Welcome everyone to CTBC Financial Holding Company's 2021 third 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 a question. To begin, host will be Ms. Ya-Ling Chiu, CFO and spokesperson of CTBC Financial Holding Company, and Mr. Pai-Hung Yeh, Executive Vice President of Taiwan Life Insurance Company. The presentation will begin now.
Thank you everyone for joining CTBC third quarter 2021 earnings call. Please turn to page three on financial highlights. CTBC Holding reported record profits of TWD 46.5 billion in the first nine months, supported by resilient earnings growth at CTBC Bank and Taiwan Life. ROE and ROA reached 16% and 0.93% respectively. EPS was TWD 10.33. Holding remained well capitalized with CAR at 134% and double leverage ratio at 115.7%. Total lending increased 7%, led by strong domestic corporate loans, mortgage, and unsecured consumer loans. Strong pickup in wealth management fees supported income growth of 9% year-over-year. Data quality remains stable with NPL ratio at 0.2% in 3Q, and credit costs remained benign at 21 basis points in the first nine months. Capitalization remains strong with CAR at 14.9% and CET1 ratio at 12.3%.
Taiwan Life reported solid after-tax profit growth of 42% year-over-year, as investment income remained decent, with dividend income coming in in 3Q, and cost of liabilities and hedging costs improved in the first nine months. RBC ratio was strong at 381%. Page four on recent developments. On LHFG, CTBC Bank has increased its holding in Thailand's LHFG to 46.6% in September this year, and is now the single largest shareholder. In October, we gained control of a majority of LHFG for formally making LHFG a subsidiary of CTBC Bank. We also appointed chairman of the board and key senior managers. Going forward, LHFG will continue to leverage our overseas platform to provide expanded financial services to Taiwanese and foreign corporates in Thailand, as well as to help Thai corporates expand overseas. LHFG will also further penetrate consumer banking with CTBC support.
On ESG, the holding is the first financial institution in Asia to disclose finance emissions by adopting PCAF methodology. CTBC Bank's sustainability bond was the first in Taiwan to be included in the sustainable bonds database of the International Capital Market Association. In July, the holding and Hon Hai Group signed an MoU to raise an electric vehicle fund aiming at TWD 10 billion. As the only GIIN member in Taiwan, we recently sponsored the first Taiwan Impact Investing Forum in November. CTBC Holding's ESG rating is rated double A by MSCI, and it's a constituent stock of the MSCI Taiwan ESG Leaders Index. DJSI has a World and Emerging Markets Index and FTSE4Good Index series. Page five and six on profitability. Holding's first nine months, net income was TWD 46.5 billion, EPS was TWD 10.33. Group ROE was 16% and ROA was 0.93%. Page seven on capital ratio.
We remain well capitalized with group CAR at 134%, Life RBTS ratio at 381%, and CAR at 14.9%, and Tier 1 ratio at 13.5%. Page eight on profit breakdown by entities. In Q2, bank net profit reached TWD 8 billion, up 16% QoQ, mostly driven by solid growth in wealth management fees and trading income. Life pre-tax profit was up 5% QoQ, supported by dividend income and lower hedging costs, while net income was TWD 6 billion, down 4% QoQ. As well as with tax income in 2Q.
Holding's consolidated net profit was TWD 13 billion, down 5% QoQ. In the first nine months, bank net profit reached TWD 22.8 billion, up 7% YoY. Life profit was TWD 22.6 billion, up 42% YoY. Holding reported consolidated net profit of TWD 46.5 billion, up 29% YoY. On the table on the right, Life and Bank each contributed 49% to Holding's first nine months profit.
Securities and other subsidiaries reported decent profit growth and contributed 2% to Holding's profit. Page nine on net profit movements. In 3Q, operating revenue was up 7% QoQ, supported by growth in net interest income, fee income, and trading gains. Provisions increased 41% QoQ due to increases in provisions for retail business and TSP. Expense was up 3% QoQ. As for Life, 3Q pre-tax profit was up 5%. Holding both tax on distributed earnings in 3Q and reported net income of TWD 13 billion, down 1% QoQ. On the bottom, for the first nine months, operating revenue was up 5% YoY, supported by sustained growth in net interest income, wealth management fees, and trading gains at the securities and venture capital subsidiaries. Provisions were down 39% YoY due to lower specific provisions. Expense was up 10% YoY, mostly on higher ESOP valuation.
