Welcome to CTBC 2023 second quarter analyst meeting. Today's meeting will be hosted by Ms. Rachael Kao, Chief Strategy Officer of CTBC Financial Holding Company, Ms. Megan Hsu, CFO of CTBC Financial Holding Company, and Mr. Pai-Hung Yeh, Chief Strategy Officer of Taiwan Life. We welcome Ms. Rachael Kao to give a brief remark.
Good afternoon. Welcome to participate CTBC second analyst meeting at Friday late afternoon. First of all, I will give you some highlights of second quarter performance for CTBC Financial Holdings. At second quarter, CTBC Financial made TWD 15.9 billion at a quarter-over-quarter 22% growth compared to last quarter, which performance was over expectation, especially for three reasons. First of all is the rebound of the stock market for investment units like venture capital, securities, and Taiwan Life. The second reason is for the dividend payout at the second quarter. The third reason is we saw Taiwan dollar depreciation in May and June, we see a better result of remittance. For CTBC Financial Holdings, the first six months, the after-tax net profit was TWD 28.8 billion, which contributed about 90% of the total earning of last year, 2022.
For the first half performance, we saw a ROE at 16.2% and the EPS at TWD 1.48, which is the highest among all Taiwanese financial holding companies. At the core entity, CTBC Bank, the first six months, we saw a net profit of TWD 21 billion, which was 29% increase year-over-year. As the overseas expansion, we saw the record high performance of TWD 0.2 billion, which also accounted for 38% of the earning of the total bank. We continue to see the loan continue to expand and also the interest at the high end. We expect the bank can keep the momentum the total earning of this year, we think can over last year and make a record high of this year.
For Taiwan Life, that one uncertainty is given the interest at the high end, they're still struggling for fixed income investment, the uncertainty also comes for the fixed exchange rate. If exchange rate continue to stay at this moment or depreciate further, we may see some better result. If it's opposite, maybe the Taiwan Life earnings will be impacted as well. So far we see quite promising year of 2023. I will have my colleague to give you more details of the second quarter performance. Thank you.
Thank you everyone for joining CTBC's second quarter 2023 earnings call. Please turn to page four on performance highlights. Holdings net profit reached TWD 15.9 billion in Q2, and TWD 28.8 billion in the first half, up 22% QOQ and 19% YOY respectively. Holdings ROE was 16.2%, ranked number one among peers. CTBC Bank's net profit was TWD 9.6 billion in Q2, and TWD 21 billion in the first half. The strong performance was driven by increased net interest income, fee income, and trading gains. Bank's asset quality was stable and capitalization remained adequate. Taiwan Life reported net profit of TWD 6 billion in Q2, show a strong recovery QOQ driven by dividend income, increased investment gains, and lower hedging cost. In the first half, Life's net profit was down YOY due to higher hedging cost.
Taiwan Life continued to focus on long-term value products. Capitalization was strengthened with RBC ratio at 289%.
Page five on profitability. Holdings EPS was TWD 1.84 in the first half. Group ROE was 16.2%, and ROA was 0.76%. Page six on capital ratio. We remain well capitalized with group CAR at 116%, Life RBC ratio at 289%, Bank CAR at 13.3%, and CET1 ratio at 10.5%. Page seven on profit breakdown by entity. In 2Q, Bank net profit reached TWD 9.6 billion, down 16% QOQ, mostly due to lower lottery fees on base effect and higher provisions amid loan growth. Life net profit reached TWD 6 billion driven by dividend income, increased investment gains, and lower hedging cost.
Holdings consolidated net profit was TWD 15.9 billion, up 22% QOQ. In the first half, bank net profit reached TWD 21 billion, up 29% YOY, driven by higher net interest income, fee income, and trading gains. Life profit was TWD 5.1 billion, down 42% YOY, mostly due to higher hedging costs and lower investment gains on base effect. Holdings reported consolidated net profit was TWD 28.8 billion, up 19% YOY. Page eight on net profit movement for your reference. Page nine on revenue breakdown, excluding life. Total revenue was down 4% QOQ and up 25% YOY. Net interest income was down 1% QOQ. Foreign currency deposit mix change and increased swap positions caused net interest margin to narrow. Net interest income was up 12% YOY, driven by sustained loan growth. Fee income was down 16% QOQ, mostly due to seasonally high base of lottery fees in 1Q.
