Welcome everyone to CTBC Financial Holding Company's 2024 first quarter earnings call. Today's call will be hosted by Mr. James Chen, President of CTBC Financial Holding Company, Ms. Rachael Kao, Spokesperson of CTBC Financial Holding, Ms. Megan Hsu, CFO of CTBC Financial Holding, Mr. Pai-Hung Yeh, Executive Vice President of Taiwan Life Insurance Company, and Ms. Justine Shen, Head of Investor Relations of CTBC Financial Holding. All lines have been placed on mute to prevent background noise. After the management's presentation, there will be a question and answer session. The floor is given to President Chen.
Dear analysts and investors, welcome everyone to CTBC's 2024 first quarter earnings call. CTBC Holding's business performed well in Q1 as NT dollar depreciated. In addition, the stock market in Taiwan had a strong performance. CTBC Holding's pre-tax profit reached TWD 25.5 billion in Q1, increased 62% from the same period last year.
Holding's net profit reached TWD 20.9 billion, increased 61% from the same period last year.
The main reason for growth is Taiwan Life. Since last year, at the same period, the NT dollar appreciated, and that would affect the foreign exchange, and there was a cost according to that. This year, since New Taiwan dollar depreciated and Taiwan stocks performed well, the investment team captured profits during this period. For the first quarter in 2024, the net profit reached TWD 7.6 billion for Taiwan Life. Other than that, our core business, Bank, also performed well. For Q1, pre-tax profits reached TWD 15.7 billion. Compared to last year, we grew by 11% Y-O-Y, and net profits reached TWD 12.1 billion. That's 7% growth compared to last year. For the Bank, the main growth comes from deposits, stable growth, and fee income performed quite well, especially for wealth management.
Thanks to the prosperity of stock markets, the fee income of wealth management reached 40% growth for Q1, and their fee income for credit cards and corporates, business, and trust funds. Total fee income grew by 23% in the first quarter. Because of that, the Bank's profits also reached historical heights. Other subsidiaries, including Securities and VC, also grew by 20%-30% thanks to the prosperity in Taiwan stock market as well as the increase in trades. For Q1, our EPS has reached TWD 1.7. For our ROE, reached 19.7%. That is also better than last year's 14.6%. Looking onward to the second half of this year, for Taiwan Life, the profit challenge would be New Taiwan dollar, because New Taiwan dollar exchange rate for U.S. dollar has been 32.5, there is no more room for depreciation.
We cannot expect profit to come as easily as the first quarter. For the Taiwan Stock market, after reaching the 20,000 mark, the EPS has been 23 x, there is also limited room for growth going forward. That would affect the investment income for Taiwan Life. There are also benefits for our life insurance since June to August. Traditionally, these three months are for stock dividends payouts, and Taiwan Life has a huge position in Taiwan Stock, dividend income is expected to generate profits. The bank side, this year, Taiwan's economy will perform better compared to last year. We expect to reach 3.1%. Because of tech industry is driving the overall economy and domestic demand is performing well as well.
The bank's profits, we expect to see stable growth, especially because the Fed in the U.S. expect to delay rate cuts and with lower cuts as well. For Taiwan Central Bank, there was an unexpected rate hike last month. All these movements may not have a huge impact on the bank's profit, but they are all positive. We are very optimistic of the bank side's performance in the second half of this year. The Holdings overall even though we may not see as high levels of growth for the first quarter, but we do expect our performance this year to surpass last year's. This is the brief introduction to the first quarter, and I'll pass the mic to our IR colleague to give a detailed figures, and I'll answer the questions afterwards.
Welcome. Thank you for joining CTBC first quarter 2024 earnings call.
