was OCI position. On the right, FX reserves amounted to NTD 3.4 billion as of Q2. Hedging costs were 1.81% in the first half, increased year-over-year, mainly due to the sharp depreciation in the US dollar. Turning now to ESG highlights. CTBC Holding remains committed to ESG, and our continuous efforts have led to improved ESG ratings from leading agencies, including S&P Global, FTSE Russell, and ISS.
Please refer to page 28 and 29 that highlight the sustainability performance of CTBC Holding. That concludes the presentation. We are now open for a Q&A.
Thank you for the presentation. I would first like to address some common questions from investors, and later during the Q&A session, you can focus on questions that I haven't addressed. First of all, it seems that the U.S. is going to cut rates. As for the impact on the bank, if we look at the asset and liabilities, well, if the U.S. cuts rates, the foreign currency capital cost can go down, which can be positive. We believe that with one basis point of rate cut, the NII impact is going to be about NTD 8 million. That's the current situation of the portfolio. As for the most impacted clients or industries, well, since April, since Trump's announcement of the reciprocal tariffs, we have reviewed our corporate clients, hoping to understand the degree of impact and their countermeasures, and therefore, we can set up some measures afterwards.
We look at the clients with more than 10% of their revenue from the U.S. We consider the distribution of their production bases and how they can shift the burden of tariffs elsewhere in order to evaluate high, mid, low risks. We look at the mid to high-risk clients, they account for roughly 1.5% of the entire bank only. We will continue our review in this unusual time when the impact of tariffs is not over yet. Every month or every quarter, we will carry out this review. We look at the latest numbers, the number is going down compared to previously. 1.5% is the latest number which I just talked about. You also asked about 72.2 in terms of mortgage and 30%. As of June, our percentage is 28%. There is still room of about NTD 100 billion between that and 30%.
The new government mortgage policy for young people is only for state-owned banks. Private banks, our bank cannot do that business. We focus on our existing clients as priority direction. In August, we launched a co-branded credit card with Uni-President Group. It has been one month. It seems that it's very popular. The number of cards issued meets or exceeds even our expectations. As of the end of August, more than 9 million cards have been issued in our bank. We believe that we will exceed 10 million by the end of this year. As for insurance, as of June this year, we apply to the regulator for the new FX reserve scheme. The additional amount is about NTD 100 million. That was the first batch of money, and we continue with the second batch of money, and the amount was roughly NTD 15 billion.
As of the end of August, the reserve is about NTD 20.6 billion. Whether regardless of IFRS 17 or ICS, upon our adoption, we believe that we will exceed the legal threshold by 100%, and our internal goal is 125%. This is our internal management goal. As of bond issuance, we postponed our earnings call because of this issue. This year, CTBC Holding applied for NTD 40 billion quota of bond issuance. We have issued around NTD 20.5 billion already. For bank, the quota is NTD 30 billion, and we have used that up. For issuance, there is still a NTD 6 billion quota remaining. We will look at the market situation to continue to do that. You also asked about our overseas presence and deployment. Many state government banks recently have decided to eliminate their presence in Southeast Asia. Our overseas presence It's relatively comprehensive.
Our main presence goes across Greater China, Japan, North America, and Southeast Asia, with more than 300 presences. Faced with global trends and Taiwanese businesses continuing to invest overseas, our overseas presence will continue to take roots. Our overseas profit continues to grow, as I mentioned, and in bank, overseas business accounts for 36%. In North America, due to tariffs, we have applied for establishing a branch in L.A., CTBC Bank. We will also set up an office in Texas, trying to strengthen some Taiwanese businesses related areas in Texas and near Mexico. In Southeast Asia, we have performed pretty well. We will apply for an office in Hai Phong and another one in Bình Duong, and they are expected to launch in November. In India, we have applied for OBU.
It's GIFT City in Q4, the business will start hoping to service more Taiwanese businesses there and reducing their investment costs. Because in GIFT City, it's tax-free, we hope to meet customers' needs by doing so. We originally had one office in Australia. We are planning to upgrade it to a branch. Australia and Singapore can co-work on some projects, and also due to our existing clients, we want to continue to develop in Australia. As for Japan, our Tokyo branch will establish a sub-branch in Fukuoka, and TSB, its sub-branch in Kumamoto will be upgraded to a branch because Taiwanese businesses and Taiwanese people now go mainly to Kyushu to invest. This is our overseas deployment and development overseas. We hope to more deeply invest where there are more Taiwanese businesses and overseas Chinese populations. These are some of the common questions raised by investors.
If you have any further questions, feel free to raise them. Thank you.
Thank you, Mr. President. Now, please enter your questions in the webcast chat box. Questions in Mandarin are now being asked. Please enter your questions in the webcast chat box. We will answer the English questions after the Mandarin questions are over. Thank you. JPMorgan, Jemmy Huang, please.