Life pre-tax profit was up 42% YoY, supported by decent investment income and improved cost of liabilities and hedging costs. Overall, holding pre-tax profit reached TWD 53.4 billion, and net income reached TWD 46.5 billion, up 29% YoY. Page 10, on revenue breakdown excluding life. Total revenue was up 7% QoQ and 5% YoY. Net interest income was up 2% QoQ and YoY due to sustained loan growth. Fee income was up 14% QoQ, mostly driven by strong recovery in wealth management fees as COVID restrictions have loosened since 3Q. First nine months, fee income was up 11% YoY, contributing to stable growth in wealth management and lottery fees. Moreover, securities and investment trust subsidiaries observed growth in fee income as business grew. Combined derivative, FX, and trading gains was up 20% QoQ due to derivative income and higher trading income from derivatives.
It was up 6% YoY, supported by trading gains at BT and securities subsidiaries. Long-term investment and other income was down QoQ and YoY as lottery rebates to Ministry of Finance increased QoQ, and the holding and AMC subsidiary booked property disposal gains last year. Page 11 on bank's loan breakdown. Total lending with credit card revolving was up 1% QoQ and 7% YoY. Excluding FX impact, total lending was up 10% YoY. NT dollar corporate loan was up 3% QoQ on growth from construction of real estate, government-related, and commerce and service sectors. NT dollar corporate loan was up 28% YoY, driven by increased demand in working capital, mainly from government-related and commerce and service sectors. Foreign currency loan was down 1% QoQ and 8% YoY. Excluding FX, foreign currency loan was down 2% YoY.
Small business continued to grow 1% quarter-over-quarter and 9% year-over-year amidst a slow property market. Unsecured lending was up 10% quarter-over-quarter and 16% year-over-year, attributing to our strategy that expands customer base and participation in the labor relief program led by the government this year. Credit card revolving and others were up 1% quarter-over-quarter and 4% year-over-year. Page 12 on foreign currency loan breakdown. Foreign currency loan was TWD 917 billion, which accounted for 34% of total loans. Overseas subsidiaries accounted for 55% of total foreign currency loans, with PSB being the majority. Overseas branches accounted for 63%. OBU plus DBU was 12%. Overseas subsidiaries loan was down 13% year-over-year. Excluding FX, overseas subsidiaries loan was down 5%, mainly due to repayment from corporate clients and moderated loan growth demand at PSB. Overseas branch loan was down 1% year-over-year.
Excluding FX, overseas branch loan was up 10% as most overseas branches observed loan growth momentum to resume except Singapore branch. Vietnam, New York, India, Tokyo, and China branches reported double-digit growth. OBU plus DBU was down 6% year-over-year. Excluding FX, OBU plus DBU loan was up 1%, driven by growth in trade finance. Page 13 on bank deposit mix. Total deposits reached TWD 3.9 trillion, up 2% quarter-over-quarter and 8% year-over-year. On the left, total NT dollar deposits were up 4% quarter-over-quarter and 14% year-over-year. NT dollar savings accounted for 63%. On the right, total foreign currency deposits were flat quarter-over-quarter and up 1% year-over-year. Foreign currency savings accounted for 58%. Page 14 on loan deposit ratio. Overall LDR was 70.7%. NT dollar LDR was 77.7%. Foreign currency LDR was 60.5%. Page 15 on NIM and spread.
In 3Q, foreign currency spread was 2.18%, up 20 basis points quarter-over-quarter, reflecting lower interest deposit rates and a lending yield improvement at certain overseas branch. NT dollar spread and overall spread were flat quarter-over-quarter at 1.51% and 1.75% respectively. 3Q NIM was stable quarter-over-quarter at 1.39%. Page 16 on fee breakdown. Total fees were up 18% quarter-over-quarter and 9% year-over-year. Wealth management fee was up 23% quarter-over-quarter as recent performance in capital markets and the easing of COVID restrictions supported business momentum. First nine months, wealth management fee was up 21% year-over-year as the level of volatility in capital markets moderated compared to the same period last year. Mutual fund fees were up 11% year-over-year, while bank assurance fees were up 29% year-over-year. Credit card fee was down 11% quarter-over-quarter as rebound on domestic consumptions push up commissions as well as credit card rebates.
First nine months, credit card fee was down 6% year-over-year. Retail business was up 7% quarter-over-quarter as ATM fees increased and down 1% year-over-year, mostly due to fee waivers offered during COVID-19 level three alert. Corporate business was up 8% quarter-over-quarter, driven by trust fee, and up 1% year-over-year driven by increases in trust, transfer agent, and custodian fees. Overseas subsidiary fee was down 6% quarter-over-quarter as retail business fee declined at GSP and certain overseas subsidiary booked early repayment fee in Q2. Overseas subsidiaries fee was down 6% year-over-year due to decline in loan-related fees at GSP. Delivery fee was up 77% quarter-over-quarter due to high price, and up 2% year-over-year due to record high sales in Chinese New Year despite adverse impact from COVID in Q2. Page 17 on wealth management fee.
