Thank you for joining CTBC Financial Holding Company first quarter analyst meeting. Today, we have Ms. Megan Hsu, CFO of CTBC Financial Holding Company, and Mr. Pai-Hung Yeh, Chief Strategy Officer of Taiwan Life, to host the meeting. We will begin with the first quarter results presentation, then followed by Q and A.
Thank you everyone for joining CTBC Financial Holding's first quarter 2023 earnings call. Please turn to page four on performance highlights. CTBC Financial Holding's net profit reached TWD 13 billion in 1Q 2023, improved significantly compared to 4Q 2022. Compared to the same period last year, net profit was down 21% YOY due to net loss at Taiwan Life. While core banking business remained resilient, other subsidiaries also resumed growth. Holding's ROE was 14.6%, ranked number one among peers. The board decided to pay out a cash dividend of TWD 1 per share, implying a payout ratio of 64.5% and dividend yield of 4.4%.
CTBC Bank net profit reached TWD 11.4 billion, up 38% QOQ and 53% YOY, ranked number one among peers. This performance was driven by increased net interest income, fee income, and trading gains, as well as lower provisions. Capitalization was sound, with CET1 ratio at 12%. Asset quality remained stable and credit cost was 11 basis points in 1Q. Taiwan Life's net loss was TWD 882 million, lower compared to the same period last year, largely due to higher hedging costs. Its P&C subsidiary has been COVID policy-related loss and reserves of TWD 21.3 billion in 2022. Up to 1Q 2023, the reserves remain sufficient to cover related loss. Taiwan Life continues to focus on long-term value products. Although FYP growth slowed due to the decline in sales of investment-linked products.
Capitalization was sufficient, with RBC ratio at 254%. Page five, on profitability. CTBC Financial Holding's EPS was TWD 0.66 in 1Q.
Group ROE was 14.6%, and ROA was 0.69%. Page six, on capital ratio. We remain well-capitalized with CAR at 121%, Life RBC ratio at 264%, Bank CAR at 14.9%, and CET1 ratio at 11.8%. Page seven on profit breakdown by entity. Bank net profit was up 38% QOQ and 53% YOY, driven by higher fee income and trading gains. Life net loss narrowed quarter-over-quarter as its P&C subsidiary booked COVID policy-related loss and reserve in 4Q 2022. Life's profits declined compared to the same period last year due to higher hedging costs and subdued investment gains. Other subsidiaries together delivered a net profit of TWD 2.2 billion. Holding's consolidated net profit was TWD 13 billion, down 21% YOY. Page eight, on net profit movements. In the chart above, operating revenue was up 13% QOQ. Provisions were down 17% QOQ.
As for Life, 1Q, pre-tax loss narrowed compared to 4Q 2022 as its P&C subsidiary booked COVID policy-related loss and reserves in last quarter. Overall, Holding's net income improved significantly compared to 4Q 2022. On the bottom, operating revenue was up 29% YOY. Provisions were down 15% YOY. Life pre-tax profit declined on higher hedging costs and subdued investment gains. Holding's pre-tax profit reached TWD 15.8 billion, down 25% YOY. Overall, CTBC Financial Holding's net income was down 21% YOY. Page nine on revenue breakdown, excluding Life. Total revenue was up 13% QOQ and 29% YOY. Net interest income was down 6% QOQ. As foreign currency deposit mix changed, slow foreign currency loan growth, and increased swap positions caused net interest margin to narrow. Net interest income was up 18% YOY, driven by sustained loan growth and widened net interest margin benefiting from rate hikes.
Fee income was up 32% QOQ, driven by higher lottery, corporate and wealth management fees. Fee income was up 7% YOY as lottery, credit card, retail, and corporate fees increased. Combined derivative, FX, and trading gains was up QOQ and YOY, mostly due to higher swap income at the bank and increased trading income at securities and venture capital subsidiaries. Long-term investment and other income was down QOQ due to higher lottery rebates to MOF in 1 Q and was up YOY as the company booked disposal gains on the sale of the office floors. Page 11 on bank's loan breakdown. Total lending with credit card revolving was down 1% QOQ and up 13% YOY. NT dollar corporate loan was down 1% QOQ due to lower loan demand amidst lower economic growth.
NT dollar corporate loan was up 26% YOY, driven by growth in manufacturing, construction-related, commerce, and service sectors.
Foreign currency loan was down 3% QOQ and up 5% YOY. Mortgage was up 2% QOQ and 14% YOY, supported by stable business momentum and our participation in lending to civil servants. Unsecured and other loans were up 2% QOQ and 6% 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 61% of foreign currency loans, with TSD and LH being two larger subsidiaries. Overseas branches accounted for 20%, OBU plus DBU was 11%. Overseas subsidiaries' loans was up 8% YOY, driven by sustained business momentum in LH, as well as U.S. and Philippine subsidiaries, including double-digit loan growth.