Hello. I have four questions. First of all, could you talk about Q2 swap revenue? How much is it, roughly? If the U.S. is going to cut rates, can we expect the NII to go up while swap revenue continues to go down? If we look at H1 NIM, it is at the low end, right? I don't know if in H2 there will be some upside catalysts there.
My second question regarding the credit card cooperation with Uni-President Group, I don't know if there will be some upfront expense this year, be it one time or otherwise. Can there be some expense related to that? My third question, Tokyo Star Bank. If you look at the profit growth, it's mid to high double digit, right? In the first half of this year. If you look at PPOP and credit costs, year-over-year change, how is the change year-over-year? How do we look at the earnings momentum or ROE? My last question, do you have the latest total leverage ratio? In terms of CTBC Bank, is the maximum of NTD 25 billion that you can contribute to the holding, is that the cap? If total leverage ratio is tight, it seems, do investors need to worry about the payout capacity next year?
For total leverage ratio, are we going to actively revise it downward? Thank you.
In terms of swap revenue, first of all, to answer this question, in the first half of this year, the total swap revenue was NTD 4.16 billion. In year-over-year terms, it went down by 35%. In it, of course, there's swap point gradually going down. That's one factor. That's one reason. As for future trends, we believe that for book NIM, it continues to go up, but with swap added, the impact of swap is getting smaller and smaller. From January to June, NIM with swap is 1.63%, so three points more year-over-year. For the full year, NIM with swap is still between 1.63%-1.66% within our guidance. As for Double Leverage Ratio, in June, we reached 125.9% because when we were planning cash dividend payout, there wasn't yet the tariff factor.
In May, the NTD appreciated sharply. In June, after the payout of dividend, our Double Leverage Ratio exceeded 125%. The real impact is that if we want to apply for reinvestment to the regulator, the amount with reinvestment has to be lower than 125%. Before August, with our earnings growth and with the bond and stock prices going up, the number went down already to 124.5%, roughly. In the future, can the bank only contribute NTD 1.5? There is a chance for us to exceed our capitalization. If that's the case, we don't need to follow the cap of NTD 1.5. This still depends on our business development to determine how much CTBC Bank can contribute, can pay to this CTBC Holding. As for Tokyo Star Bank, its performance has been great this year. The ROE has reached 7.8%.
Last year, it was 4.65% in the same period last year. The growth is significant. First of all, in Japan, there have been rate hikes. Second, the yen has fluctuated, there's hedging needs from clients. Hedging transactions have enjoyed better profit as a result. In the first half of this year, pre-tax revenue was JPY 1.86 billion, a growth of 49% in H1. The asset quality was well-maintained in Tokyo Star Bank. This is our explanation. For credit card-related expense, this is secret. We cannot elaborate too much on this, but we've had a lot of cooperation, including marketing expense. As for card-making expense, marketing expense, and also a bit more discount. All of these are part of the credit card-related expenses that you mentioned.
The next question is from Michael Zhang of Citi.
Thank you, managers, for accepting my question.
I have a few questions. First of all, I want to ask you about M&A. Do you have some plans in terms of M&A, especially in terms of some life insurance companies? What are your considerations as managers? Second, I want to ask you about loan momentum. Can you share with us, when you look at the corporate loans, is there a recovery taking place when you look at the second half of this year and next year? Can loan growth remain at a high level? Also in terms of wealth management, mutual fund income has declined slightly. I don't know when the capital market recovers. Do you see some wealth management growth that is recovering? Thank you.
Let me first answer the question about the overall Holding's development strategies. We are holding, which is bank- centric. Bank accounts for 70%, insurance about 30%.
This is our long-term direction. We are bank- centric. Depending on clients' needs, we have different subsidiaries to satisfy our clients' needs. We focus on our organic growth. A lot of businesses have enjoyed double-digit growth. Organically, we try our best. As for inorganic growth, we look at market situations. If there are suitable targets and with synergy with us, if we can provide better products and services for clients, we will consider that option. We don't comment on any specific case. This is my answer to your question about M&As. As for wealth management in Q2, in April, Trump announced reciprocal tariffs, impacting, giving a lot of uncertainties to the investment market. Wealth management clients remained conservative in April. Sales went down as a result.
Now many issues have been clarified, and we know better the U.S.'s policy directions now. In May, June, July, August, momentum has recovered and exceeding the situation of Q1. Wealth management development is as what we have expected.
Please enter your questions in the webcast chat box.
