Welcome everyone to CTBC Financial Holding Company's 2021 fourth 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 that time if you would like to ask the question. Today's host will be Ms. Ya-Ling Chiu, 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 4Q 2021 earnings call. Please turn to page four on financial highlights. CTBC Holding delivered a robust operating result throughout 2021, with record after-tax profits of NTD 54.2 billion, up 27% YoY. ROE and ROA reached 13.7% and 0.79%, respectively. EPS was NTD 2.73. Holding remained well capitalized with CAR at 131% and double leverage ratio at 115%. CTBC Holding recently received one notch upgrade to A3 from Moody's. Total lending increased 11%, led by sustained growth in domestic corporate loans, mortgage, and unsecured consumer loans. Pick up in wealth management, corporate and lottery fees supported fee income growth of 9% YoY. Capitalization remains sound with CAR at 14.6% and CET1 ratio at 11.5%. CTBC Bank recently received one notch upgrade to A1 from Moody's.
Taiwan Life reported strong after-tax profit growth of 40% YoY on the back of decent investment income, while cost of liability and hedging costs continue to improve. RBC ratio was down at 342%. Page five on recent updates. On LH Financial Group, CTBC Bank has increased its holding in Thailand's LH Financial Group to 46.6% last year and gained majority control of the board. CTBC Bank consolidated LH Financial Group in 4Q 2021. With the consolidation, CTBC Holding now has total assets of more than NTD seven trillion. On board election, the board plans to nominate seven director candidates. The backgrounds of the candidates will be evaluated to ensure the board has wide-ranging expertise, experience, and capabilities. The nominations will include four independent directors, including one female candidate, to maintain the independence of the board and reinforce its diversity.
On employee Restricted Stock Awards, the company plans to replace the ESOP with employee Restricted Stock Awards in order to minimize the volatility that ESOP pose to earnings. The Restricted Stock Awards will be offered to middle management and above, with a vesting period of five years and a total dilution of less than 0.46% for 2022. The board recently announced a cash dividend of NTD 1.25 per common share on 2021 earnings, implying a payout ratio of 45.8% and a dividend yield of 4.3%. Page six on 2022 business focuses. On institutional banking, the company will enhance lending and fee product offerings amid rate hike cycle and ease COVID-19 measures. To cultivate overseas markets, we will focus on targeted segments and strengthen cross-border platform to serve corporates. In addition, we aim to provide differentiated products and services, leveraging digital capabilities.
On retail banking, we aim to penetrate high-net-worth individual and affluent customer segments through diversified product offerings and innovative services. We will leverage digital and big data advantages across a broader range of use scenarios in order to expand our customer base. In addition, we will continue to strengthen core competencies and partner with business alliances to develop innovative digital payment models. On insurance business, Taiwan Life will prioritize growth in protection type and foreign currency policies while fulfilling customer needs. In addition, we aim to expand customer base by optimizing digital platform, improving advisory model, and enhancing service and product offerings. Considering the implementation of IFRS 17 and ICS, we formulate investment strategies and adjust portfolio by balancing capital allocation and investment returns. Page seven on ESG. In February, the Holding became the first corporate in Taiwan to sign up for Taskforce on Nature-related Financial Disclosures.
We are committed in expanding our impact to ESG through our core financial services. CTBC Bank has extended green financing of NTD 153 billion and issued and underwritten sustainability bonds totaling NTD 3 billion in 2021. In addition, Taiwan Life has made over NTD 41 billion sustainable investments in bonds, ETF, and funds, and project financing. Page eight on profitability. Holding's 2021 net income was NTD 54.2 billion. EPS was NTD 2.73. Group ROE was 13.7%, and ROA was 0.79%. Page nine on capital ratio. We remain well-capitalized with group CAR at 131%, Life RBC ratio at 342%, bank CAR at 14.6%, and CET1 ratio at 11.5%. Page 10 on profit breakdown by entities. In 2021, bank net profit averaged NTD 29.8 billion, up 9% YoY. Life profit was NTD 23.1 billion, up 40% YoY. Holding reported consolidated net profit of NTD 54.2 billion, up 27% YoY.
