Welcome everyone to CTBC Financial Holding Company's 2022 second quarter earnings conference call. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question and answer session. Please follow the instructions given at the time if you would like to ask the question. Today's hosts will be Ms. Ya-Ling Chiu, the CFO and Spokesperson of CTBC Financial Holding Company, and Mr. Bohong Ye, Executive Vice President of Taiwan Life Insurance Company, the presentation will begin now.
Thank you everyone for joining CTBC's second quarter 2022 earnings call. Please turn to page four on financial highlights. Despite fluctuations in capital markets, CTBC Holding continued to deliver stable financial results in first half, with ROE at 13.3%, reflecting resilient underlying core business. CTBC Bank observed solid growth momentum in its core business, with increases in net interest income, supported by strong lending growth and widened net interest margin. Asset quality remains stable, with benign credit costs at 21 basis points in the first half. Taiwan Life after-tax profit declined due to moderated investment gains and claim costs related to COVID policies, but benefited from hedging gains. Taiwan Life continued to focus on protection type and foreign currency policies. Page five on profitability. Holding's first half net income was TWD 24.3 billion. EPS was TWD 1.19. Group ROE was 13.3%, and ROA was 0.69%. Page six on capital ratio.
We remain well-capitalized with group CAR at 125%, Life RBC ratio at 312%, and Bank CAR at 14.3%, CET1 ratio at 11.1%. Page seven on profit breakdown by entities. In 2Q, bank net profit reached TWD 8.8 billion, up 18% QoQ, supported by growth in net interest income and trading gains. Life made a loss of TWD 373 million due to lower investment income, impacted by volatilities in capital markets and claim costs related to COVID policies. Holdings' consolidated net profit was TWD 8 billion, down 51% QoQ. In the first half, bank net profit reached TWD 16.2 billion, up 9% YoY, driven by increases in net interest income and improved operating efficiency. Life profit was TWD 8.8 billion, down 47% YoY, mostly due to lower investment income on base effect. Holding reported net profits of TWD 24.3 billion, down 27% YoY.
From the table on the right, bank and life contributed 67% and 36% to Holdings' first half profit respectively. Page eight on net profit movement. In the chart above, operating revenue was up 2% QoQ as growth in net interest income and trading gains was offset by lower fee income. Provisions were up 81% QoQ, mostly due to higher 1% general provisions against normal loans. Expense was down 15% QoQ on lower ESOP valuation. As for Life, 2Q pre-tax profit declined 97% QoQ, mostly due to moderated investment gains and claim costs related to COVID policies. On the bottom, operating revenue was up 6% YoY as loan growth and widened net interest margin underpinned increase in net interest income. Trading gains as securities and venture capital subsidiaries decreased amid volatile capital markets. Provisions were up 34% YoY, mostly due to impact from LH.
Credit costs remained benign at 21 basis points. Expense was down 1% YoY. Life pre-tax profit was down 36% YoY on lower investment income. Holdings' pre-tax profit reached TWD 33.7 billion, down 10% YoY. Overall, Holdings net income reached TWD 24.3 billion, down 27% YoY. Page nine on revenue breakdown excluding Life. Total revenue was up 2% QoQ and 6% YoY. Net interest income was up 11% QoQ as net interest margin widened due to rising loan-to-deposit ratio, changes in loan mix, and rate hikes. Net interest income was up 21% YoY as loans and marketable securities grew and net interest margin widened due to changes in loan mix and higher yields on marketable securities benefiting from rate hikes. Fee income was down 23% QoQ due to lower wealth management fees in addition to a seasonally high base of lottery fees in 1Q.
Fee income was down 4% YoY as volatility in capital markets led wealth management fees lower, corporate, credit card, lottery, and investment trust fees increased. Combined derivative, FX, and trading gains was up 12% QoQ, driven by higher trading income from FX-related products. Combined derivative, FX, and trading gains was down 34% YoY due to lower trading income at securities and venture capital subsidiaries. Long-term investment and other income increased QoQ due to higher lottery rebates to MOF in 1Q, and was down 63% YoY as the bank no longer booked long-term investment income from LH after consolidating the entity. Page 11 on Bank's loan breakdown. Total lending with credit card revolving was up 1% QoQ and 11% YoY. NT dollar corporate loan was up 1% QoQ and YoY.