Sorry, let me explain our loan momentum in Q2 compared to Q1. Q2 was slightly worse, a big part of it is due to FX or NTD appreciation. Our foreign currency in Q2 went down by 4.3%. The amount was NTD 62.6 billion. FX impact was NTD 125 billion. If we exclude FX impact, actually, our foreign currency momentum was still there. It actually grew by 4.3%. As for the second half of this year, in terms of loan momentum, do we see a better situation? Indeed.
Corporate clients in Q3, we see that our momentum is recovering quite a lot. We will continue to look at the situation in the future. Our clients continue to have some capital needs or money demand. I think for the whole year, the growth will be at a double-digit level.
The next question is from KGI, Eric Shih .
Hello, managers. First of all, a question about life insurance. In Q2, what was the unrealized profit, and how much has it recovered until August? The hedging share in Q2 went up. In August, did it go up or down? When the NTD appreciates by NTD 1 , what is the sensitivity situation? In July, you released NTD 15 billion. Does that impact the transition CSM efficiency, and what is the growth speed annually? For ICS adoption, you said that there would be no impact.
Is it still the same? How much AC will go to FVOCI? Another question. President mentioned some M&A principles. If there's an M&A in terms of life insurance, what is the capital synergy? How are you going to evaluate the capital synergy? In the future, if you want to have an M&A, is it possible that you increase your capital or what? As for CTBC Bank, I want to know if the Credit Cost is still as what you previously forecast. Thank you.
As for stock unrealized amount was NTD 7 billion at the end of June. Our FX reserve includes NTD 15.1 billion newly added, and also with FX fluctuations at the end of August. The FX reserve was slightly over NTD 20 billion. If there's an appreciation of NTD 1 , it has to do with the hedging percentage, right? In the past, our percentage was 46%.
Right now it's roughly 56%-57%. NTD 1 will impact NTD 700 million-NTD 900 million. As for M&A, as long as there's an impact on insolvency capacity, we will take that into consideration. Thank you. To add some information about M&A. Before and after M&A, we will comply with regulators' regulations. We don't want to comment any further or explain any further on any specific company or industries. Apologies for that. As for Credit Cost, our whole year forecast is 25 to 30 basis points. The guidance hasn't changed since earlier this year. Another question was about NTD 15 billion added to FX reserve. It has no impact on CSM. These numbers will continue to highly related to interest rates on the market, but when we transfer that NTD 15.1 billion, it will have no impact on the CSM that we talked about. That's it.
Please enter your questions in the webcast chat box. Thank you. This question is from Alex Ye, UBS. Please.
Thank you for this opportunity. My first question is about swap adjusted NIM forecast. You said that you maintain the same guidance, but in H2 it's likely that the rates will be cut. Do you think that this direction can be maintained at 1.6% or there will be some downward pressure? Second, what is your outlook for NTD interest rates if there's also rate cuts? What is the sensitivity?
Alex, sorry, your voice is not stable. Could you get closer to the microphone?
Thank you. Sorry about that. Let me repeat my question. Adjusted NIM, could you give us some outlook about next year? Is it possible to maintain at 1.6 roughly? Second, for NTD interest rate policy, what is the outlook and the sensitivity?
As for the adoption of IFRS 17 on January 1st next year, the rate cuts in the U.S. from 25 to 75 basis points, how much of an impact will that be on the adoption? The adjustment will be on the distribution rate? The media has reported on ICS measures getting tighter, ICS ratio after adoption is about 130, right? You said right now it surpasses 125, right? I want to ask you, when the measures get tighter, will the ratio be lower than the original forecast, or what is the impact?
NIM outlook. To answer this question first, in the second half of this year, we consider rate cuts in the U.S. and its impact on the swap point. The overall trend is that book NIM every month will continue to widen and the swap impact is going down every year.
For the full year, our outlook remains at what I said, between 1.63%-1.66%. As for interest rate sensitivity, I want to mention first, the NTD. If there is a rate cut of 25 basis points, NIM will go down by roughly one point six basis points. For foreign currency, if there is an interest rate cut of 25 basis points, our NIM will go up by zero point four basis points. In terms of the adoption of IFRS 17 next year, of course, the interest rate environment will have some impact. If our reserve liability amount can go down a lot, then the AC position will be more. That will be the main direction. Of course, it depends on the market interest rate change. As for ICS, it seems that the rules will still be adjusted to a certain extent. From the media reports, we see the directions.
Based on these directions, our RBC now is 323%, and also we have some debt issuance. Before the end of this year, we believe that the RBC will be around 350% roughly. Based on that, next year, staying at 125% shouldn't be a problem for us. Of course, there will be some room for adjustment of rules and regulations. Right now, it seems that it's highly likely to be over 125%.
Please enter your questions in the webcast chat box. Thank you. Please enter your questions in the webcast chat box. Thank you. There are no further questions. Thank you so much for your participation. This concludes our earnings call. Thank you. Goodbye.