From the table on the right, bank and Life contributed 55% and 43% to Holding's profit, respectively. Securities and other subsidiaries reported decent profit growth and contributed 2% to Holding's profit. Page 11 on net profit movements. On the bottom, for 2021, operating revenue was up 8% YoY, supported by sustained growth in net interest income, wealth management fees, and trading gains. Provisions were down 17% YoY due to lower specific provisions. Full-year credit cost was 28 basis points as LH took additional provisions against its debt relief program in Q4. Expense was up 11% YoY, mostly on higher ESOP valuations. Life pre-tax profit was up 41% YoY, supported by decent investment income and improved cost of liability and hedging cost. Overall, Holding's pre-tax profit reached NTD 62 billion and net income reached NTD 54.2 billion, up 27% YoY. Page 12 on revenue breakdown excluding Life.
Total revenue was up 8% YoY. Net interest income was up 5% YoY due to sustained growth in NTD loans. Fee income was up 11% YoY as buoyant capital markets supported wealth management, securities, and investment trust fee income growth. Moreover, we observed stable fee income growth in retail, corporate, and lottery business. Combined derivative FX and trading gains was up 11% YoY amid positive capital markets. Long-term investment and other income increased year-on-year due to disposal gains on collaterals and recognition of bargain purchase gains. Page 14 on bank's loan breakdown. Total lending with credit card revolving was up 11% YoY. Excluding FX impact, total lending was up 14% YoY. NTD corporate loan was up 16% YoY on growth from government-related commerce and services and construction and real estate sectors. Foreign currency loan was up 9% YoY with the consolidation of LH.
Excluding FX, foreign currency loan was up 16% YoY. Mortgage continued to grow 9% YoY amid stable property market. Other loans were up 13% YoY, mostly on growth in unsecured consumer loans as we continued to expand our customer base and participated in labor relief programs led by the government last year. Page 15 on foreign currency loan breakdown. Foreign currency loan accounted for 38% of total lending. Overseas subsidiaries accounted for 61% of foreign currency loan, with TSB and LH being two larger subsidiaries. Overseas branches accounted for 28%. OBU plus DBU was 11%. Looking at the foreign currency loan breakdown by region, Japan accounted for 36% of foreign currency loan, Southeast Asia 26%, Greater China 14%, and North America was 12%. With the consolidation of LH, overseas subsidiaries loan was up 12% YoY. Excluding FX, overseas subsidiaries loan was up 23%.
If excluding the impact from FX and LH, overseas subsidiaries loan was down 3%, mostly due to repayment from corporate clients and adjustment of lending policy at TSB. However, U.S. and Indonesia subsidiaries both reported double-digit growth. Overseas branch loan was up 4% YoY. Excluding FX, overseas branch loan was up 8% as most overseas branches observed loan growth momentum to pick up except Singapore branch. India and China branches reported double-digit growth. OBU plus DBU was up 4% YoY. Excluding FX, OBU plus DBU loan was up 7%, driven by growth in trade finance and syndicated loans. Page 16 on bank deposit mix. Total deposits reached 4.1 trillion, up 10% YoY. On the right, total NTD deposits were up 12% YoY. NTD savings accounted for 63%. Total foreign currency deposits were up 6% YoY. Foreign currency savings accounted for 58%. Page 17 on loan-to-deposit ratio.
Overall, LDR was 70.2%. NTD LDR was 77%. Foreign currency LDR was 60.8%. Page 18 on NIM and spread. In 4Q, foreign currency spread was 2.34%, up 16 basis points QoQ, due to the consolidation of LH and the repayment of lower yielding loans. NTD spread was 1.53%, up two basis points QoQ, due to favorable loan mix. Overall spread was 1.83%, up eight basis points QoQ. 4Q NIM was up four basis points QoQ at 1.43%. Excluding impact from LH, NIM was 1.4%. Page 19 on fee breakdown. Total fees were up 9% YoY. Wealth management fee was up 18% YoY. As the level of volatility in capital markets moderated compared to year 2020. Bank assurance fees were up 26% YoY, while structured products and other fees were up 19% YoY.