If excluding government loans, NT dollar corporate loan was up 7% QoQ and 12% YoY, driven by higher investment demands and working capital needs. Foreign currency loan was flat QoQ and up 18% YoY. Excluding FX, foreign currency loan was up 21% YoY. Mortgage was up 4% QoQ and 11% YoY, supported by stable property market and our participation in lending to civil servants. Other loans were up 1% 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 38% of total lending. Overseas subsidiaries accounted for 58% of foreign currency loan, with TSB and LH being two larger subsidiaries. Overseas branches accounted for 30%. OBU plus DBU was 12%.
Looking at the foreign currency loan breakdown by region, Japan accounted for 31%, Southeast Asia 28%, Greater China 15%, North America was 14%. Overseas subsidiary loan was up 24% YoY. Excluding FX, overseas subsidiary loan was up 32%, driven by the consolidation of LH and solid business momentum at U.S., Indonesia, and Philippines subsidiaries, reporting double-digit loan growth. Overseas branch loan was up 11% YoY. Excluding FX, overseas branch loan was up 8% as China, Hong Kong, N.Y., and India branches observed double-digit growth. OBU plus DBU was up 13% YoY. Excluding FX, OBU plus DBU loan was up 5%, driven by growth in trade finance and syndicated loans. Page 13 on Bank's deposit mix. Total deposits reached TWD 4.3 trillion, up 4% QoQ and 11% YoY. On the right, total NT dollar deposits were up 3% QoQ and 8% YoY. NT dollar savings accounted for 63%.
Total foreign currency deposits were up 4% QoQ and 15% YoY. Foreign currency savings accounted for 57%. Page 14 on loan-to-deposit ratio. Overall, LDR was 72.5%. NT dollar LDR was 78.4%. Foreign currency LDR was 64.5%. Page 15 on NIM and spread. In 2Q, foreign currency spread was 2.53%, up 12 basis points QoQ due to rate hikes and changes in loan mix. NT dollar spread was 1.69%, up 12 basis points QoQ, driven by loan growth and rate hikes. Overall spread was 2.01%, up 12 basis points QoQ. In addition, rate hikes led higher yields for marketable security. 2Q NIM was up 10 basis points QoQ at 1.57%. Excluding impact from LH, NIM was 1.53%, up 10 basis points QoQ. Page 16 on fee breakdown. Total fees were down 24% QoQ and 4% YoY. Wealth management fee was down 20% QoQ and YoY.
The fluctuations in capital markets impacted customer demand and caused sales of bank insurance and mutual funds to weaken. Credit card fee was down 4% QoQ as consumptions were affected by the increased number of COVID cases in the second quarter. Credit card fee was up 8% YoY due to recovered consumptions supported by expanded customer base and business ecosystems, and further penetration of mobile payments. Retail business was flat QoQ and up 12% YoY due to increases in ATM and loan-related fees. Corporate business fee was down 2% QoQ on lower syndicated loan fees and up 29% YoY, driven by syndicated loan, private banking, and trust fees. Overseas subsidiary fee was down 1% QoQ as corporate and retail-related fees decreased at TSB and up 10% YoY, mostly due to the consolidation of LH.
Lottery fee was down 64% QoQ due to seasonal Chinese New Year effect in 1Q and up 8% YoY. Page 17 on wealth management fee. For wealth management fee breakdown in 2Q, bank assurance contributed 62%, mutual fund 24%, custodian and trust 4%, and others 10% to total wealth management fees. Page 18 on cost-income ratio. Bank operating revenue improved while operating expense was down 16% QoQ, mostly due to decreased ESOP valuations, leading to a lower cost-income ratio at 50.2% in 2Q. In the first half, cost-income ratio was 55.4%, lower compared to the same period last year, mostly due to 10% growth in operating revenue and decreased ESOP valuations. Page 19 on asset quality. NPL ratio was 0.51%, and NPL coverage ratio was 321%. Excluding the impact from LH, NPL ratio was 0.37%, and NPL coverage ratio was 384%.