It was up 11% YOY as wealth management, lottery, credit card, retail, and corporate fees increased. Fee income at investment trust and venture capital subsidiaries also grew. Combined derivatives, FX, and trading gains was up 11% QOQ due to dividend income and swap income. It was up YOY, driven by dividend income, swap income, and commercial paper-related gains, as well as increased equity-related gains at securities and venture capital subsidiaries. Long-term investment and other income was down QOQ, up YOY as the company booked disposal gains on the sale of the office floors in the first quarter this year. Page 11 on bank's loan breakdown. Total lending with credit card revolving was up 3% QOQ and 14% YOY. NT dollar corporate loan was up 3% QOQ, driven by growth in manufacturing, construction and real estate, and finance and insurance sectors.
NT dollar corporate loan was up 28% YOY, driven by growth in manufacturing, construction and real estate, government-related, finance and insurance, and commerce and service sectors. Foreign currency loan was up 1% QOQ and 6% YOY. Mortgage was up 4% QOQ and 14% YOY, supported by stable business momentum and our participation in lending to civil servants. Unsecured and other loans were up 3% QOQ and 10% YOY, mostly on growth in unsecured consumer loans as we continue to expand our customer base. Page 12 on foreign currency loan breakdown. Foreign currency loan accounted for 35% of total lending. Overseas subsidiaries accounted for 60% of foreign currency loan, with TSB and LH being two larger subsidiaries. Overseas branches accounted for 30%. OBU and DBU was 10%.
Overseas subsidiaries loan was up 9% YOY, driven by sustained business momentum in LH, as well as U.S. and Philippines subsidiaries reporting double-digit loan growth. Overseas branch loan was up 6%, as most overseas branches observed loan growth to sustain, except Hong Kong, Vietnam, and New York branches. OBU and DBU was down 7% YOY as rising interest rates led to lower demands for loans. Page 13 on bank deposit mix. Total deposits reached TWD 4.7 trillion, flat QOQ and up 11% YOY. On the right, total NT dollar deposits were down 1% QOQ and up 9% YOY. NT dollar savings accounted for 62%. Total foreign currency deposits were up 2% QOQ and 13% YOY.
Foreign currency savings declined to 42% of total foreign currency deposits as increases in U.S. dollar interest rates represent a strong incentive for depositors to shift from savings to time deposits. Page 14 on loan-to-deposit ratio.
Overall, LDR was 71.6%. NT dollar LDR was 81.6%. Foreign currency LDR was 58.3%. Page 15 on NIM and spread. In 2Q, NT dollar spread was 1.84%, up 2 basis points QOQ, driven by stable loan growth. Foreign currency spread was 2.6%, down 5 basis points QOQ as declining cost ratio and increased swap positions caused spread to narrow. 2Q NIM was down 7 basis points QOQ to 1.48%. Including swap income, NIM was 1.7% in the first half. Page 16 on fee breakdown. Total fees were down 18% QOQ and up 10% YOY. Wealth management fee was up 6% QOQ, driven by increased sales of structured products, bank assurance, and mutual funds. Wealth management fee was up 11% YOY as business momentum for structured products and mutual funds recover, and increases in interest rates supported sales of bonds.
Credit card fee was down 13% QOQ as growth in consumptions pushed up commissions as well as credit card rebates. Credit card fee was up 7% YOY, driven by increased consumption. Retail business was down 4% QOQ and up 9% YOY, mostly driven by sustained growth in consumer loans. Corporate business was down 5% QOQ, mostly due to a high base of syndicated loan fees in 1 Q, and up 6% YOY, mostly driven by syndicated loan fees. Overseas subsidiaries fee was down 18% QOQ as TSB booked higher loan-related fees in 1 Q, and down 2% YOY due to lower fee income at LH and U.S. subsidiaries. Lottery fee declined QOQ on seasonal base effect and was up 15% YOY as product diversification supported stronger sales. Page 17 on wealth management fee.
Bancassurance contributed 53%, mutual fund 23%, custodian and trust 4%, and bonds and others 20% to total wealth management fees in 2Q. Page 18 on cost-to-income ratio. Cost-to-income ratio was 56% in 2Q, flat QOQ, and cost-to-income ratio in the first half marginally increased YOY due to increased operating expense, along with growing operating revenue and higher ESOP valuations. Excluding ESOP valuations, cost-to-income ratio would be around 55%, decline YOY. Page 19 on asset quality. NPL ratio was 0.49%, and NPL coverage ratio was 334%. 2Q credit cost was 29 basis points, up 18 basis points QOQ, mostly due to reversal of reserves in 1Q, and increased provisions against new loans in 2Q. The first half credit cost was 20 basis points, marginally down 1 basis point YOY. Moving on to Life's business.