For wealth management fee breakdown, bank assurance contributed 62%, mutual fund 27%, custodian and trust 3%, and others 8% to total wealth management fees. Page 18 on Cost-to-Income ratio. Bank operating revenue was up 11% QoQ and operating expense was up 6% QoQ, leading to a lower Cost-to-Income ratio at 56.6% in Q3. In the first nine months, Cost-to-Income ratio was 59%, higher compared to the same period last year, mostly due to higher ESG valuations. Page 19 on asset quality. NPL ratio was 0.4%, and NPL coverage ratio was 314.9%. Page 20 on credit cost. Q3 credit cost was 28 basis points, up 7 basis points QoQ due to higher provisions for retail loans and TSP. First nine months, credit cost was 21 basis points, down 15 basis points YoY from the same period last year, mostly due to lower specific provisions.
Moving on to Life & Health business. Page 21 on total premium. Total premiums were TWD 56.4 billion in Q3, up 26% QoQ. First nine months, total premiums were TWD 155.9 billion, up 3% YoY. Market share was 7%, ranked number six in the industry. Page 22 on first year premium. FYPs reached TWD 30.8 billion in Q3, up 38% QoQ. As sales of investment-linked and interest-sensitive policies increased. First nine months, FYPs were TWD 84.4 billion, up 36% YoY, mostly on growth in investment-linked products. Market share was 10.8%, ranked number three in the industry.
Page 23 on FYP breakdown by types of payment and products. On the left, mix of single pay products accounted for 20%, and regular pay products accounted for 14% of the FYPs. On the right is the product breakdown. Investment-linked products accounted for 66%, interest-sensitive policies 30%, traditional 1%, and health and PA 3% of FYPs.
Page 24 on FYP breakdown by channels and currency. In terms of channels, 71% of FYPs came from CTBC Bank, 17% from external banks, 7% from tied agents, and 5% from insurance brokers and others. On the right, investment-linked products accounted for 66%, foreign currency policy 29%, and NT dollar policy 5% of FYPs. Page 25 on FYPE. First nine months, FYPE was TWD 17.4 billion. Market share was 9.5%, ranked number four in the industry. On the right is the FYPE mix for your reference. Page 26 on invested asset mix. Total investment asset reached almost TWD 2 trillion. Taiwan Life reduced its cash holding and increased investments in overseas fixed income in Q3. In terms of portfolio breakdown, cash accounted for 5.9%, domestic fixed income 9.8%, overseas fixed income 60.6%, equities 8%, real estate 4.5%, mutual fund 8.5%, mortgage 1.5%, and policy loans 1.3%.
Page 27 on investment yield and cost of liabilities. In the first nine months, the current yield before hedge was 3.39%, and overall investment yield after hedge was 4.43%. Cost of liabilities was down 50 basis points YoY to 3.05%. Page 28 on hedging. On the left, 41% of overseas investment assets were foreign currency policy.
20% were fully hedged, 8% were OCI position, and 11% were unhedged. On the right, FX reserve amounted to TWD 1.8 billion as of 3Q. First nine months, hedging cost was 1.28%, 2% lower from the same period last year, mostly due to lower cost for hedging instruments. That concludes the presentation, and now we are open for Q&A session.
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. If you wish to cancel your question, you may press 02. Thank you. Now please press 01 to ask a question. Thank you. Our first question is coming from Chung Hsu of Credit Suisse. Go ahead, please.
Hi. Thank you. I have two questions. My first question is on the bank's P&L. I think there's quite a bit of an increase for trading in derivative FX income in the third quarter. Can we get a small breakdown how much of that is from mark to market and actual NDF, the realized gains? My second question is a follow-up from earlier Chinese session. Your expense increase, if a big part or a large part of it is because of ESOP. I think you mentioned it. Could you please confirm, Cost-to-Income ratio will be 3% less or lower if without ESOP, right? I think the year-over-year absolute OpEx increase would be 1% year-over-year. Just want to make sure I hear that correct. Thank you.
Chung, thanks for your questions. Let me answer the second one. Yes, if we exclude ESOP, the Cost-to-Income ratio will probably 3% less from 59%-56%. The general expense, excluding ESOP, grew by 1%-2%.
Okay. Can I follow up that? I think earlier in the Chinese session, you gave a rather optimistic outlook for the bank's operating income growth next year. What type of OpEx increase should we expect in 2022?
I think traveling is the one and the T&E. I think the major one is T&E and also the infrastructure investment for our overseas branches and subsidiaries. I think these are the major ones. Plus the regular FTE headcount increase. I think that's the major expense increase.
