Welcome everyone to CTBC Financial Holding Company's 2021 first 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, the 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's first quarter 2021 earnings call. Please turn to page three on financial highlights. CTBC Holding delivered a robust operating performance, with after-tax profit increasing 62% YoY. ROE and ROA reached 20.9% and 1.2% respectively. EPS was TWD 1.01. Holding remained well capitalized, with CAR at 128.3% and double leverage ratio at 115.3%. CTBC Bank maintained solid loan growth in domestic corporate loans, mortgage, and consumer loans, benefiting from economic recovery. Strong fee income growth came from positive business momentum in wealth management, retail, and lottery fees. While the COVID-19 impact on credit card fee moderating. For asset quality, NPL ratio was 0.48%, with credit costs of 14 basis points. Capitalization remains strong, with CAR at 14.8% and CET1 ratio at 12.1%. Taiwan Life reported strong after-tax profit growth of 143% YoY due to strong investment income and lower cost of liability.
It has adopted a dynamic hedging strategy and took additional FX reserves of TWD 1 billion in April to weather potential FX fluctuations. RBC ratio remains strong at 327%. Page four on ESG updates. CTBC Holding is the first financial institution in Taiwan to join the Partnership for Carbon Accounting Financials and serves as the Chair of PCAF Asia-Pacific. CTBC Bank is the first in Taiwan to issue a green bond, sustainability bond, and social bond. On governance, the holding is the first and only listed financial institution in Taiwan with independent directors filling majority of Board. It was recently ranked the top 5% in the seventh corporate governance evaluation by Taiwan Stock Exchange. CTBC Holding's ESG rating is rated A A by MSCI, and it's a constituent stock of the MSCI Taiwan ESG Leaders Index, DJSI World & Emerging Markets Index, and FTSE4Good Index Series.
Page five and six on profitability. Holding's first quarter net income was TWD 19.7 billion. EPS was TWD 1.01. Group ROE was 20.9%, and ROA was 1.2%. Page seven on capital ratio. We remain well capitalized with group CAR at 128.3%, Life RBC ratio at 327%, Bank CAR at 14.8%, and tier one ratio at 13.3%. Page eight on profit breakdown by entities. In 1Q, bank net profits reached TWD 8 billion, down 4% YoY. Life profits were TWD 10.3 billion, up 143% YoY. Holding's consolidated net profits were TWD 19.7 billion, up 62% YoY. From the table on the right, Life and Bank contributed 52% and 41% of 1Q earnings respectively. Securities and other subsidiaries reported decent earnings growth and contributed to 7% of Holding's earnings. Page nine on net profit movements. Operating revenue was up 14% QoQ, attributed to strong fee income growth and trading gains.
Provisions decreased, mostly due to lower specific provisions. Credit costs for 1Q declined to 14 basis points, down 19 basis points QoQ. Expense was up 6% QoQ, mostly on higher ESOP valuations. As for Life, 1Q pre-tax profits increased as cost of liability continued to decline and investment income increased amidst strong capital markets movement. On the bottom, operating revenue was up 12% YoY, supported by growth in wealth management, retail, and lottery fees and trading gains. Provisions were down 53% YoY due to lower specific provisions. Expense was up 23% YoY, mostly on higher ESOP valuations. Life pre-tax profits were up 166% YoY, supported by increased investment income and declining cost of liability. Overall, Holding's pre-tax profits reached TWD 22.6 billion, and net income reached TWD 19.7 billion, up 62% YoY. Page 10 on revenue breakdown excluding Life. Total revenue was up 14% QoQ and 12% YoY.
Net interest income was flat QoQ and down 2% YoY, as rate cuts impacted net interest margin. Fee income was up 25% QoQ, driven by better wealth management, lottery, corporate, and overseas subsidiary fees. Fee income was up 13% YoY, supported by growth in wealth management, retail, lottery, securities, and investment businesses. While the impact on credit card fees from the pandemic was moderating. Combined derivatives, FX, and trading gains was up 127% QoQ on higher trading income from bond investment. Combined derivative, FX, and trading gains was up 72% YoY due to higher income related to equity investment amid positive capital market movement. Long-term investment and other income declined QoQ due to higher lottery rebates to MOF in 1Q. Long-term investment and other income was up 37% YoY as income from LHFG recovered. Page 11 on banks loan breakdown.