Please turn to performance highlights on page four. Supported by resilient operating performance at CTBC Bank and earnings recovery at Taiwan Life, holdings' net profit reached TWD 20.9 billion in the first quarter, up 179% QOQ and 61% YOY respectively. EPS was TWD 1.70. Holdings ROE was 19.7%. The board recently decided to pay out a cash dividend of TWD 1.80 per share, implying a payout ratio of 63.8%. CTBC Bank's net profit was TWD 12.1 billion in the first quarter, up 26% QOQ and 7% YOY. The strong performance was driven by robust fee income growth and increased trading income. Bank's capitalization was solid and credit costs remained benign. Taiwan Life reported net profit of TWD 7.7 billion, showed a strongly rebounded, benefiting from lower hedging costs and increased investment gains.
Capitalization remains strong, with RBC at 305%. Other subsidiaries, including CTBC Securities, venture capital, investments, and Taiwan Lottery, also performed well.
Holdings EPS was TWD 1.7 in the first quarter, group ROE was 19.7%, ROA was 1.02%. Moving on to capital ratio, we remain well-capitalized with group CAR at 123%, Life RBC ratio at 305%, Bank CAR at 13.9%, CET1 ratio at 11.1%. Profit breakdown by entities. The bank net profits was up 26% QOQ and 7% YOY, driven by robust fee income growth and increased trading income. Life reported net profits of TWD 7.7 billion, benefiting from lower hedging costs amid NTD depreciation and increased capital gains driven by positive capital markets performance. The holdings net profits was up 179% QOQ and 61% YOY. Net profit movement on page eight is provided for your reference. On page nine, revenue breakdown excluding Life. Total revenue was up 8% QOQ and 9% YOY. Net interest income was down 7% QOQ and 5% YOY.
Fee income was up 41% QOQ and 25% YOY. Trading income and others, increased 1% QOQ and 26% YOY, driven by fixed income related gains and swap income at the bank, as well as equity-related gains at venture capital and securities subsidiaries. Let's go to our banking business, starting with loan breakdown on page 11. Total lending with credit card revolving was up 1% QOQ and 9% YOY. NTD corporate loan, it was up 0.5% QOQ, driven by growth in government loans, and up 8.1% YOY, driven by governments and manufacturing sector growth. Mortgage, it was flat QOQ and up 12% YOY as business momentum remained stable. Unsecured and other loans increased 0.9% QOQ and 10.8% YOY. Foreign currency loans, was up 2% QOQ and 8% YOY. That's the foreign currency loan breakdown.
Overseas subsidiaries accounted for 59% of foreign currency loans, with TSB 25% and LH 17%. Overseas branches accounted for 32%. Overseas subsidiaries loan grew, especially for LH, U.S., Indonesia subsidiaries, reporting double-digit loan growth. We observed loan growth to sustain at every overseas branch, growth was especially strong in China, Tokyo, New York, and Vietnam branches, reporting over 30% rise if excluding FX impact. OBU plus DBU loan was down as high interest rates led to lower demand for loans. The bank deposit mix. Total deposit reached TWD 5.1 trillion as of the end of March, up 1% QOQ and 7% YOY. On the right, CASA accounted for 61% for NTD deposits, increased by 2 percentage points QOQ.
Time deposit ratio in foreign currency deposits increased to 63%, as high U.S. dollar interest rates represent a strong incentive for depositors to shift from savings to time deposits. Loan-to-deposit ratio, overall LDR was 72%, NTD LDR rose to 84.1%, foreign currency LDR was 56.4%. NIM and spreads. Overall spreads narrowed in the first quarter as LDR trended lower and rising foreign time deposits drove funding costs up. On the left, we can see that since the spread narrowed, due to overall spread and reclassification of net interest income in last quarter, including swap income, the first quarter NIM was 1.37%, down 10 basis point, and including swap NIM was 1.61 in the first quarter. Fee breakdown, total fees were up 43% QOQ and 23% YOY, driven by improved momentum in wealth management, corporate, and credit card businesses.