Overseas branch loans was up 10% as most overseas branches observed loan growth to sustain, except Hong Kong, Vietnam, and New York branches.
China, Singapore, and India branches reported double-digit growth. O BU plus DBU was down 2% YOY. Page 13 on bank deposit mix. Total deposits reached TWD 4.7 trillion, up 2% QOQ and 14% YOY. On the right, total NT dollar deposits were up 4% QOQ and 14% YOY. NT dollar savings accounted for 61%. Total foreign currency deposits were down 1% QOQ and up 16% YOY. Foreign currency savings declined to 42% of total foreign currency deposits as rising U.S. dollar interest rates represented a strong incentive for depositors to shift from savings to time deposits. Page 14 on loan deposit ratio. Overall, LDR was 71%. NT dollar LDR was 81%. Foreign currency LDR was 58%. Page 15 on NIM and spread. In 1Q, NT dollar spread was 1.82%, up 7 basis points QOQ, driven by loan growth.
Foreign currency spread was 2.65%, down 12 basis points QOQ as decline custom mix, slow foreign currency loan growth, and increased loan positions caused spread to narrow. 1Q NIM was down 8 basis points QOQ to 1.55%. Including swap income, NIM was 1.71%. Page 16 on fee breakdown. Total fees were up 31% QOQ and 6% YOY. Wealth management fee was up 7% QOQ, driven by increased sales of mutual funds and structured products. Wealth management fee was down 3% YOY as sales of bancassurance and mutual funds weakened despite stronger sales of bonds. Credit card fee was down 2% QOQ as holiday season supported consumptions in last quarter. Credit card fee was up 12% YOY due to increased consumption. Retail business was flat QOQ and up 11% YOY as retail business growth triggered increase in fee.
Corporate business was up 59% QOQ and 8% YOY, mostly driven by syndicated loan and trade finance fees. Overseas subsidiary fee was up 16% QOQ and 7% YOY as corporate-related fees increased at PSE and Philippine subsidiary. Other fee increased QOQ and YOY, supported by seasonal Chinese New Year effect and stronger sales of diversified products. Page 17 on wealth management fee. For wealth management fee breakdown, bancassurance contributed 54%, mutual funds 23%, custodian and trust 4%, and bonds and others 19% to total wealth management fees. Page 18 on cost income ratio. Cost income ratio was 56% in Q2, flat QOQ. Cost income ratio declined YOY due to increased underwriting revenue and lower ESOP valuation. Page 19 on asset quality. NPL ratio was 0.51%, and NPL coverage ratio was 322%.
1Q credit cost was 11 basis points, down 27 basis points QOQ on lower 1% GP as the credit provision. Compared to the same period last year, 1Q credit cost was down four basis points YOY due to lower specific provisions. Moving on to Life, page 21 on total premium, first-year premium, and FYPE. Total premiums were TWD 28.2 billion in 1Q, down 9% QOQ and 34% YOY. FYP were TWD 8.7 billion, down 6% QOQ and 61% YOY. Those attractive time deposit rates at banks affected sales of interest-sensitive products. A recent turmoil in the financial markets affected sales of investment-linked products. However, FYPE increased 10% QOQ and only declined 17% YOY, as Taiwan Life continues to focus on long-term value products. Page 22 on FYP breakdown by products and channels. On the left is the product breakdown. We can see weight on value products notably increased.
Health and PA accounted for 12%, traditional 2%, interest-sensitive policies 80%, and investment-linked products 6% of FYP. On the right, in terms of channels, CTBC Bank and external banks each contributed 31% of FYP. Tied agents, insurance brokers each contributed 19% of FYP. Page 23 on FYP breakdown by type of payment and currency. On the left, weight on regular paid products increased to 66% of FYP, and single-paid products accounted for 28%. On the right, investment-linked products accounted for 6%, foreign currency policy 50%, and NT dollar policy 44% of FYP. Page 25 on investment asset mix. Total investment assets reached nearly TWD 2 trillion. In terms of portfolio breakdown, cash accounted for 3.6%, domestic fixed income 8.8%, overseas fixed income 61.1%, equities 9.7%, mortgage 10.4%, policy loans 1.3%, real estate 5.1%, and mutual funds 8.1%.