Total lending with credit card revolving was up 3% QoQ and 4% YoY. NT dollar corporate loan was up 12% QoQ, driven by growth in government-related and commerce and service sectors. NT dollar corporate loan was up 9% YoY, mainly from growth in government-related commerce and services and financial sectors. Foreign currency loan was down 2% QoQ and 9% YoY. Excluding FX, foreign currency loan was down 3% YoY. Mortgage continued to grow 2% QoQ and 11% YoY as transaction volumes in property market continued to grow. On secure lending, was up 1% QoQ, attributing to our strategy that expands customer base, and up 32% YoY due to increased customer base and the participation in labor relief program led by the government. Credit card revolving and others were flat QoQ and up 6% YoY. Page 12 on foreign currency loan breakdown.
Foreign currency loan was TWD 955 billion, which accounted for 37% of total loans. Overseas subsidiaries accounted for 56% of total foreign currency loan, with TSB being the majority. Overseas branches accounted for 31%. OBU plus DBU was 13%. The demand for foreign currency loans moderated mostly due to the pandemic. Overseas subsidiaries loan was down 10% YoY. Excluding FX, overseas subsidiary loan was down 4%. Overseas branch loan was down 8% YoY. Excluding FX, overseas branch loan was down 3%, despite double-digit growth from China, India, and Vietnam branches. OBU plus DBU was down 5% YoY. Excluding FX, OBU plus DBU loan was up 1%, driven by growth in syndication and trade finance. Page 13 on bank deposit mix. Total deposit reached TWD 3.8 trillion, up 1% QoQ and 10% YoY. On the left, total NT dollar deposits were up 4% QoQ and 15% YoY.
NT dollar savings accounted for 61%. On the right, total foreign currency deposits were down 3% QoQ and up 4% YoY. Foreign currency savings accounted for 55%. Page 14 on loan to deposit ratio. Overall, LDR was 69.7%. NT dollar LDR was 75.9%. Foreign currency LDR was 61.5%. Page 15 on NIM and spread. 1Q NIM was down 1 basis point QoQ to 1.39%, mostly due to impact on marketable securities from rate cuts and lower LDR. Foreign currency spreads were up 2 basis points QoQ to 2.15% as the bank lowered FX deposit rates. Overall spreads were up 1 basis point QoQ to 1.78%. Page 16 on fee breakdown. Total fees were up 27% QoQ and 10% YoY. Wealth management fee was up 15% QoQ and 24% YoY, driven by strong sales of mutual funds and investment-linked products amid positive sentiment in the capital markets.
Consequently, mutual fund fees were up 14% QoQ and 21% YoY, while bank assurance fees were up 14% QoQ and 27% YoY. Credit card fee was down 8% QoQ due to higher credit card commissions on recovered domestic consumptions in last quarter. Credit card fee was up 1% YoY as consumptions pick up. Retail business was up 1% QoQ and 6% YoY as retail loan growth trigger increase in fees. Corporate business was up 32% QoQ, driven by syndicated loan and trust fees, and down 21% YoY, mainly due to shrinkage of syndicated loan fees. Overseas subsidiary fee was up 9% QoQ as fees related to corporate business increased at TSB, and down 23% YoY due to decline in loan-related fees from TSB. Lottery fee was up 169% QoQ and 16% YoY due to seasonal Chinese New Year effect. Page 17 on wealth management fee.
For wealth management fee breakdown, bank assurance contributed 55%, mutual fund 34%, custodian trust 3%, and others 8% of total wealth management fees. Page 18 on cost income ratio. Bank operating revenue was up 11% QoQ, and operating expense was up 8% QoQ, leading to a lower cost income ratio at 60.8% in 1Q. Cost- to-income ratio was higher compared to the same period last year, mostly due to higher ESOP valuations. Page 19 on asset quality. NPL ratio was 0.48%, and NPL coverage ratio was 270%. Page 20 on credit cost. 1Q credit cost was 14 basis points, down 19 basis points QoQ from 4Q, and 17 basis points YoY from the same period last year, mostly due to lower specific provisions. Moving on to life business. Page 21 on total premium. Total premiums were TWD 54.7 billion in 1Q, down 6% QoQ and 9% YoY.