Wealth management fee grew 7% QOQ and 43% YOY as sales momentum remained strong, driving sales of structured products and bank assurance to increase. In addition, capital markets soared, supporting sales of mutual funds. Corporate business was up 99% QOQ and 22% YOY, driven by syndication, loan-related, and cash management fees. Credit card fee, it was up 23% QOQ and 21% YOY as business momentum sustained. Wealth management fee breakdown in Q1, the proportion of mutual funds increased, underpinned by strong capital market performance. The CTBC Bank's cost-to-income ratio was 53% in Q1, improved QOQ and YOY, driven by faster growth in operating income and contained OpEx growth. In addition, the company does not need to book ESOP valuations anymore starting this year. Asset quality remained stable, with NPL ratio at 0.54%. NPL coverage ratio was 298%.
Q1 credit cost was 26 basis points, down 6 basis points QOQ, mostly due to a one-off reclassification of NPL recovery in last quarter. Q1 credit cost was up 15 basis points YOY, mostly due to a 1% increase in General Provisions against new loans. Moving on to Taiwan Life. In Q1, FYP was up 34% YOY as sales of interest-sensitive and investment-linked products recovered. FYPE was up 21% YOY. On the left is the product breakdown. We can see the proportion of interest-sensitive policies increased. On the right, in terms of channels, the proportion of bank assurance channel was higher, reflecting increasing sales of interest-sensitive policies. Next page. On the left, regular pay products accounted for 58% and single pay products 37% of FYPs. On the right, foreign currency policy accounted for 50% and NTD policy 42% of FYPs.
In terms of investment asset mix, total investment assets reached nearly TWD 2 trillion. The investment asset mix remained relatively steady. In terms of Taiwan Life investment yield in Q1, overall investment yield after hedge was 4.74%, recurring yield before hedge was 3.38%, both improved YOY, reflecting higher investment gains this year. Taiwan Life continues to maintain positive investment spreads against rising cost of liability and break-even point. Moving on to Taiwan Life's hedging mix. On the left, 41% of overseas investment assets were foreign currency policies and 30% were fully hedged, 18% were unhedged, and the rest was OCI position. On the right, FX reserve amounted to TWD 9.8 billion as of Q1. Hedging cost was 34 basis points in Q1, improved YOY, benefiting from TWD depreciation. We move on to Taiwan Life's end of 2023 EV report.
EV reached TWD 258.7 billion as of the end of 2023, the equivalent of TWD 13.2 per CTBC Holding share. Investment yield for NT dollar policy starts from 3.44% in 2024 and will gradually rise to 4.24% in 2043. Investment yield for U.S. dollar policy starts from 4.32% in 2024 and will gradually rise to 5.41% in 2043.
PwC has provided an independent review on EV assumptions. The sensitivity analysis is provided for your reference. For EV comparison. In 2023, EV increased 17% YOY as adjusted net worth increased by TWD 41.1 billion, while Value of In-force declined by TWD 5.8 billion. ANW movement. Adjusted net worth grew in 2023, mainly due to net profit of TWD 12.4 billion and changes in unrealized gain on financial assets of TWD 31.4 billion. Other adjustments was down by TWD 6.2 billion, mainly due to FX reserve decline. On Value of In-force Business movement, VIF was TWD 155 billion, down 3.6% YOY. VIF movement was mainly driven by VNB of TWD 8.3 billion, plus release of 2023 expected profits and interest rolling forward of TWD 3.5 billion, offset by other assumption changes such as morbidity and lapse rate.
VNB after cost of capital was TWD 7.2 billion, up 22% YOY, supported by improved product mix, as well as changes of model and discount rate assumptions. Last but not least, turning on to ESG highlights. CTBC Holding has been included in the S&P Global Sustainability Yearbook for the fifth consecutive year, this time ranking among the top 5% of performance worldwide. In addition, CTBC Bank has been named Asia Pacific's Best Bank for Sustainable Project Finance by Global Finance and highly commended Sustainable Bank in Taiwan by FinanceAsia. These accolades recognize CTBC's enduring commitment to ESG initiatives and sustainability performance. Please feel free to download CTBC Holding sustainability reports or find out more on the IR page of our website. That concludes the presentation.