Page 21 on total premium, first-year premium, and FYPE. Total premiums were TWD 32.9 billion in 2Q, up 16% QOQ. The first half total premiums were TWD 61.1 billion, down 18% YOY. 2Q FYPs were up 45% QOQ as sales of interest-sensitive policies and investment-linked products increased. The first half FYPs were down 40% YOY as the banking turmoil in the first half affected sales of investment-linked products and customers turned to time deposits that capture rate hike trend. However, Taiwan Life has been focusing on long-term value products. FYPE was up 52% QOQ and 17% YOY. Page 22 on FYP breakdown by products and channels. On the left is the product breakdown. We can see weights on value products notably increased. Health and PA accounted for 10%, traditional 2%, interest-sensitive policies 77%, and investment-linked products 11% of FYP.
On the right, in terms of channels, CTBC Bank contributed 38%, external banks 30%, tied agents 14%, and insurance brokers 17% of FYP. Page 23 on FYP breakdown by type of payment and currency. On the left, weights on regular pay products increased to 65%, and single-pay products accounted for 24% of FYP. On the right, foreign currency policy accounted for 52%, and NT dollar policy 37% of FYP. Page 24 on investment asset mix.
Total investment assets reached nearly TWD 2 trillion as of 2Q. In terms of portfolio breakdown, cash accounted for 2.5%, domestic fixed income 8.8%, overseas fixed income 61.3%, equities 10.1%, mortgage 2.4%, policy loans 1.3%, real estate 5.2%, and mutual funds 8.4%. Page 25 on investment yield, cost of liability, and break-even point. In the first half, overall investment yield after hedge was 3.25%. Recurrent yield before hedge increased by 86 basis points YOY to 3.6%.
Cost of liability increased to 3.17%, reflecting rate hikes. Break-even point was 2.89%. Page 26 on hedging mix. On the left, 43% of overseas investment assets were foreign currency policies, 33% were fully hedged, 10% were OCI position, and 14% were unhedged. On the right, FX reserve amounted to TWD 12.7 billion as of 2Q. Hedging cost was 102 basis points in the first half, increased YOY, reflecting rising cost of hedging instruments. Page 28 on ESG highlights. CTBC Holding is committed to 2050 net zero and has submitted SBT targets to SBTi for review. In June, CTBC issued a sustainable finance statement.
Committing to exiting coal burning and unconventional oil and gas industries by 2035. We recently published the first TCFD report, demonstrating our efforts to integrate climate change risks in our risk management and related opportunities in our business. Also, this year, we published the first Impact Investment Report, which disclosed how our impact investments correlated to UN Sustainable Development Goals and six major impact themes. In addition, CTBC has been selected for two consecutive years as one of the companies listed as Asia-Pacific Climate Leaders, compiled by the "Financial Times" for our efforts in reducing carbon emissions. That concludes the presentation.
Thank you. We start our Q and A session. Before you entering your question, we already have some pre-asked questions. Recently, there are many questions regarding CTBC's China exposure, we will have Ms. Rachael Kao to answer this question.
Yes, given there's some news on China exposure of Taiwanese financial holding company, CTBC has been identified as one of the highest China exposure financial institution in Taiwan. Let me explain the rationale behind. As of the most recent numbers, CTBC Bank's China exposure accounted for about 53% by the regulation. The regulation counts all the financial institutions overseas, also onshore, offshore investment in loans and interbank borrowing, the ratio had to be below 100% of the equity. As of the most recent numbers, CTBC was 53%, which is the highest among all Taiwanese financial holding companies. We think that although we are 53%, but within the portfolio asset quality, also given the local environment, we think that the risk still under control given that China is A+ national rating country.
From our portfolio, for the 53%, that's roughly 30% is related to the lending or the investment to Taiwanese corporate and foreign investor. For the real exposure to the Chinese company, it's only accounted about 22%. The top three borrowers are, first of all, it's OPPO and vivo, the second one was Far East Horizon, and the third was KKR. Those are multinational or very famous financial-related exposure in China, there's no relationship with China local developer. The exposure to the recent problem Country Garden, CTBC doesn't have any relationship or investment to this company. Secondly, current China-related exposure, the asset quality still maintain benign. That's NPL ratio stay at 0.21%. It's still relatively low compared to other market.