Q2 credit cost was 26 basis points, up 11 basis points QoQ on higher general provisions amid loan growth. First-half credit cost was 21 basis points, up three basis points YoY from the same period last year, mostly due to impact from LH. Excluding impact from LH, first-half credit cost would be 14 basis points. Moving on to life business. Page 21 on total premium and first-year premium. Total premiums were TWD 31.8 billion in Q2, down 25% QoQ. First-half total premiums were TWD 74.4 billion, down 25% YoY. FYPs were TWD 13.3 billion in Q2, down 41% QoQ as sales of single-pay interest-sensitive policies and investment-linked products declined. First half FYPs were TWD 35.7 billion, down 33% YoY as volatile capital markets affected sales of investment-linked products and customers turned to interest-sensitive policies that capture rate-high trend. FYP market share was 7.8%, ranked number five in the industry.
Page 22 on FYP breakdown by products and channels. On the left is the product breakdown. Investment-linked products accounted for 18%, interest-sensitive policies 78%, health and PA 4%, and traditional 1% of FYPs. On the right, in terms of channels, 51% of FYPs came from CTBC Bank, 34% from external banks, 9% from tied agents, and 6% from insurance brokers and others. Page 23 on FYP breakdown by type of payment and currencies. On the left, single-pay products accounted for 47%, and regular pay products accounted for 36% of FYPs. On the right, investment-linked products accounted for 18%, foreign currency policy 72%, and NT dollar policy 11% of FYPs. Page 24 on FYPE. First half FYPE was NTD 9.2 billion. On the right is the FYPE mix for your reference. Page 25 on investment asset mix. Total investment assets reached NTD 2 trillion.
Taiwan Life took suitable opportunities to increase overseas fixed income and equities positions and lower its cash holdings. In terms of portfolio breakdown, cash accounted for 4.9%, domestic fixed income 9.8%, overseas fixed income 59.7%, equities 10%, mortgage 1.9%, policy loans 1.3%, real estate 4.5%, and mutual funds 7.9%. Pre-hedge returns for each type of investment assets are as follows: cash 0.24%, domestic fixed income 2.04%, overseas fixed income 4.28%, equities 1.48%, as the return includes investment loss at P&C subsidiary, mortgage 2.16%, policy loans 4.7%, real estate 0.56%, as part of the real estate project construction work is underway, and the return for mutual fund is 7.91%. Page 26 on investment yield, cost of liability, and break-even point. In the first half, Taiwan Life still maintains positive investment spread. With impact from P&C, overall investment yield after hedge was 3.83%, and recurring yield before hedge was 2.73%.
Excluding impact from P&C, overall investment yield after hedge was 4.26%, and recurring yield before hedge was 3.17%. Cost of liability marginally increased one basis point YoY to 3.07%. Break-even point continued to improve at 2.66%. Page 27 on hedging mix. On the left, 43% of overseas investment assets were foreign currency policies, 35% were fully hedged, 10% were OCI position, and 12% were unhedged. On the right, FX reserve amounted to NTD 9.5 billion as of 2Q. NT dollar depreciation resulted in hedging gains of 25 basis points in the first half. Overall hedging costs declined 180 basis points YoY from the same period last year. Next section is the ESG highlights for your reference. That concludes the presentation.
Good afternoon, everyone. This is Ya-Ling. Before we start the Q&A section, let me give you a quick update on the full year's outlook of our guidance for each driver. For loan growth, we expect double-digit growth for the whole year, because year to July, the loan growth for NT dollar loan was 12%, and for foreign currency loan was 8% for the first seven months, which annualized to double-digit growth. We believe the momentum for the first seven months will continue to the second half of this year. For NIM, the guidance is 1.56%-1.57% for the whole year, given the assumption of U.S. rate will increase 325 basis points, NT dollar interest rate will increase 62.5 basis points for the whole year.
For fee income, we expect low single-digit growth, given the weak wealth management fees and the strong credit card fees and corporate and other banking fees. For credit cost, we expect 20 basis point-25 basis points, including the provision for the relief program in LH. For cost-income ratio, our target is 57% for the whole year. The outlook on life side, for the recurring yield, we expect 3.27% for the recurring yield. For cost of liability, we expect 3.11%. For hedging cost, it's 33 basis points for the whole year. We can start the Q&A session. Thank you.
Thank you, Ms. Chiu. Ladies and gentlemen, we will now begin our question- and- answer session. If you wish to ask the question, please press zero one on your telephone keypad and you will enter the queue. After you are announced, please ask your question. Should you wish to cancel your question, you may press zero two. Thank you. Our first question is coming from Gurpreet Sahi of Goldman Sachs. Go ahead, please.