That is the presentation from our IR colleague. Next, I will invite all of you to ask questions.
Thank you, President.
We are now open to questions in Mandarin Chinese, please enter your question in the webcast chat box, and we will proceed to the English questions after answering the Chinese questions. We are now open to questions in Mandarin Chinese. Please enter your question in the webcast chat box, and we will proceed to the English questions after answering the Chinese questions. The first question is from Jemmy Huang from JPMorgan.
I have several questions. For bank side, the NIM in the first quarter dropped. I remember, in the past, you mentioned that it would go down, going forward, NIM will gradually come back up. I don't know if this prediction or projection is consistent with the current status going on to the second quarter. What's the rebound of the NIM? Would that be different from the expectations?
The second question is on credit cost for the first quarter. When I look at loan growth, I see this 1.1%. It's not a strong performance compared to the past quarters. The momentum isn't as strong. When we look at the presentation, the new NPL information, we see that is relatively high. The question would be for your asset quality's expectations and the overview. The credit cost, how much comes from PE? For Life side, my question is, for the current version, the FX reserve, how do you expect the FX reserve to increase if we move from other special reserves? How much can be increased? For BE, for EV and VNB's ROE in 2023. Cost of capital, that's the next question. The overall cost for capital decreased. I want to know the reasons.
In the past, the discount rate was higher than competitors, you dropped it, adjusted lower. To answer all of your four questions, for the bank side, I would invite our CFO to answer the two questions, then I'll invite our CFO at Taiwan Life to answer the insurance questions.
For the bank side, the first question is on NIM
The outlook for NIM and foreign currency momentum. To answer your questions, in Q1, as you said, NIM dropped. From this current trend, we do see positives and disadvantages. First of all, for the coming quarter, when we look at the outlook of the next quarter, we mentioned that U.S. rate cuts, we expect it to go on the second half of this year. The house view expects that the timing and the degree of rates cuts will be later and smaller compared to our previous expectations. The de-inventory pace of our clients is slower than our expectations. The capital in time deposits remain high. Due to these reasons, our deposit costs dropped smaller than expected. For NIM, that is why we see a decline in NIM. We expect in Q2, NIM will still in the bottom.
Because of the USD, NTD spreads remain a positive because a U.S. rate cut is delaying. For the guidance we provided last quarter, it's quite consistent with the last year's expectations. Spreads is relatively high for longer. We see that swap gain will be higher than expected. Next question is on the foreign currency loans and whether increased as expected. Performance-wise, we can see that in Q1, foreign currency indeed grew. There is a trend going up. For last year, our clients see the pressure of de-inventory, so it was lower last year. For Q1 foreign currency, we see a 2% growth is around TWD 27.3 billion increase. We expect if this trend goes on, it will be beneficial for our NIM. For our NIM guidance last quarter is around 1.63%-1.66%.
Due to the aforementioned reasons, we now adjust it to 1.63%. If the demand for foreign currency continues to increase, the lending increases, we will adjust the outlook again. To answer your second question on credit costs. Our colleagues in the presentation mentioned that GP is the main reason for credit cost changes. If we look at the growth of loans, it may not support such a great GP. To explain, it's because our retail loans in the past, Taiwan government launched initiatives allowing clients to delay loan payments due to COVID. That's a part of the COVID aid program. The clients do not have to pay the principal for unsecured loans. That is why we see this decrease. Since the period has ended, the distressed assets reduced.
For last year and this year, we have addressed these positions and we provided more for such bad debts. If we look at the trends, the position is declining, therefore our assets quality has improved. The GP, that's the cause for GP. Versus the last quarter, our GP increased by TWD 1.5 billion. In particular, TWD 0.5 billion came from the unsecured loans I mentioned. The other TWD 1 billion, the increase in position is because of the situation I explained. For credit cards, we saw an increase in the reserves and the provision. The credit card provision is smaller than the unsecured loans. These are the questions from the bank side.