Credit card fee was down 6% YoY, as rebound on domestic consumptions push up commissions as well as credit card rebates. Retail business was up 1% YoY, mostly due to increase in loan-related fees. Corporate business was up 11% YoY, driven by increases in trust and syndicated loan fees. Overseas subsidiaries fee was down 1% YoY, mostly due to decline in loan-related fees at TSB. Lottery fee was up 2% YoY due to record high sales in Chinese New Year, despite adverse impact from COVID in 2Q. Page 20 on wealth management fee. For wealth management fee breakdown in 2021, bank assurance contributed 59%, mutual fund 29%, custodian and trust 3%, and others 9% of total wealth management fees. Page 21 on cost income ratio. Cost income ratio was 59% in 2021, higher than the ratio in 2020, mostly due to higher ESOP valuations.
Excluding ESOP impact, cost income ratio would drop from 59% in 2020 to 56% in 2021, indicating effective expense control. Page 22 on asset quality. As of Q4, NPL ratio was 0.57%, and NPL coverage ratio was 293.9%. Excluding impact from LH, NPL ratio was 0.43%, and NPL coverage ratio was 344.7%. Q4 credit cost was 46 basis points, up 18 basis points QoQ, as LH took additional provisions against its debt relief program. Full-year credit cost was 28 basis points. Excluding impact from LH, full-year credit cost would be 24 basis points. Moving on to life business, page 24 on total premium and first-year premium. Total premiums were NTD 206.2 billion in 2021, down 1% year-on-year. FYPs were NTD 106.6 billion, up 19% YoY, mostly on growth in investment linked products. Page 25 on FYP breakdown by products and channels. On the left is the product breakdown.
Investment linked products accounted for 60%, interest sensitive policies 36%, health and PA 3%, and traditional 1%. On the right, in terms of channels, 69% of FYPs came from CTBC Bank, 18% from external banks, 7% from tied agents, and 5% from insurance brokers and others. Page 26 on FYP breakdown by type of payment and currencies. On the left, single-pay products accounted for 24%, and regular pay products accounted for 15% of FYPs. On the right, investment linked product accounted for 60%, foreign currency policy 35%, and NTD policy 5% of FYPs. Page 27 on FYPE. Full-year FYPE was NTD 22 billion. On the right is the mix for your reference. Page 28 on investment asset mix. Total investment assets reached NTD 2 trillion. Taiwan Life reduced its cash holding and increased investments in equities in Q4.
In terms of portfolio breakdown, cash accounted for 5%, domestic fixed income 9.8%, overseas fixed income 60%, equities 9.1%, mortgage 1.6%, policy loans 1.3%, real estate 4.5%, and mutual fund 8.5%. Pre-hedge returns for each type of investment assets are as follows: cash 0.16%, Domestic fixed income 2.01%. Overseas fixed income 5.33%. Equities 10.03%. Mortgage 2.17%. Policy loans 4.86%. Real estate 0.84%. Part of the real estate project construction work is underway. The return for mutual fund is 5.33%. Page 29 on investment yield, cost of liability, and breakeven point. In 2021, Taiwan Life still maintains positive investment spread. Overall investment yield after hedge was 4%. Recurring yield before hedge was 3.31%. Cost of liability was down 5 basis points YoY to 3.05%. Breakeven point continued to improve at 2.74%. Page 30 on hedging.
On the left, 41% of overseas investment assets were foreign currency policies, 37% were fully hedged, 9% were OCI position, and 13% were unhedged. On the right, FX reserve amounted to NTD 2.9 billion as of Q4. Full- year hedging cost was 1.19%, down 20 basis points YoY, mostly due to lower cost for hedging instrument. Next section is the ESG highlights for your reference. That concludes the presentation.