Market share was 7%, ranked number six in the industry. Page 22 on First Year Premium. FYPs reached TWD 31.1 billion in 1Q, up 12% QoQ and 33% YoY, mostly on growth in investment-linked products. Market share was 11%, 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 12%, and regular pay products accounted for 15% of FYPs. On the right is the product breakdown. Investment-linked products accounted for 73%, and interest-sensitive policies accounted for 23% of FYPs. Page 24 on FYP breakdown by channels and currencies. In terms of channels, 70% of FYPs came from CTBC Bank, 13% from external banks, 8% from tied agents, and 5% from insurance brokers and others. On the right, investment-linked products accounted for 73%, foreign currency policy 21%, and NT dollar policy 6% of FYPs.
Page 25 on FYPE. FYPE reached TWD 7 billion. Market share was 11%, ranked number four in the industry. On the right is the FYPE mix for your reference. Page 26 on investment asset mix. Total investment assets reached TWD 1.95 trillion. Taiwan Life reduced cash and mutual fund positions and increased overseas fixed income and real estate holdings. In terms of portfolio breakdown, cash accounted for 4.6%, domestic fixed income 10.8%, overseas fixed income 60.7%, equities 7.9%, real estate 4.6%, mutual fund 8.8%, mortgage 1.4%, and policy loans 1.3%. Page 27 on investment yield and cost of liability. In 1Q, recurring yield before hedge was 3.57%, and overall investment yield after hedge was 5.45%. Cost of liability was down 35 basis points YoY to 3.05%. Page 28 on hedging mix.
On the left, 40% of overseas investment assets were foreign currency policies, 36% were fully hedged, 8% were OCI position, and 15% were unhedged. On the right, FX reserve amounted to TWD 2.5 billion as of 1Q. Taiwan Life has adopted a dynamic hedging strategy and set aside additional FX reserve of TWD 1 billion in April to weather potential NT dollar fluctuation. 1Q hedging cost was 1.32%, higher from the same period last year due to NT dollar appreciation and increased costs for hedging instruments. Next, we move on to Taiwan Life's end 2020 EV report. Page 30 on EV. EV reached TWD 225.4 billion, of which adjusted net worth was TWD 123.4 billion. Value of in-force business before cost of capital was TWD 146.2 billion, and the cost of capital was TWD 44.2 billion.
EV is TWD 40.3 per Taiwan Life share and TWD 11.6 per CTBC Holding share. Page 31 on EV assumptions. Investment yield for NT dollar policies starts from 3.57% in 2021 and will rise gradually to 4.03% in 2040. Investment yield for U.S. dollar policies starts from 4.32% in 2021 and will rise gradually to 5.04% in 2040. Discount rate applied was 10%. RBC capital requirement remained at 200%. PwC has provided an independent review on EV assumptions. Page 32 is EV sensitivity provided for your reference. Page 33 on EV comparison. EV increased by TWD 16.6 billion YoY, as adjusted net worth increased by TWD 15.4 billion, and VIF increased by TWD 1.4 billion in 2020. Page 34 on adjusted net worth movement. Adjusted net worth increased to TWD 123.4 billion, mainly due to profits of TWD 16.5 billion in 2020. Page 35 on VIF movement.
The increase in VIF was due to VNB of TWD 11.2 billion, a release of 2020 expected profits and interest rolling forward of TWD 2.8 billion, and offset by investment yield assumption change of TWD 7.2 billion and other changes of TWD 5.3 billion. Page 36 on VNB movement. The increase in VNB was driven by sales volume change of TWD 0.8 billion and offset by product mix change of TWD 4.2 billion and investment yield and other assumption changes of TWD 1.1 billion. This will conclude the presentation.
Hi. Afternoon, everyone. This is Ya-Ling. Before we start Q&A session, I would like to update you that our outlook for this year remains unchanged, just the same as last time we provided. In terms of the impact of recent outbreak of COVID in Taiwan, here is our view. First, most of our corporate clients' product are for export, which will not be impacted by domestic situation. Secondly, credit card spending would drop, and wealth management fees might decrease. We have done an estimation according to the historical data last year. The impact will be very insignificant if COVID can be contained by the end of June. Revenues that could be affected the most are trading gains from domestic equity market. However, we haven't seen any significant plunge on Taiwan stock market yet so far.
In short, the impact of recent COVID outbreak will be very insignificant if Taiwan can contain COVID by the end of June. Okay. This is a very simple update, then we can start Q&A. Thank you.
Yes. 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. Now please press zero one if you would like to ask the question. Thank you. The first question is coming from Jemmy Huang, JP Morgan. Go ahead, please.