To add something about the credit cost. 26 basis points was actually still within our budget. We expect it to be between 25-30 basis points. Compare with Q4 last year, it was down. However, it was up by a lot YOY. That's because, like I said, in Q1 last year, there were some NPL issues. Also, the provisions was TWD 13 billion, and during COVID, the government had this policy to alleviate the burden on the creditors. But that program ended, so we can starting from last quarter, we began to be more strict about these NPLs. Now, as of last quarter, it amounted to TWD 8 billion. When that program ended, the NPL will increase. We expect that by June, or it will peak in the middle of the year, and that number will come down in Q3.
As we can see from the numbers, it peaked in March, and it actually began to come down in April, so we expect the provisions to return to their normal level in Q3. About insurance, may I ask Pai-Hung from Taiwan Life to comment a bout FX reserves.
To answer your questions, based on the items on our list, it's now at TWD 1 billion. Regarding time deposit, there's also the reserve for other policies. In the future, when we adopt IFRS, these reserves that's not used could be used to make up for the other items. I think if we look at the root cause of it, when we adopt IFRS 17, we need to make up for the gap in the FX reserve. It's a very substantial amount, maybe in the TWD tens of billions.
We still have to yet to come up with a method to adopt IFRS. In general, in the future, we adopt IFRS 17, the unused reserves could be used to make up for the lacking in FX reserve. About EV yields, this year is at 4.15%, down 2 basis points from last year. Sorry, up by 2 basis points . The yield is 4.52%, down from last year, mainly because this year we need to deal with a large amount of surrendering, and so we need to deal with the NT dollars policies being surrendered, and because their values is lower, and that's why it has dropped to 4.52%. Regarding discount rate, every year when we announce the EV, we also review it from three perspectives. First, we will use the CAPM model to calculate the number. Also we will calculate based on stock price variations.
This year it will be between 8.8% and 10.5%, is in the lower bound. We also referenced the numbers, the discount rates used by our peers. That's why we set it at 9.5%. Last year, we issued loans as well. We've been reviewing the overall cost of capital. With new loans issued, the cost of capital has come down slightly. That's why we've adjusted the discount rate at 9.5%. Regarding lower cost of capital, is actually a reflection of the lower discount rate from 10%-9.5%. Also from sensitivity, I think based on the EV that we've announced, is aligned with the discount rate.
A follow-up question. In swap is up by TWD 3.2 billion, more than the TWD 110 billion from last year. Is that right?
You mentioned about using the unused reserve to make up for the FX reserve. It would be in the TWD tens of billions. What do you mean by the unused reserve?
First, to answer your question about swap. In Q1, it was at TWD 3.2 billion. In the last guidance, we said we want to remain in the TWD 11 billion from last year. As of now, we expect a 5%-10% growth. For the reserves, because we are following IFRS 4, and the liabilities are calculated with that, and the liability is calculated under IFRS 17, we now see a higher number. When we switch to IFRS 17, there will be a huge gap, and for that gap, we will apply for the foreign exchange reserves, and that will be used that way. Have I answered your question?
Yes. Thank you.
Thank you to questions from JP Morgan. Do we have any other questions?
Next question is from Morgan Stanley. Peggy Shih.
Thank you for taking my question. I have several questions. The first question is about dividend distribution. This year is TWD 1 per TWD 0.80. That is around 64% compared to previous years, is around 45%. We see a huge increase, and I want to ask about the reason. The second question is that the long-term dividend payout policy, is it possible to increase? We do that at all subsidiaries have a high CAR, and we do see the bank structure improved greatly. Do we have a change in long-term dividend payout ratio? That is my question. The second question is that in the current market, there are a lot of M&A activities. We want to ask management for your perspective on M&A. Do you have any M&A plans for CTBC?