Good afternoon, everybody. This is Ya-Ling Chiu. As this is the first analyst meeting in this year, I would like to take you through the outlook guidance for major drivers. Bank side, for loan growth, we expect double-digit growth, both for NTD loans and foreign currency loans. For NTD loans, as we grew by double digits last year, we believe this momentum will continue, given the 4% GDP growth in Taiwan this year based on our in-house estimation. For foreign currency loan, for last year, actually, taking out Singapore and TSB, for other countries, the loan growth was double digit on a constant currency basis, given the eased COVID-19 measures in those countries, and we also believe this momentum will continue. For Singapore, we also expect Singapore loan book will grow because the Singapore government is promoting advanced manufacturing and encouraging manufacturers in this sector to invest in Singapore.
This industry, I think Taiwan is good at this advanced manufacturing industry. This is the opportunity for CTBC to serve our Taiwanese clients if they want to invest in Singapore. For TSB, also the government has eased the COVID-19 measures, we believe the business activities will be more than before. The M&A, merger and acquisition activities, are quite active in local markets, we will grow for the structured finance this year. We believe for TSB's loan book will grow by low single digits. In terms of NIM, because the rate hike from US Fed and Taiwan Central Bank, our in-house estimation is there will be 175 basis point rate hike for US rate and 62.5 basis point for NTD rate hike. This will contribute to our overall NIM by 7 basis points.
We anticipate the NIM will be at 1.50%. We can do a simple math. Last year, excluding LH, the overall NIM for the whole bank was 1.39%, and the consolidation of LH will contribute 4 basis point, and plus rate hike, 7 basis point. 139 + 4+ 7= 1.50%. Our estimation for NIM for this year is 1.50%. For fee, we expect high single-digit growth, both for wealth management fees and credit card fees. We also expect growth from corporate fees given the loan growth and syndication loan fees. For credit cost, our expectation is to maintain at around 20 to 22 basis points, which is the regular level.
For cost income ratio, our target is around 57% for this year. On the left side, for recurring yield, our outlook is 3.27% for recurring yield. For cost of liability, we expect at 3.13% for cost of liability. For hedging cost, because the depreciation of NTD Taiwanese dollars, our outlook is 58 basis points in this year. We also expect our AUM, the investment asset, to grow by 5%. That's all for the outlook guidance. Now we can start Q&A session.
Yes. Thank you, Ms. Chiu. Ladies and gentlemen, we will now begin our question- and- answer session. If you wish to ask a question, please press 01 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 02. Thank you. Now please press 01 to ask the question. Thank you. The first question is coming from Caprice Nahi of Goldman Sachs. Go ahead, please.
Thank you for taking my question. For the NIM guidance regarding 2022, can you also tell us if the interest rates remain at this level that you forecast, then what would be the net interest margin in 2023 and 2024? I assume that the NIM the year two effect can be higher than the year one. Any guidance on that?
Our estimation for the NIM in 2023 is 1.6%. You are right, for 2022, the impact of the rate hike will not be fully reflected on our book yet. In 2023, if there is no further rate hike, the NIM for 2023 will be 1.60%.
Okay. Thank you. One more question regarding the cost to income ratio guidance of around 57%, is this excluding the ESOPs?
No. That already includes ESOP. It's all in.
Okay. Understood. Thank you very much. That's all my questions.
Thank you. Next we'll have Jemmy Huang of JP Morgan for questions. Go ahead, please.
Yeah. Hi. Thanks. A couple of questions from me. I think the first one is also on the cost income ratio. When you say the 57% includes the ESOP, what's the assumption behind? What's the amount that you assume related to ESOP? That's linked to share price performance. The second question is on the bank. Earnings upstream this year from CTBC Bank is only around 40% of the reported earnings, but I do understand you have some OCI losses. If we take into account that, what's the percentage of your earnings upstream from CTBC Bank on the distributable earnings from? The third question is, you mentioned in the Chinese session that you made announcement to upstream earnings from Taiwan Life, but I cannot find the announcement. Could you give some color, how much of earnings you apply to upstream?