Thanks for taking my question. My question is regarding the margin for next year. If the margin is roughly 1.57% for this year, because interest rates have settled at a high level, how much of repricing benefit can we expect on the asset side? Likewise, how much will be passed on to depositors so that margin can increase next year? That's the first one. On second, regarding the loan growth, can I ask which areas will the loan growth be focused on during the second half of this year? Thank you.
Regarding the first question, it's about the margin for the next year. We expect NIM, net interest margin, for the next year it will be around 1.7% after the U.S. rate hike and the NTD interest rate increase fully reflected. The second question is the loan growth. The loan growth momentum was coming from four products or areas. First one is mortgage, second one is unsecured loan. Third one is the loan from North America area, fourth one is from Greater China, including China and Hong Kong. This is the momentum for the first half. For the second half, we believe the momentum will continue, given the market open up, and also for the mortgage, we have the authorization to underwrite the mortgage for the government employees. This is the incremental sales volume or mortgage volume to us.
Thanks. Can I follow up on the COVID-related provisions, and how are we seeing those kind of reserves on the insurance balance sheet?
For COVID policies, we have recognized a TWD 4.3 billion loss in our P&L. The assumption behind that is a 0.5% confirmed case ratio. I give you some sensitivity. If the confirmed case ratio is 20%, the need to be recognized is TWD 6 billion. That is TWD 1.7 billion more need to recognize in the second half year. As the ratio is 25%, TWD 7.5 billion loss need to recognize. That is TWD 3.2 billion loss need to be recognized in the second half of the year. According to our observation for our confirmed case as the mid of August, we observed that our confirmed case ratio is 1.5%.
We observed that the confirmed case ratio is 16.1% as for the Taiwan at the end of June. To be optimistic, we have the possibility to lower than the Taiwan confirmed case ratio. Need more observation. Currently, we haven't decided the exact hit number yet. As the sensitivity test, I give you maybe between TWD 1.7 billion-TWD 4.0 billion.
Thank you.
Thank you.
Thank you. If you would like to ask the question, please press zero one on your telephone keypad. Thank you. We are now in question- and- answer session. If you would like to ask the question, please press zero one on your telephone keypad. Thank you. We are now in question- and- answer session. If you would like to ask the question, please press zero one on your telephone keypad. Thank you. Next we'll have Jaime Huang of JP Morgan for questions. Go ahead, please.
Thanks for taking my question. Just one from me is on loan growth. You did mention you are seeing decent demand from the Greater China region. I think most investors are actually quite cautious on China exposure currently. I think you also got some exposure to the defaulted corporate cases in the past as well. Nowadays, when you are looking for the decent loan growth momentum in Hong Kong, China, is there any difference in terms of the customer base or in terms of type of lending you are doing compared to a couple of years ago? That we do not really need to worry about any potential asset quality issues in the coming years. Thanks.
The product structure is different from a couple of years ago. Right now, I think we are quite balanced in terms of Taiwanese corporate and Chinese corporate. We will be focusing. Put it this way, we want to diversify the client base. Before, a couple of years ago, we did some big state-owned corporates, big corporates, that's why we have some bad debt in the past, and the impact is quite big. We will focus more on middle-class corporates, and also we try to balance some export and domestic consumptions, Taiwanese and Chinese. To secure our loans, then we also ask for some deposit or some sales, like trading business.
We want to bundle something that we are able to know how our customer's business is going, that we would know in advance that if there's anything happens to our customers. For example, after the lockdown of Shanghai, we review all the customers, all the SME customer to see if their business had been impacted by the lockdowns. It turned out that so far, there's no big concern to us. Actually, there are some early warning cases that might be impacted, but we closely monitor those clients, those cases, so far. I think China is still the second biggest economy and a very big domestic market. If we want to grow in the future, in the long term, we still need to develop the business in China. Hopefully this answers your question.
Yes. Thanks. Yeah.
Thank you. If you would like to ask the question, please press zero one on your telephone keypad. Thank you. There appears to be no further questions at this point. We thank you very much for all your questions and that will be the end of the conference. Ladies and gentlemen, we thank you for your participation in CTBC Financial Holding Company's conference call. You may now disconnect. Goodbye.