What kind of indicators do you consider, for example, the synergy of M&A or other aspects? Recently for overseas subsidiaries, if the ROE is not performing well, do you consider selling these subsidiaries? That is the second question. The third question is that for the bank, you mentioned the provision expense. For the U.S. CRE asset quality, I want to ask about the asset quality of CRE in the U.S. I also have questions for Life insurance as well. For the first quarter, Life performed well, and I want to ask the gain for stock investment gains and for the OCI, what is the percentage of stock gains and other gains? Because going forward, you will recognize stock dividend income. Do you have any expectation compared to the last year's levels? Last question, for hedging cost is really low for the first quarter.
It is only 0.34%, and that is partly because of foreign currency. In last year's whole year, hedging cost was around 1%. Do you plan to adjust the percentage going down?
The first question, we pay out TWD 1.80 this year is higher than expectation. As you know, the financial industry's dividend payout has more to do with the valuation of our financial assets other than after-tax profits. For last year, we do see a historical profit revenue of TWD 56.1 billion. Another main reason is because we do see a TWD 40 billion increase in our evaluation of our financial assets. That is a turnaround of the liability of the financial assets. That has a huge impact on our profits, and that is why we increase dividend payout. For the policy, we want to balance between our operation and to reward our investors and stockholders.
Going forward, currently, because our CAR can cover, we want to maintain a stable payout level. That's the first question. The second question, M&A. As you know, Taiwan's financial industry is quite mature. The banks, insurance companies, securities, the market in Taiwan has been very mature. We do see the growth. Organic growth would be our expectation because it's difficult to reach 10% growth organically. For M&A policy, ideally, we do want to proceed with our plans, but there would be a difference in reality. We do want to purchase a well-performed large bank in Taiwan. Even though we perform well, but our market share total in Taiwan is only around 8%. That's relatively low in the nature chamber because the whole market share is relatively low.
If we're able to expand our market share in Taiwan, that would be ideal because Taiwan is a market that we're most familiar with, and banking sector is our most familiar core business as well. Thirdly, our branches, physical branches, we now have 150 + branches in Taiwan. There's room for growth even though we are performing well digitally. When we compare to global leading banks, including JPMorgan, RBC, even though they increase in their digital banks, their physical banks have been expanding as well. Because integration between the virtual and the physical would be the best customer service. Many trades cannot be conducted by digital branches. You have to rely on physical branches to provide such service. Recently, Taiwan has a strict regulation on the branches, so for anti-fraud. The wait time for physical branches has been quite long.
Customers have to wait for a long time for any trades or any process because of KYC and other anti-fraud measures. Even though we have managed to maintain customer satisfaction, but I feel like there's something that we need to improve. Ideally, we do want to proceed with M&A, but it's not something we can do only if we want to do so. We need to have suitable targets, and we need to be approved by the regulators.
Taiwan Life and CTBC Securities, as long as we can identify partners that can increase our market share and create synergy and also one that we can purchase at a good price, we will sit down and evaluate the plans. Some of our overseas subsidiaries, their ROA is quite low. We have been using our emergency funding to support that. Over the long run, I believe that we have to maintain our operations in the locations that we value. We are a commercial franchise. It's a network. It's not like running an investment portfolio. We don't just buy and sell assets. We have to really operate the businesses. We need to take a holistic view, and where it's necessary, we will engage in merging. There's been a recent wave of migration of Taiwanese businesses overseas.
Because of our overseas presence, we managed to post TWD 19 billion in relevant business. In India, we have been there for two decades. We didn't turn a profit, but now we are already turning a profit. Strategically, these subsidiaries and branches are very important because for Taiwanese businesses and Chinese business as well, they go into the Indian market, and we are already there. If we are able to service them, then they will reward us with their other businesses in other locations, for example, the ones in Singapore and Hong Kong. In the short term, we are not having plans to divest in any of the subsidiaries. Instead, we believe the current strategy and the current layout is quite beneficial for the Holding as a whole. Regarding the CRE in the U.S., the quality is quite solid.
I think I've talked about this in the last call as well. The balance is at TWD 2.2 billion, and loan-to-value is about 53%, and only 10% of them is office. The current NPL is 0.5%. Coverage ratio is 205%. We don't think the CRE in the U.S. will be an issue in the near future. Maybe Pai-Hung will comment on your question relating Taiwan Life.