On the right is the pre-hedge return for each type of investment asset for your reference. Page 26 on investment yield, cost of liability, and breakeven point. In 1Q, overall investment yield after hedge was 2.65%. Recurrent yield before hedge increased YOY to 3.27%. Cost of liability increased by 9 basis points YOY to 3.15%, reflecting rate hikes. Breakeven point was 2.83%. Page 27 on hedging mix. On the left, 43% of overseas investment assets were foreign currency policies, 30% were fully hedged, 10% were OCI positioned, and 17% were unhedged. On the right, FX reserve amounted to TWD 12 billion as of 1Q. NT dollar appreciation and rising cost of hedging instruments resulted in total hedging costs of 135 basis points in 1Q, increased YOY from the same period last year. Next, we move on to Taiwan Life and 2022 EV report. Page 28 on EV.
EV reached TWD 221.5 billion, of which adjusted net worth was TWD 125 billion. Value of In-Force business before cost of capital was TWD 161 billion, and the cost of capital was TWD 64.4 billion. EV is TWD 35.6 per Taiwan Life share and TWD 11.4 per CTBC Financial Holding share. Page 29 on EV assumptions. Investment yield for NT dollar policies starts from 3.56% in 2023 and will gradually rise to 4.09% in 2042. Investment yield for U.S. dollar policies starts from 4.31% in 2023 and will gradually rise to 5.33% in 2042. Discount rate applied was 10%. RBC capital requirement remained at 200%. PwC has provided an independent review on EV assumption. Page 30 is EV sensitivity for your reference. Page 31 on EV comparison. EV decreased by TWD 36.2 billion YOY.
Adjusted net worth decreased by TWD 39.3 billion, and VIF increased by TWD 5.1 billion. Page 32 on adjusted net worth movement.
Adjusted net worth declined to NTD 125 billion, mainly due to net loss of TWD 3.4 billion. Changes in unrealized loss on financial assets of TWD 43.9 billion and other adjustments of TWD 5.6 billion. Page 33 on VIF movement. VIF movement was mainly driven by VNB of TWD 7.3 billion, plus release of 2022 expected profit and interest rolling forward of TWD 0.8 billion, and investment yield assumption change of TWD 0.7 billion, and offset by other assumption changes of TWD 4 billion. Page 34 on VNB movement. VNB was TWD 5.9 billion, supported by variable product exchange of TWD 2.5 billion and offset by declining sales volume of TWD 3.3 billion. Page 36 on ESG highlights. CTBC Financial Holding is committed to 2050 net zero and has submitted SBT targets to SBTi for review.
We expect to release our SBT targets by end of this year.
In addition, we are the only financial institution in Greater China to participate in a pilot program led by the United Nations Environment Programme, Finance Initiative, and test the draft risk management and disclosure framework from the TNFD. That concludes the presentation. We are now open for Q and A.
We are in the Q and A section. If you would like to ask questions, please type your question down in the box. We have a question from JPMorgan Jemmy.
The question is, what is the impact on Taiwan Life RBC ratios for additional capital injection into P&C subsidiaries this yea{r?
Since the loss has recognized in our income statement and also balance sheet, if we inject TWD 5 billion to P&C company, our RBC ratio will drop 1% only.
There's another question on Taiwan Life. Do you need to inject common equity into Taiwan Life?
No. We do not need a holding company to inject capital to Life.
There's another question about how the company plans to manage the FHC's double-digit ratio.
The double leverage ratio of the financial holding company as March is around 120%, and it will be lower than this number. We do not think there's any chance or opportunity to issue common equity this year.
We think the current double leverage ratio is below 120% is at a comfortable level, there's no anything for issuing common equity to improve the double leverage ratio.
Another question is also from JPMorgan Jemmy.
The question is about why the QOQ decline on Taiwan Life? RBC ratio is related to higher interest rates, and the adjustment should be in first half instead of first quarter 2023.
Since the rule were applied to this year, we use the new rule from first month, we represent the new interest rate risk.
Another question is about CTBC Bank. If including both reported NII and swap revenue, is the combined revenue momentum better or worse than the company's expectations for year 2023?
Yeah. Combined revenue momentum is a little bit better than our expectation.
Another question on net interest margin. For the adjusted net interest margin, including swap, which is around 1.71%, how did it change quarter-on-quarter?
This number for quarter four last year is around 1.7%.
There's another question on CTBC Bank. How much more do you expect your foreign currency cost or resource to decline in this rate hike cycle? Based on your historical experience, when will it stabilize and at what level?
This is actually a very good question, because actually this year, the most recent rate cycle is actually one of the sharpest in the recent years. It's actually, we don't really have similar experience. Given that the fact already just raised the rate about 5%, and we think it's about the end of the rate cycle for this year. Hopefully that situation will gradually be stabilizing.
Just a sort of reminder, we are in the Q and A session. If you have any questions, please feel free to type down your question. Now we are in the Q and A session. Please type down your question if you have any question.
It seems that we have no further questions from investors. Thank you for your kind participation. This is the end of the English analyst meeting.