Yeah. Hi, thanks. I have two questions here. First one is on the credit cost for the banks. I think that the first quarter is tracking much lower than your full year targets. Should we expect there could be some positive surprise on credit cost or you think the overall credit cost will still be trending up if your loan growth momentum to pick up in the coming quarters? Or, w here you probably will see individual corporate cases to come in the second half of this year. Then the second question is on Taiwan Life. Could we get some idea about how you expect the VNB growth would be for 2021? Even if you have a very strong growth on the investment-linked products, then supposedly the VNB growth may be much lower than the FYP growth. Thanks.
For the first question about credit cost on banking side. First quarter, the 14 basis points is lower than our outlook guidance. That was because there are some reversal of some cases in the first quarter. Actually, up to April, the overall credit cost was 20 basis points. We still remain our outlook for this year at 20 basis points- 25 basis points. Thank you.
For Taiwan Life, due to the percentage of unit-linked is high currently, we expect growth rate for VNB is single-digit growth. Thank you.
For VNB to grow single-digit, what is the assumption behind your FYP growth this year? Thank you.
FYP growth, around 20% growth for FYP.
Got it. Thank you.
Thank you.
Please press zero one if you would like to ask the question. Thank you. The next question comes from Chung, Credit Suisse. Go ahead, please.
Hi. Yeah. I just have a follow-up question on Taiwan Life. I am not sure if I got the correct number from the Chinese session. Can you give us a sequential change or potential decline in cost of liability for Taiwan Life into year-end? I think I heard 3.06%. I think in the first quarter it was 3.05% already. I assume that this cost liability will continue to decline into year-end. Just want to make sure that, I will double check the number. Also on your recurring yield, given potentially a better control FX hedging cost this year, and also increase in bond yield, just want to get a sense of what your expectation or guidance for recurring yield on Taiwan Life. Thank you.
For cost of liability, currently, the number is a little bit better than our expected. Due to the investment yield for U.S. dollar is higher, around 50 basis points than the end of last year. If we would like to sell more U.S. dollar policy, we should have a competitive crediting rate. For FYP, for new business, we possibly to consider to increase the crediting rate. According to our outlook, we expect the cost of liability is 3.46% right now. For recurring yield, our outlook maintains the 3.26% for the whole year. It's our expectation. Although currently the U.S. dollar investment yield is higher, for May, it decreased 10 basis points or more. Still fluctuations, so we maintain the outlook. Thank you.
Okay. Can I just follow up on your FX hedging cost? I understand that you took TWD 1 billion extra FX reserve in April. If we look at this on a year-over-year basis, should we expect a hedging cost to be lower, or you will use stronger than expected investment income so far this year to set aside more FX reserve?
We observed that for the cost of instrument is getting lower than last quarter. After we renew the hedging instrument, we'll have a lower cost. The NDF cost is around 4.7% for the first quarter. Still very high, so we using increased reserve to tame the fluctuation. After we increase the reserve and renew the instrument by using lower cost, we expect for the whole year, the hedging cost. Our outlook still maintain the 1.11%. Thank you.
1.11%. Okay. All right. Thank you.
Next we'll have Brooksley Kang of Bank of America Securities for questions. Go ahead, please.
Hi. Hello. Thank you. I have a question on bank, mainly on credit card. If the virus infection outbreak in Taiwan cannot be fully contained before end of June, what are types of credit card spending that will be negatively impacted? If that will be similar to what we have seen back in first quarter, second quarter in 2020. Under the situation, if it's fair to say that the credit card fee level this year will not be lower than in 2020? Thank you.
For credit card fee incomes, yes, even we incorporate the impact of the recent COVID outbreak domestically, we don't expect credit card fee will lower than that in last year. At least it will be flat, or originally, we expect will be higher than last year, but it would depends on the situation of the COVID now. Thank you.
Okay. Thank you.
There appears to be no further questions at this point. Now I hand it over to Ms. Ya-Ling Chiu for closing comment. Go ahead please, Ms. Chiu. Thank you.
There's no any further questions. Thank you for joining the 2021 first quarter Analyst Meeting. We'll see you next quarter. Thank you.
Yes. Thank you, Ms. Chiu. Ladies and gentlemen, we thank you for your participation in CTBC Financial Holding Company's conference call. You may now disconnect. Stay safe and goodbye.