We are actually very small in Chinese market. We are still very cherry-picking and also build on our portfolio based on our strategy. The major customer segment for CTBC Bank at China-related market is the expansion of Taiwanese corporation. Most of the time, they are part of the global operation in China. Also there's supply chain. We make sure that a real content operation in China, and also we understand all the fund management, and we watch very closely of the operation. Besides that, China is a part of CTBC global international strategy. That's one of the major point we try to differentiate CTBC from other financial holding company, given that I mentioned earlier, the overseas earning contribution from overseas to CTBC Bank accounted for 38%, and which was more than 50% growth year-on-year.
We continue to see very strong momentum from our overseas operation, and China is a part of it. We think although the current exposure was 53%, however, it's not the number, but it's the content and how we manage that. Our internal management guideline was below the 78%, and the government is 100%. From our past experience, that ratio went the highest at 72% two, three years ago, and I think currently it's down to 53%. We have been closely monitor the local business operation and also the asset quality. We will continue to do so because it's part of our global strategy. That's some explanation of the recent news on China exposure. Thank you.
Now we have question from Goldman. Why did the CET1 ratio drop by 130 basis point QOQ? Can we increase this ratio by the end of this year to 10.5%-11%?
Yes. You're right. In addition to the dividend payment, it's actually increase of our operation with capital charge due to some fraud case at our branch. It's kind of a mishandling of customers' fund. It's some overcharge of the operation risk. Also, the second part of your question is on the CET1. We think it's possible it come back to 10.5% at the year-end of 2023.
The next question is the guidance for the swap gains for the second half 2023.
The mean of including the swap point is roughly for the full year, we forecast it at 1.68%.
The next question is the guidance for the fee income growth for full year 2023.
For the fee income, I think early this year we gave the guidance about high single digits for the full year. However, we see very good momentum from wealth management. By looking at the full year, we think it's possible to be double-digit growth for the fee income for the full year. Thank you.
The next question is the outlook for insurance profit for second half post the decent second quarter performance. Can Taiwan Life achieve TWD 112 million profit for year 2023?
For this question, Taiwan Life actually remained its guidance for the full year, which we previously gave out. The investment yield is remained to be 3.22% after hedge, the recurring yield will be 3.52% before hedge. The guidance remain the same, for the profit for the second half, it really depends on the hedging cost. So far, we see the hedging cost is 102 basis point, which is slightly better than the original full-year guidance of 108 basis point. However, it really depends on the FX trend in the second half. If we do see the NT dollar to continue to be depreciate, there's a possibility that we will have some benefit from the hedging cost or some savings from the hedging costs. It really is the area that we will keep on, that's the guidance for Taiwan Life.
Next one, we have a question from JP Morgan. What is the cost-to-income ratio if excluding ESOP and ISA in first half versus first half 2022?
Okay. The cost-to-income ratio of year 2023, the first half is around 52.5%, for last year, the same period is about 55.8%.
The next question is the FX reserve. Reserve ceiling this year for Taiwan Life based on the new regulation.
For FX reserve, the ceiling is TWD 13 billion, reduced from TWD 74 billion. The ceiling has been hit at the end of July.
Now we have another question. The U.S. 10-year yield was up a lot in third quarter, likely to impact book value of Taiwan Life. Any plan to further strengthen the capital of Taiwan Life, including any capital raising plans?
Right now, our RBC ratio is 289%. We categorize the most of bond to an amortization cost position. For RBC calculation, also use the amortization method. The yield was not impact the RBC ratio. Another perspective, it will have impact on our book value. Right now, the estimation, it's not very large because our amortized cost position percentage have 85%, so the impact is limited. We don't expect any capital strengthen needs. Thank you.
Sorry. In addition to Pai-Hung 's explanation, actually, Taiwan Life has issued TWD 13 billion of sub-debt on July 21st. Although in the material you saw our RBC was 289% at the end of June, if we perform the TWD 13 billion sub-debt, it will become to 314%, for your reference. Thank you.
Now we are in the Q and A session. If you would like to ask questions, please type down your question. We are now in the Q and A session. If you have any question, please type down your question. Thank you. It seems that we have no further questions. Thank you for attending CTBC Financial Holding Company second quarter 2023 analyst meeting today. We'll see you next time. Bye-bye.