I presume the expense increase should trail or be less than your revenue increase, meaning Cost-to-Income ratio should be lower if we strip out the ESOP, correct? Is that correct?
Given the expectation of revenue increase, if there's no large investment, we should be expecting the improvement of Cost-to-Income ratio, yes.
Thank you.
As for the pickup in the trading and derivatives in the third quarter, it's mainly from the banking business. In the third quarter, we see other trading instruments, including interest and FX change products as in trading at the right direction, so that we are seeing the increase in trading from those products.
Thank you.
Thank you. If you would like to ask a question, please press 01 on your telephone keypad. Thank you. The next question is from Jemmy Huang of JP Morgan. Go ahead, please.
Yeah. Hi. Thanks for taking my questions. Just one question follow-up from the Chinese session that I don't think I get the answer in terms of how your business plan for LHFG in Thailand. I think in terms of how you want to achieve the ROE or ROIC in the coming years. Thanks.
Yeah. For LH, our business plan for the short term is to increase the banking customers by raising the benefit of the digital deposit product to attract customers to expand our customer base. Then we will cross-sell unsecured loans for lease customers. This is the short-term plan. For the long term, we will focus more on the retail business, which has higher yields. In this way, we expect we can improve the ROE for LH Bank or the whole group.
Is there any specific targets that you think the operation could achieve?
Hi, Jemmy. Are you referring to the earnings targets for LH Bank?
Kind of like ROE. Just trying to see, yeah, whether this can really be ROE accretive for the group.
Since the bank, we just increased our shareholding in September, now we just gained a majority of the board seat in October. Given that it's toward the end of the year, we are actually planning and also we are starting our budget now next year, we will check. When we are preparing the budget for 2022, we actually will review LH Bank and review their business plans as well. The new guidance will be more clear after we have completed our budget for 2022. As the CFO mentioned that since we already have operation in Thailand, for the current stage, we will continue to deepen our customer base in Thailand. For the domestic market, we would like to, through the digital channels, acquire more customers and increase the deposit base.
Further down the road, we hope that we can duplicate our experience in wealth management business in Taiwan and to catch up the fee business in Thailand as well. Also for the corporate business, since you know we have a most extensive network across Asia. In Thailand, there's a cluster of Taiwanese manufacturers and also Chinese corporates and Japanese corporates as well. We would like to expand our service to these customers, especially servicing their cross-border financial needs. That would be the initial plan. Of course, down the road, we would like to deepen into the local market as well. Jemmy, we did have a business plan before we decided to increase our shareholding. The ROE targets definitely will be above our hurdle, which is 9% or 10% in the next 5- 10 years.
Just like I mentioned, we want to build up the retail banking platform, and it takes time, and it needs some investment. In next, what we are looking is the ROE and earning in the next 5 - 10 years. The original business plan will be revised because our team had traveled to Thailand recently and to understand the local market situation. When they come back, I think we will revise the business plan. Maybe next year, in the beginning of next year, we have concrete numbers to show you.
Thank you. Yeah.
Thank you. Next we have Yifan Liu from Bank of America Securities for questions. Go ahead, please.
Okay. Thank you. Good afternoon. I have two questions. Firstly, on the recent central banks curbing the financing for the property market in Taiwan. I was wondering that how do we see the current level of ours at current stage, and how do we see the market that whether mortgage and construction loan will continue to be a season focus in 2022? That's the first question. The second question is that, I think in the Mandarin section that management mentioned that potential loan mix adjustment next year, focusing on SME and the consumer lending. Given that in third quarter, the FX loan actually make some progress in certain regions, if we also feel comfortable to also drive the FX lending into next year. Thank you.
For the loan mix, yes, foreign currency loan definitely is our target, our goal to grow. I have mentioned in the Chinese session that given the positive outlook of the global and Taiwan economics, we believe both NT dollar loan and foreign currency loan will grow in next year. Plus the product strategy, we will focus on consumer loans, some new consumer loan products, and small business loans. Overall, I think we would increase high-yield loans from foreign currency loans and consumer loans and small business loans. I think that's what I meant in the Chinese session. In short, yes, foreign currency loans definitely is in our targets. As for mortgage loans, I think the property market or housing market in Taiwan will still grow stably. Plus we have got the program to serve civil servants recently.
I think that's the driver to help us to grow mortgage. Based on the market and plus the program, we believe we will continue to grow our mortgage next year.
Okay, thank you.
Ladies and gentlemen, we are now in question and answer session. If you would like to ask a question, please press zero one on your telephone keypad. Thank you. Okay, ladies and gentlemen, there appears to be no further questions at this point. Thank you for all your questions. That would be the end of the conference. Thank you very much for your participation in CTBC Financial Holding Company's conference call. You may now disconnect. Bye.