About capital gain in Q1, it was at TWD 6 billion, and for bonds, it was at TWD 700 million. For unrealized gain in Q1, it was TWD -4.7 billion. For stocks, it's at TWD 17 billion. Regarding dividend income, compared with last year, we expect it to be in several billion. Based on last year's observations, some of the sectors pay less of a dividend, so that was reflected in our predictions. In Q1, the market was quite strong.
The stock market performed really well. The stocks were up. We balanced our portfolio based on that. We expect it to be a balance between the capital gain and dividend. As of now, we expect smaller dividend gains from last year.
The previous expectations would be 1%. There is a change in foreign currency exchange between NTD and USD. It's very difficult for us to give you a prediction. We will maintain this 1% prediction. What's beneficial is that NTD appreciated. The spread narrows, that would be helpful for our whole year performance.
As a follow-up question, for the long-term dividend payout policy, you mentioned that you will maintain a stable payout because in the past, the payout would be around 45%-50%. Will you grow to 60% going forward?
May, to answer your question, I think it's very difficult for the financial industry to target the percentage of profits as dividend payouts, because the profits would be affected by the evaluation of your financial assets and other factors. As long as our CAR is able, we do want to pay out dividends as competitively as possible, and that do not have to be directly related to our profits percentage.
Thank you.
Thank you, May, for your questions. Do we have any other questions?
Next question is from UBS, and it's Alex Ye.
Thank you. My first question is on M&A considerations, especially for Life Insurance. You mentioned that there is a synergy that we need to consider, and from past experience, we see that CTBC Holding will be the main position. I don't know if the positions between Taiwan Life and CTBC would be contradictory and would that affect your M&A considerations. In the past, we mentioned that Taiwan Life's operation logic is that for it to maintain a stable profit. If Life Insurance continue to expand, may that affect Taiwan Life's profitability? What's your consideration? That's the first question. The second question is for the fee income growth momentum for wealth management and your forecast for the second half of this year.
The third question is on FX reserve. After switching to IFRS 17, the liability gap will be considered in the calculations, but asset sides will have to recalculate according to IFRS 17. The consideration in the past was only focusing on the liability side, and that will be an impact on mark-to-market. Now, when the liability side FX reserve will remain in the liability side as FX reserve, how do you balance the balance sheet according to that?
For your first question, indeed, we focus on holding in financial sector, and the profits of our bank side is around 70%, and that is our core business. Ideally, we do want to have a larger market share in the banking sector. For life insurance, we do follow the same logic whenever, regardless of our needs for increase in equity.
As long as it is affordable, we will consider M&A. We will still look at the whole picture to maximize the group's value. The second question on the fee income for wealth management, it is still performing well in the second quarter. It may be affected by the fund sales for the first quarter because of stock market performance. Secondly, the structured products sold well, especially stock-linked and bond-linked products. The funds may be affected through the stock markets, the second half of this year's performance is harder to predict. On the long term, we do see a positive outlook for the second half of this year.
Regarding FX reserve, Pai-Hung, would you like to take this one?
Now, we have talked about as we adopt IFRS 17, there is an option to reclassify.
That is right. Indeed, when we adopt IFRS 17, we will reconsider how many of the assets will be classified.
Those assets, the unrealized gain or loss will be reflected in our net worth.
How much percentage of that will become FX reserve and how many assets will be reclassified?
That's a question that we will address when we have a comprehensive review of the holding, and we will also talk with the regulator to decide a right proportion.
Thank you to your question, Alex. Any other questions?
We are now in the Q and A session. If you have any questions, please feel free to enter them in the chat box. Please feel free to enter your question in the chat box.
If not, we will now conclude today's call, and if you have any other questions or if you have follow-up questions, please feel free to contact our colleagues at IR. They'll be happy to provide more information. Thank you for joining us today.
Thank you, President Chen. Thank you for joining us today. Please feel free to sign off. Thank you.