During the process, is regulator approved the original amount that you apply, or it's a compromise levels after negotiation? The final question is on the book value at Taiwan Life. I think you mentioned URCG was around NTD 16 billion by the end of last year. Majority is equity. Could I assume, even on the fixed income side, it's also unrealized gain carried by the end of last year? How that has been migrating year- to- date? Presumably, it's facing some mark-to-market losses. Just not sure whether you are still carry unrealized gains on your fixed income portfolio year- to- date. Thanks.
For cost income ratio, 57%, which already include ESOP. The assumption in this estimation is the amount of ESOP is around NTD 1.6 billion, which is lower than that in last year. For Taiwan Life upstream dividends, actually, we had submitted the application to the IB, Insurance Bureau yesterday. We are waiting for their official approval. We will get Taiwan Life's board to approve in May. After Taiwan Life's board approves, we will make the official announcement. In the application, the amount is what we expected, which is 20% of the net income of Taiwan Life.
For unrealized gain, at the end of last year, for fixed income position is around NTD 1 billion. For equity position, it's around NTD 15 billion. At the end of February, fixed income position is about NTD -11 billion, equity position is near NTD 0.5 billion.
I see. Thank you. Just another question hasn't been answered is the bank, the upstream.
Yeah. I was going to answer this question now. For bank, the net income is NTD 29.8 billion, around NTD 30 billion. We reserve 30% for legal reserve. Around another 30% is for the CTA, the special reserve. We upstream about 40%, the number you mentioned. Almost all the distributable income to holding company.
For the 30% special surplus, is that due to also mark-to-market losses on the fixed income side and also the FX? May I know for the FX losses, is that mainly due to Japanese yen or any other currency?
For the 30% of special surplus, most of these figures is for FX. This is for all the investment in overseas operations, including subsidiaries and branches.
I see. Thank you.
Thank you. If you would like to ask the question, please press zero one on your telephone keypad. Thank you. The next question is from John, Credit Suisse. Go ahead, please.
Sure. Thank you. I have two follow-up questions from the Chinese session earlier. The first one is, during Chinese session, you gave a credit cost guidance of 20 basis point-22 basis points. Want to check if this include credit cost assumptions for the additional LH Financial Group, because based on the number we see on NPLs information, it looks like the implied credit cost for that business should be higher. So just wondering if that 20 basis point-22 basis point is really inclusive of a higher credit cost from LH Financial Group. The second question is on the dividend guidance. During the call, you mentioned that it depends, even assume Taiwan Life can continue to upstream and you can grow your bank earnings, payout will depend on growth need and double leverage. On the double leverage ratio, is there a target, say 115%, that you target to maintain throughout 2025?
There's no strict ceiling or target that you set for double leverage? Thank you.
For double leverage ratio target, our internal target is 120%, regulation is 125%, as you have already know. For the credit cost, 20 basis point- 22 basis point, it is for regular provision. For LH, as you mentioned, LH now is under pressure from Bank of Thailand to have additional reserve for their relief program. This part has not been finalized yet, so we have not included this figure in this guidance. Yes.
If I may follow up on this, how big would that additional provision be, and the timing for you to take that provision? Will it be in 2022, I presume?
Probably will be around THB 0.5 billion-1 billion.
Okay. Timing is going to be in 2022, right?
Yes.
Okay. Thank you.
Thank you. We are now in question- and- answer session. If you would like to ask a question, please press 01 on your telephone keypad. Thank you. Please press zero one on your telephone keypad if you would like to ask a question. Thank you. If you would like to ask a question, please press zero one on your telephone keypad. Thank you. Okay, there appears to be no further questions at this point, and that will be the end of the conference. We thank you for your participation in CTBC Financial Holding Company's conference call. You may now disconnect. Goodbye